14 Items to note

Appendix A: ISSB General Update

ISSB's May 2023 Board meeting

A1The ISSB met in London on 18 May 2023 and discussed the following items:

SASB Standards

A2The ISSB Staff sought ratification from the ISSB of consequential amendments to the SASB Standards in connection with the issuance of IFRS S2 – Climate-related Disclosures (S2) and asked the ISSB to confirm it is satisfied that it has complied with the applicable due process requirements to publish the climate-related revisions to the SASB Standards.

A3The ISSB Update with the tentative decisions made at the ISSB's May 2023 meeting can be found here.

ISSB's June 2023 meeting

A4The ISSB is due to meet from 19-23 June 2023 in Montreal, Canada. However, the ISSB noted that it will not hold any technical discussions in June 2023, due to its focus on preparing for launch of IFRS S1 and IFRS S2 and outreach on its two open consultations.

Other ISSB Updates

A5The World Economic Forum (WEF) and ISSB have partnered¹ to compile learnings on early sustainability reporting efforts. The key points discussed were:

1. A group of sustainability professionals focused on sharing best practices and practicalities of adopting ISSB Standards to be convened.
2. This new group will provide insights and examples to ISSB after the release of ISSB standards at the end of June.
3. Collaboration to build on the Forum's Stakeholder Metrics initiative and previous work with the IFRS Foundation, supported by a new Memorandum of Understanding (MoU) between the WEF and the ISSB.

A6The ISSB Sustainability Consultative Committee meeting² was held on 2 June 2023 to discuss the ISSB Consultation on Agenda Priorities and associated Request for Information (Rfl).

A7The ISSB will be providing an update³ on its activities to the joint CMAC-GPF meeting that will take place on 15 June 2023.

A8The ISSB technical staff has produced a webcast⁴ on the consultation on the ISSB's next two-year work plan. The Request for Information is open for comment until 1 September 2023. Agenda item 6 of the June 2023 UKEB meeting relates to our draft comment letter to this consultation.

IFRS Foundation updates

A9The IFRS Foundation Trustees (Trustees) and the IFRS Foundation Monitoring Board (Monitoring Board) have agreed⁵ to an updated MoU. The updates to the MoU reflect developments in the work of the IFRS Foundation, most notably the establishment of the ISSB as a sister board to the IASB.

ISSB due process

A10The IFRS Foundation Trustees will meet with the Due Process Oversight Committee on 13 June 2023 to provide an update⁶ on the activities of the ISSB since March 2022. The key matters to be discussed are:

1. Deliberations on [draft] IFRS S1 (General Sustainability-related Disclosures) and [draft] IFRS S2 (Climate-related Disclosures);
2. ISSB Consultation on Agenda Priorities;
3. Industry-based materials;
4. Development of the IFRS Sustainability Disclosure Taxonomy;
5. Supporting implementation; and
6. Work of the ISSB Consultative Groups.

A11The Trustees will also consider how to enhance communications about the ISSB's Due Process in the period until the DPOC completes its revisions to the IFRS Foundation's Handbook to formally reflect the ISSB's establishment⁷. The Staff Paper advises that is also important to clarify to stakeholders that the existing due process allows the IASB and the ISSB “to establish connectivity in their respective Standards". In addition, if considered appropriate, it would allow them to consider technical matters together or undertake a joint project and jointly issue a due process document.

Educational material for IFRS for SMEs stakeholders on climate-related matters

A12The IFRS Foundation published educational material⁸ to illustrate how the IFRS for SMEs Accounting Standard requires companies to consider climate-related matters that have a material effect on the financial statements. This was in response to the feedback that identified interest in the potential effects of climate-related matters on SMEs' financial statements is growing among users of those statements.

ISSB seeking feedback for enhancing the international applicability of the SASB Standards

A13The ISSB is seeking⁹ feedback on its proposed methodology for enhancing the international applicability of the SASB Standards. The consultation is open for comments, preferably by online survey, until Wednesday 9 August 2023. The ISSB's objective is to revise the metrics within the SASB Standards, based on the outcomes of the consultation, prior to IFRS S1 coming into effect in January 2024. As this project is outwith the scope of the UKEB we will not be responding.

IFRS Advisory Council meetings

A14The April 2023 IFRS Advisory Council meeting summary has been published¹⁰. In relation to the ISSB activities, the Council members focused on several topics that included: capacity building, interoperability, proportionality, and assurability. An overview of the planned approach for facilitating market acceptance of the ISSB's sustainability standards was also discussed.

A15The IFRS Advisory Council met with the ISSB¹¹ on 8 June 2023. The ISSB provided an overview of their Consultation on Agenda Priorities and the associated (Rfl) and sought the Advisory Council's feedback on the three key aspects of the Rfl.

UK updates

A16The Department for Business and Trade (DBT), working with the Financial Reporting Council (FRC), the UK regulator for corporate reporting, is conducting¹² a review of the non-financial reporting requirements UK companies need to comply with to produce their annual report.

A17The review will also consider if current company size thresholds (micro, small, medium and large) that determine certain non-financial reporting requirements, and the preparation and filing of accounts with Companies House, remain appropriate. This call for evidence is the first stage of the review process.

A18The Taskforce on Nature-related Financial Disclosures (TNFD) has released¹³ its fourth and final beta framework for nature-related risk management and disclosure.

International Updates

A19The European Financial Reporting Advisory Group (EFRAG) has published a draft comment letter (DCL)¹⁴ in response to the ISSB's Request for Information (Rfl) on its Agenda Priorities. The DCL suggests the ISSB prioritise:

1. a clear direction of travel with a definition of the universe of sustainability-related information to be ultimately covered and of the corresponding underlying concepts;
2. interoperability in structure and content with other sustainability reporting standards; and
3. connectivity to be included as a topic in the standard setting workplan, together with the topical standards.

A20The Malaysia's Joint Committee on Climate Change (JC3) has committed¹⁵ to incorporating the International Sustainability Standards Board's (ISSB) planned climate disclosure standards into its guidance to financial institutions.

A21The Malaysian Accounting Standards Board (MASB) has recently published¹⁶ an article Loose Connection – The Gap between Financial and Sustainability Reporting.

A22The Australian Securities and Investments Commission (ASIC) Chair, Joseph Longo, said¹⁷ the practice of 'green hushing' allows companies to claim to have good environmental, social and governance (ESG) policies without having them tested.

Due Process Compliance Statement: Lease Liability in a Sale and Leaseback—Narrow-scope Amendments to IFRS 16

Endorsement process

General UKEB requirements: The UKEB adopts international accounting standards for use within the UK, in accordance with SI 2019/685, and applies its own processes before it decides whether to adopt a new or amended international accounting standard.

Work plan [Handbook 4.30(d)]

Project preparation [Handbook 6.12-6.16]

Communications

Desk-based research [Handbook 6.17]

Outreach activities [Handbook 6.18-6.22]

Draft Endorsement Criteria Assessment (DECA) [Handbook 6.23-6.29]

Project closure [Handbook 6.30-6.48]

Conclusion

This document sets out the main due process activities performed as part of the UKEB's project to endorse the Amendments. Overall, this project complies with the applicable due process steps, as set out in the Handbook at the time of writing.

Appendix C: Intangibles research: project update

Executive Summary

Purpose of the paper

This paper outlines amendments to the previous Project Initiation Plan (PIP) for the Intangibles Research project to account for temporary reallocation of resources to other projects. It also provides an update to the Board on the UKEB's intangibles research output for the first phase of intangibles research.

Summary of the Issue

This paper amends the PIP approved by the Board in October 2022 to account for resources being temporarily reallocate to other projects. The quantitative research report was scheduled to complete in H2 2023, this has been moved to Q1 2024. Currently no changes are proposed to the timeline for the survey of investors.

This paper also provides an update on the three outputs from the intangibles research project specifically:

1. The qualitative research published in March 2023 - the paper updates the Board on its dissemination among relevant stakeholders
2. The quantitative research - the paper updates the Board on the progress made.
3. The investor survey research - the paper updates the Board on the progress made

Decisions for the Board

Recommendation

Appendices

Background

C1For background on the UKEB's Intangibles Research Project please refer to Annex 1 to this Paper.

Quantitative Research Report: Timeline and next steps

C2The quantitative research project timeline has been amended to account for temporary reallocation of resources to other projects, and Board priorities over the coming months.

C3Previously the intention was to finalise the quantitative report in H2 2023, with a final draft expected to be presented to the Board in Q3 2023. The amended timeline means that currently we expect to present a comprehensive draft in Q4 2023 and a final report in Q1 2024. There is not impact on the investor survey research.

C4We have also amended the date for bringing to the Board a PIP on Phase Two of the intangibles research. Previously it was proposed for mid-2023, it is now expected in 2024.

C5Proposed amendments to the PIP are highlighted in grey in Appendix A.

C6The IASB's website still lists a research project on intangibles (at the time of writing) in their research pipeline. We have not received any indication that work is expected to start any time soon on this project. The Secretariat believe the UKEB's research will be completed well in time to provide evidence to, and support activities associated with, any subsequent influencing activities.

Qualitative research report: outreach

C7The UKEB's qualitative report on intangibles was published in March 2023. The report discusses the importance of intangibles from an economic perspective and sets out stakeholders' views on possible ways in which the accounting for intangibles could be improved.

C8Since its publication, the research has been presented to the following organisations and events:

1. March 2023:
   1. CFA Society of the United Kingdom.
   2. Accounting Standards Board of Japan (ASBJ).
2. April 2023:
   1. UKEB Academic Advisory Group.
   2. Canada's Accounting Standards Board (AcSB).
   3. International Forum of Accounting Standard Setters (IFASS).
   4. Quoted Companies Alliance (QCA).
3. May 2023:
   1. Office of National Statistics (ONS) (joint UKEB/ONS event hosted by the UKEB).
4. June 2023:
   1. The Corporate Reporting Uses' Forum (CRUF)
   2. Journal of International Accounting Research academic conference - Panel presentation with EFRAG, AASB, AcSB and IASB
5. July 2023
   1. Accounting Standards Advisory Forum (ASAF)

C9We are continuing to engage with other organisations to arrange presentations. Also, the following events are currently planned for the future:

1. November 2023: IASB 2023 Research Forum Paris

Quantitative research report: project update

C10Work on the quantitative report commenced in 2022. The Secretariat have been analysing LSE listed company information and a sample of 50 annual reports to provide evidence to bolster the qualitative report results by:

1. Providing additional and more granular evidence on the prevalence of intangibles among UK listed companies applying IFRS, including qualitative and quantitative disclosures in the financial statements;
2. Exploring some topics further from a quantitative perspective, such as: the relationship between intangible assets recognition and M&A activity; the effect of inconsistent accounting between companies that grow organically and those that grow by acquisition on performance indicators; and, potentially, the relationship between intangible assets and companies' performance; and
3. Examining whether the main concerns identified by stakeholders in the qualitative report are supported by examination of UK companies' financial reports.

C11Some preliminary findings were presented to the Board in January 2023. The report and its interim findings were also discussed with the Academic Advisory Group at its April 2023 meeting.

C12We expect to share a draft of the report in Q4 2023 with the Board.

Survey research report: project update

C13The Secretariat has continued to develop the survey based on the October PIP, and continues to expect to deliver the final report in Q1 2024 in line with the PIP timeline.

C14The questionnaire has been drafted, which, at the time of writing the cover paper, had been reviewed by:

1. a Board subgroup formed to oversee the questionnaire;
2. the Academic Advisory Group (AAG); and
3. tested with other UKEB team members.

C15The draft questionnaire will go through a further round of testing before its launch. At the time of writing the paper, the Secretariat also planned to seek additional feedback from:

1. Economists at The Business Frameworks Department at DBT;
2. The AAG, who indicated that they would provide a second round of revisions;
3. The Board subgroup.

C16Following these revisions, a penultimate draft of the survey is planned to be piloted with the Investors' Advisory Group (IAG) during the first half of July 2023, pending approval of the IAG Chair.

C17The questionnaire will be sent to users during the second half of July 2023. Work is under way to estimate the size of the asset management industry, cross-validating the information contained in publicly available reports (such as The Investment Association (IA) Annual Survey, published annually by the IA) with academic papers and data from Reuters Eikon.

The results of this analysis will help the project team target the questionnaire to relevant organisations. To obtain respondents, the Secretariat has engaged with the following organisations/users' groups, “preparing the ground” for survey outreach:

1. CFA Institute of the UK
2. CRUF
3. Investors' association
4. IAG

C18The Secretariat will also rely on UKEB contacts, on advertising through LinkedIn and word-of-mouth to bolster the number of responses. We also look forward to support from the Board in raising the profile of the questionnaire with target stakeholders as appropriate.

C19Survey Research Report: Timeline and next steps

Question for the Board

Annex 1: Project Background

1In April 2022, the IASB confirmed that a research project on intangible items would be one of three projects to be added to its work plan, as a direct result of its third agenda consultation.

2The IASB staff paper¹⁹ stated (paragraph 35) that:

"[an intangibles] project should aim to comprehensively review IAS 38 [Intangible Assets]. Although developing enhanced disclosure requirements (such as disclosures about unrecognised intangible assets) would help to address user information needs, feedback indicates that other aspects of IAS 38 also should be reviewed. For example, respondents said that IAS 38 is an old Accounting Standard in need of modernising to reflect the increasing importance of intangible assets in today's business models.”

3The IASB website currently states²⁰ that, “This project will aim comprehensively to review the accounting requirements for intangible assets. Initial research will seek to identify the scope of the project and how best to stage work on this topic to deliver timely improvements to IFRS Accounting Standards.” To date no specific timeline is provided.

4In early 2022, the UKEB agreed to undertake a multi-output, proactive research project that would contribute to the international debate on intangible items. The research will focus on how the accounting for, and reporting of, intangible items could be improved to provide investors with more useful general purpose financial statements to help them make better informed decisions.

5The initial phase of the research is focused on understanding stakeholders' views (particularly investors) of the accounting for, as well as the current state of the reporting of, intangibles in the UK. This involves three reports:

1. A qualitative report focused on stakeholder views about the accounting for intangible assets, supported by economic analysis and a review of key literature. This report was published in March 2023.
2. A quantitative report examining the prevalence and economic relevance of intangible items for UK reporters, including an analysis of current practices among UK listed companies using IFRS Accounting Standards. This report is currently being drafted.
3. An investor focussed report based on outreach with users (largely a survey, though other outreach through interviews and roundtables could be performed). This report is also work in progress.

Appendix D: Project Initiation Plan: Intangibles Research (Version 2)

Overview

D1The UKEB delegated functions include responsibility for “participating in and contributing to the development of a single set of international accounting standards." Undertaking pro-active thought leadership activities is key to the UKEB's ability to effectively deliver this statutory function.

D2The UKEB's Terms of Reference (ToR) further explain that with regard to thought leadership, the UKEB shall:

1. Lead the UK debate on international accounting standards and reporting.
2. Represent UK views in international fora with the aim of influencing debate.
3. Engage with accounting and reporting and endorsement and adoption bodies in other jurisdictions, in order to improve influence and understand best practice.
4. Proactively participate in the development of new global accounting standards, for example by undertaking research.

D3We believe that a project on intangibles, as described below, clearly supports the UKEB meeting these responsibilities.

D4The increasing importance of intangibles to the modern economy is ubiquitously acknowledged, as demonstrated by the numerous academic papers²¹ and books²² written on this topic. As noted by CPA Ontario “Today, intangible assets are recognized as the key source of innovation and growth, an economic golden goose"²³.

D5At the same time there is significant discussion about the shortfalls of IFRS Standards²⁴ in relation to accounting for intangibles. EFRAG has published a comprehensive report, outlining a range of concerns with current accounting for intangible assets and possible approaches to improving their reporting²⁵.

D6Concerns about the accounting for and reporting of intangibles are not only confined to academic discussions and national standard setters. Steve Cooper²⁶, an independent analyst, co-author of The Footnotes Analyst blog, and former IASB Board Member, has stated that, “the current inconsistent and limited recognition of intangible assets causes analytical challenges for investors... We think that investors would greatly benefit from improvements to both the narrative reporting and financial statement data regarding intangibles.”

D7These concerns have been echoed in surveys of users. For example:

1. In 2019 the FRC published a consultation “Business Reporting of Intangibles: Realistic Proposals"²⁷. They noted when reporting the feedback received from UK investors that they “were unanimous in their support for improving the quality of reporting on intangibles” ²⁸
2. Research currently being funded by ICAS has noted that 93% of users surveyed thought that “financial reporting is lacking adequate information on intangible assets”, though they also note that this view was only shared by 61% of preparers surveyed.²⁹
3. A worldwide survey of 170 senior investment decision makers commissioned by Columbia Threadneedle Investments concluded that, "Is There agreement that analysis of intangibles provides a competitive advantage to investors, and recognition that intangible research is increasingly important in analytical work. However, while investors find information about intangibles readily available, they believe that it is often unreliable, incomplete or inaccurate.”³⁰

D8The IASB has acknowledged these concerns about intangibles. In one of his first public statements the new chair of the IASB, Dr Andreas Barckow, stated that “the rise of self-generated intellectual property and its non-addressal in the accounts” was one of the biggest challenges and opportunities facing the IASB.³¹

D9Staff papers presented to the IASB summarising the feedback it received on its Third Agenda Consultation³² indicated that most respondents rated intangible assets as a high priority area.³³ Respondents believed any review should:

1. modernise IAS 38 Intangible Assets, to better reflect the ever-increasing importance of intangible assets in today's business models, particularly for unrecognised internally generated assets;
2. address new types of intangible assets, which were not envisaged when IAS 38 was developed (such as cryptocurrencies and emission rights) to ensure it results in useful information to users of financial statements; and
3. improve comparability between companies that grow organically and those that grow through acquisitions.

D10Based on that feedback we expect intangibles to form a key part of the IASB's agenda for the next five-year period.

D11A pro-active thought leadership project on intangibles will enable the UKEB to fulfil its responsibility to proactively participate in the development of high-quality accounting standards by leading the UK debate on accounting and reporting of intangibles as well as contributing to and actively participating in the international debate on a timely basis.

Objective of the project

D12Given the significance of intangibles to the UK and global economies in the twenty-first century, and the expectation that a project on accounting for such items will form a key part of the IASB's agenda in the future, it is important that the UKEB pro-actively contributes to this significant area of standard development.

D13“Intangibles” encompasses a wide range of possible topics and avenues for research. The UKEB believes that it is well placed to focus on elements of investor needs when it comes to accounting and reporting of intangibles. This will act as a useful starting point for, and input into, the accounting solutions to be devised by the IASB.

D14The context for the research is:

How could the accounting for, and reporting of, Intangible Items be improved to provide investors with more useful general purpose financial statements to assist them to make better informed decisions?

D15Key elements of this context are:

1. Accounting and reporting³⁴: The context for any research will be accounting and reporting in accordance with IFRS Accounting Standards, and the annual financial statements. Specifically, the research will consider elements of classification, recognition, measurement, and disclosure of intangible items. This does not necessarily mean that the current approach of the IFRS Accounting Standards should constrain possible solutions. It may be that new or expanded standards need to be developed to capture useful information.
2. Intangible Items: This term is a placeholder for a broad range of non-physical items that are not within the scope of IFRS 9: Financial Instruments, and is not necessarily intended to be the same as defined in IAS 38: Intangible Assets. Part of the research would seek to identify what investors consider the most relevant intangible items, and whether current definitions adequately capture the extent and nature of these items.
3. Investors: The Conceptual Framework for Financial Reporting³⁵ identifies the primary users of financial reports as existing and potential investors, lenders and other creditors that cannot require reporting entities to provide information directly to them. We believe that a focus on investors who rely on General Purpose Financial Statements (GPFS) will provide useful information while helping limit the extent of research that will need to be undertaken. These users make key decisions that involve buying, selling or holding equity instruments; or exercising rights to vote on, or otherwise influence, management's actions that affect the use of the entity's economic resources.

D16Within this context we will focus on exploring with investors the areas they see as deficient in the current reporting for intangible items under IFRS Accounting Standards and possible solutions that they believe would address these concerns. This will include examining current reporting practices for intangibles in the UK.

D17The research could be extended later to engage with investors to explore new ways of thinking about the issue of accounting for and reporting on intangibles. A pre-requisite for this would be to consider with other stakeholders, such as academics and preparers (especially in sectors that have intangible items identified as particularly relevant by investors) possible alternative approaches that may not have been considered and which could meet investors' information needs. We would want to facilitate discussions between key stakeholders to develop solutions.

D18The research would be based on a bottom-up or inductive approach. In the initial phase, research would build from investors' needs and observations of practice to develop proposals. This can be contrasted with the top-down or deductive approach that would start with the conceptual framework and develop solutions rooted in accounting theory.

D19This approach will allow us to contribute to and reflect on the work being done by others in this area, such as EFRAG and the AASB. By building on our links with investors we believe we will be able to provide an important perspective on any solutions proposed by others.

D20It will also build on previous work in the UK by the FRC, for example, the FRC's 2019 consultation “Business Reporting of Intangibles: Realistic Proposals”.

Key planning assumptions, constraints and timeline

Project timeline and resource capacity

D21As noted below this project is split into two phases, each with a number of milestones, and an overall expected duration of up to 3 years. The immediate focus is on understanding the reporting landscape for intangible assets in the UK and investors' views. Later work could extend this research into developing more comprehensive proposals to address those findings.

D22This timeline would fit into the IASB's expected review of intangible assets, that is likely to be a long-term project commencing later in 2023. Therefore, we believe that the first phase of research could feed into the IASB's preliminary thinking by describing current reporting practice and investors' concerns. The second phase of the research could feed directly into an IASB project on Intangibles in 2024 or 2025.

D23We currently expect that the project would require input from the following technical staff:

1. 40-50% of one accounting specialist project director on a consistent basis;
2. up to 40% of a member of the economics team at various stages to support specific outputs; and
3. 25% of a project manager on a consistent basis to support the project.

D24Production of regular outputs is important to retaining interest and momentum in the project over its lifetime, and is factored into the resource allocation. For example, one early output proposed is a paper addressing questions asked in EFRAG's Discussion Paper: Better Reporting on Intangibles. This will require significant activity in the first half of 2022.

D25It is also important to acknowledge that additional research opportunities and outputs could be identified or emerge while the project is underway. Any significant changes to the research outputs or timetable will be presented to the Board.

Assumptions

D26Once established, the UKEB's user and academic advisory groups will form a key part of any outreach. We may also be able to utilise the IASB's Investor contacts, along with the knowledge of our liaison IASB Board Member.

D27We do not plan on setting up an ad hoc external group at this point in time. However, a sub-group of UKEB Board members to provide ongoing advice would be useful. We believe a group of three or four Board members, including an investor and academic representative would be appropriate. They would be regularly consulted and appraised of progress on the project and would provide an important link back to the Board.

D28We will look to academics to support the research, in particular during Phase Two, to help identify alternative approaches to addressing the accounting for intangible assets. As noted, a future academic advisory group will play a key role in supporting engagement with academics. We would also look to bring academics and users together as part of some of the outputs discussed below and may consider commissioning empirical research, if appropriate.

D29It is expected that a number of the activities to be undertaken as part of this project will have synergistic opportunities to collaborate with and contribute to other UKEB projects. For example, there is overlap with the Goodwill and Impairment research currently being undertaken. We will actively look for ways to incorporate cross-sectional thinking and help ensure maximum impact for this thought leadership project.

D30We also see this project as an opportunity to engage with other NSS and international stakeholders (including the IASB). We will actively look to collaborate with others to enhance the research activities being undertaken and increase the impact of the work being done. Some of these opportunities are noted below, others will emerge over time.

Risks

D31Traditionally, it has been difficult to engage with investors. Though provision of information to investors is the focus of accounting information, the time scales involved in development of accounting standards makes it difficult to engage with this key stakeholder group as they are more focussed on what they are seeing today in financial statements.

D32Maintaining the momentum, consistency and quality of the project over a long period of time can be difficult. We intend to mitigate this by allocating a lead project director to the project with responsibility for coordinating the ongoing involvement of other members of the team at appropriate junctures.

D33The IASB's specific plans regarding the scope and timing of the intangibles project may not be known for some time. We are planning on the assumption we will be able to contribute to the early stages of the project. The UKEB project timelines and milestones will need to remain flexible in order to respond to developments at the IASB to ensure the UKEB outputs are timely and have maximum impact on the activities of the IASB.

Outputs

D34The research project is currently framed around two phases. Subsequent outputs are expected to build on preceding ones. Phase two would be subject to a review of the preceding research, and any expectations around the timing and nature of the IASB's plans with regards to Intangible Assets. This would be an opportunity to develop additional or alternative outputs.

D35The phase one outputs focus on evidence gathering, assisting the UKEB to understand the current state of reporting on intangibles in the UK through a review of the existing academic literature, considering the economic indicators and understanding stakeholder views on the extant accounting for Intangibles. Phase two will focus on the development of preliminary/final Board views. The nature and timing of the research will be affected by the IASB's plans with regards to Intangible Items.³⁶

Phase One

Major Output 1 - Qualitative Research Report: UK Stakeholder Views on Accounting for Intangibles37 (Q1 2022 – Q1 2023)³⁸

D36In 2022 we will develop a research paper drawing primarily on qualitative research based on in-depth interviews with a range of stakeholders, supported by a review of key literature. The research is explorative by design. It will provide a better understanding of UK stakeholders' perspectives on the accounting for, and reporting of, Intangibles in the UK, and the economic outcomes arising from the existing accounting framework.³⁹

D37The work will be based primarily on qualitative research involving gathering feedback from a range of interested stakeholders. This is expected to include both detailed discussions with interested individuals and broader survey type research. However, we also expect it to be informed by the initial qualitative work being undertaken as part of output 3 discussed below.

D38The IASB have requested that the UKEB contribute to their research on making material judgements⁴⁰. This project provides an ideal opportunity to contribute the views of UK stakeholders and there is a clear link between the accounting for intangible items and the role of materiality. By their nature intangibles necessitate greater consideration of qualitative factors when assessing their materiality. We have explored this issue with stakeholders in interviews and the IASB has already expressed interest in seeing our findings.⁴¹

D39We will seek to work with EFRAG on some outreach with stakeholders, including investors. For example, we are considering joint roundtables on specific elements of the EFRAG report.

D40We expect to discuss a draft report on the outreach with the Board in Q4 2022, with Board approval of the final report in January 2023. This is a research study that summarises the input received from a qualitative study ([Draft] Due Process Handbook, paragraph 7.11(e)). The report will summarise the feedback received as a result of the outreach undertaken but will not include preliminary/final views from the Board on specific approaches to addressing accounting for Intangibles. Therefore, in line with the current [Draft] Due Process Handbook (paragraph 7.12) the report will not include an invitation to comment.⁴²

Major Output 2 – Analysis of Intangible Reporting in the UK (Q1 2022 -Q1 2024)43

D41In parallel with the other major outputs we would also undertake an analysis of the reporting of intangible items in the annual financial statements of UK companies.

D42To better understand the current reporting on intangible items we will undertake a review of the nature and extent of current reporting in the UK. An analysis of current practices among listed UK companies using IFRS standards would allow examination of the accounting for intangibles (including capitalisation and expensing), along with associated disclosures. The analysis may also gather data that is useful for other projects being undertaken by the UKEB, including on goodwill and impairment.

D43This may also be an opportunity to engage with UK academics to support and enhance this research, for example by commissioning targeted empirical analysis. The UKEB may consider funding research through a competitive grant process to encourage and support appropriate research.

D44A multi-functional Secretariat team – including economist, academic and accounting technical – is likely to be needed for this work given the need to gather quantitative information which would then require comprehensive analysis.

D45We intend to publish a report in Q1 2024⁴⁴ that summarises the findings of the research. This is a research study that summarises the input received from a quantitative study (Due Process Handbook, paragraph 7.11(e)). The report will summarise the research findings as a result of the research undertaken but will not include preliminary/final views from the Board on specific approaches to addressing accounting for Intangibles. Therefore, in line with the current [Draft] Due Process Handbook (paragraph 7.12) the report will not include an invitation to comment.⁴⁵

Major Output 3 - Investor Outreach (Q1 2022 - Q1 2024)46

D46In 2022 a key focus will be engaging with investors to better understand their perspectives on the reporting of intangibles in the financial statements. This will take the form of a range of outreach activities including developing and administering an investor survey.

D47The focus of the outreach will be on understanding investors' information needs and practices. It will seek to examine:

1. the intangibles investors consider as most important to their decision making;
2. how well their information needs about intangibles are currently served; and
3. investor views on the opportunities for improvement to the accounting for, and reporting of, intangibles in general purpose financial statements.
4. some additional questions relevant to other UKEB projects that overlap with this work.

D48The survey development and analysis will be supported by the UKEB economics team and we will also explore opportunities to work with the FRC Financial Reporting Lab. We will also engage with the Academic Advisory Group and the Investor Advisory Group to advise on the survey instrument and engagement with users.⁴⁷

D49We will take a proactive approach to engaging with investors in the UK as we consider this a great opportunity to build connections with them.

D50We plan to publish a report summarising the key findings from the outreach in early 2024. This is a research study that summarises the input received from a survey based study (Draft Due Process Handbook, paragraph 7.11(e)). The report will summarise the feedback received as a result of the survey undertaken but will not include preliminary/final views from the Board on specific approaches to addressing accounting for Intangibles. Therefore, in line with the current [Draft] Due Process Handbook (paragraph 7.12) the report will not include an invitation to comment.

Phase Two48

D51Phase Two would be subject to a new PIP to be presented to the Board in 2024⁴⁹. It is expected that additional outputs would be proposed, particularly in 2024 that would support the ongoing project, and any IASB activity in this area.

D52We also plan to engage directly with other National Standard Setters including EFRAG and the Australian Accounting Standards Board who are also planning to undertake extended research projects on the accounting for intangibles. This may provide the opportunity to develop collaborative research proposals.

D53Phase two research will build on the research studies undertaken as part of phase one of this research project. It is expected that some phase two outputs would include Board views, and therefore would include Invitation(s) to Comment.⁵⁰

Other Minor Outputs

D54In addition to the primary outputs highlighted above, we expect to publish other minor outputs that utilise work already being undertaken. These will be of varying degrees of formality and size and will be intended to publicise and maintain interest in the research work. Examples could include:

1. Short articles on the UKEB Website and in other media.
2. Podcasts and videos highlighting aspects of research undertaken.
3. Regular short posts on UKEB social media.
4. Hosting and/or co-hosting topic specific events with a range of stakeholders.
5. Participation in events run by others in both the academic and user communities.
6. Contributions to research being undertaken by other National Standards Setters.
7. Supporting and contributing to a special issue in an Academic Journal.

D55These outputs would be expected to involve to varying degrees both the Secretariat and UKEB Board members. We will continue to explore other opportunities to collaborate with interested parties. We are aware of a number of organisations that are currently undertaking research, or considering undertaking research, in this area. In addition to the NSS activities already discussed, work being undertaken by Professional Bodies and others will also be relevant avenues for collaboration.

Project closure

D56Each output will comply with the expected due process requirements appropriate to the nature of the output.

Project timeline

D57The proposed high-level project timeline is as follows (a graphical representation is included on the next page). Note that dates are indicative only, and subject to revision as the project develops⁵¹:

Annex 1: Work being undertaken by others52

National Standard Setters

1The Australian Accounting Standards Board (AASB) is looking at the current requirements of IAS 38, with a focus on improved disclosure⁵³.

2Given the focus of this research is on current requirements of IFRS Standards, and restricted to IAS 38, we expect limited overlap in any research project undertaken by the UKEB. While some of their findings may help inform our thinking, we expect to look much more widely at the issue.

3EFRAG is undertaking a much larger project termed “Better Information on Intangibles"⁵⁴. It has published a 70-page Discussion Paper outlining current issues and possible avenues for improvements of measurement and disclosure of intangible assets. The paper notes that the value relevance of financial statements is decreasing, which could be due to missing information about intangible assets. It considers three approaches for better information on intangibles:

1. Recognition and measurement in the primary financial statements;
2. Information on specific intangibles in the notes to the financial statements or in the management report; and
3. Information on future-oriented expenses and risk/opportunity factors that may affect future performance in the notes to the financial statements or in the management report.

4The scope of EFRAG's discussions goes beyond the existing definition of assets in financial reporting and also covers sources of possible economic benefits that would not be controlled by an entity.

5The work being undertaken by EFRAG is likely to be directly relevant to any UKEB research project. Given their focus on better information on intangibles it would be expected that this work may help inform proposals for alternative accounting presented to stakeholders for discussion.

6We will also be able to utilise some of the background work EFRAG have already undertaken, such as their literature review.

Academic and other research

7There are a significant number of research papers looking at intangible assets. Presented here is a sample of a few of the studies that will contribute to this research project.

• Amir Amel-Zadeh, Martin Glaum & Thorsten Sellhorn (2021): Empirical Goodwill Research: Insights, Issues, and Implications for Standard Setting and Future Research, European Accounting Review. This paper reviews the empirical literature on the determinants and decision usefulness of goodwill reporting.
• Barker, Richard & Lennard, Andrew & Penman, Stephen & Teixeira, Alan. (2021). Accounting for intangible assets: suggested solutions. Accounting and Business Research. 1-30. 10.1080/00014788.2021.1938963. Drawing on relevant research, we evaluate solutions for intangible asset accounting that contrast with balance sheet recognition, and we compare these with current practice under IFRS.
• Chalmers, Keryn & Clinch, Greg & Godfrey, Jayne & Wei, Zi. (2010). Intangible Assets, IFRS, and Analysts' Earnings Forecasts. Accounting and Finance. 52. 10.1111/j.1467-629X.2011.00424.x. We investigate whether the adoption of IFRS in 2005 by Australian firms has been associated with a loss of potentially useful information about intangible assets.
• CPA Ontario (2021). You can't touch this: The intangible assets debate.
• EFRAG (2020). A Literature Review on the Reporting of Intangibles.
• Financial Reporting Council (2019). Business Reporting of Intangibles: Realistic Proposals.
• Financial Reporting Council (2021). Feedback Statement: Business Reporting of Intangibles: Realistic Proposals.
• ICAS (forthcoming). The Production and Consumption of Information on Intangibles: An Empirical Investigation of CFOs and Investors
• Nichita, Mirela. (2019). Intangible assets -insights from a literature review. Journal of Accounting and Management Information Systems. 18. 10.24818/jamis.2019.02004. Research Question: How do researchers address the definition, measurement, recognition and potential of intangible assets to generate future economic benefits when a formal structure for reporting them is highly controversial?
• Nwogugu, Michael. (2019). Intangibles Accounting Regulations and the "Global Intangibles Economy”: Belief-Revision, Enforcement Theory and Financial Stability. 10.1057/978-1-137-44704-3_5.