5 Annual Improvements to IFRS Accounting Standards – Volume 11

14 December 2023 Agenda Paper 5

Executive Summary

Purpose of the paper

The purpose of this paper is to obtain the Board's:

1. approval for the issue of a Final Comment Letter (FCL) on the International Accounting Standards Board (IASB)'s Exposure Draft (ED) Annual Improvements to IFRS Accounting Standards – Volume 11;
2. approval for the publication of the Feedback Statement (FS); and
3. feedback on and approval of the draft Due Process Compliance Statement (DPCS).

Summary of the Issue

As part of its Annual Improvements cycle, the International Accounting Standards Board (IASB) issued the ED which included eight proposed amendments on 12 September 2023.

The UKEB's Draft Comment Letter (DCL) was published for UK stakeholder comment on 19 October 2023, concluding that the ED improved the consistency and understandability of the IFRS Accounting Standards concerned. The consultation closed on 20 November 2023. The only response to the DCL was supportive of the UKEB's messages.

Further outreach since publication of the DCL has not identified any significant concern with the proposals in the ED. As such, the FCL presented at the Appendix A remains unchanged from the DCL.

Decisions for the Board

Subject to any amendments arising at this meeting, does the Board approve:

• the FCL (Appendix A) for issue to the IASB and publication on the UKEB website?
• the FS (Appendix B) for publication on the UKEB website?
• the draft DPCS (Appendix C)?

Recommendation

The Secretariat recommends that, subject to any amendments agreed at this meeting, the Board approved the FCL, FS for issuance and publication and approves the [draft] DPCS.

Appendices

Appendix A Final Comment Letter Appendix B Feedback Statement Appendix C [Draft] Due Process Compliance Statement

Background

1As part of its Annual Improvements cycle, the IASB issued the ED of Annual Improvements to IFRS Accounting Standards – Volume 11 (Annual Improvements) which included eight proposed amendments on 12 September 2023. The IASB's comment period ends on 11 December 2023. The Board was provided with a summary of the proposed amendments in Annex A of the Project Initiation Plan.

2Annual improvements are limited to changes that either clarify the wording in an IFRS Accounting Standard, or correct relatively minor unintended consequences, oversights or conflicts between requirements of the Accounting Standards. ¹ The proposed improvements are packaged and exposed together in one document.

3The Secretariat conducted desk-based research and discussed the IASB's proposals with stakeholders in September and October 2023 to inform the Draft Comment Letter (DCL).

4The DCL was approved at the October 2023 UKEB meeting and published on the UKEB website on 19 October 2023, with a consultation period ending on 20 November 2023. The DCL was supportive of the IASB's proposal on the basis that the amendments are expected to improve the consistency and understandability of the IFRS Accounting Standards concerned. UKEB news alerts and LinkedIn posts were used to raise awareness of the publication of the DCL.

Outreach and feedback on the DCL

5Following the publication of the DCL, the Secretariat conducted further outreach activities to inform the FCL. This involved discussions with the Preparer Advisory Group (PAG) and the Accounting Firms and Institutes Advisory Group (AFIAG) in October and November 2023. One written response to the DCL was received and has been published on the UKEB website. No significant concern has been identified during the outreach or in the written response received.

Comment letter, feedback statement and due process

6The draft FCL is attached at Appendix A. Given the feedback received, it remains unchanged from the DCL.

7The draft feedback statement (FS) is attached at Appendix B and reflects the limited feedback received.

8The draft DPCS is attached at Appendix C for consideration. A final version will be brought to the 30 January 2024 meeting for noting once the final project steps are complete.

Questions for the Board

1Subject to any amendments arising at this meeting, does the Board approve:

1. the FCL (Appendix A) for issuance to the IASB and publication on the UKEB website?
2. the FS (Appendix B) for publication on the UKEB website?
3. the draft DPCS (Appendix C)?

Next steps

9The FCL will be submitted to the IASB following this meeting. The FCL together with the FS will be published on the UKEB website. The DPCS will be updated to reflect the final project steps and presented to the 30 January 2024 meeting for the Board's noting.

Annual Improvements to IFRS Accounting Standards – Volume 11 Timeline

Timeline

Final Comment Letter (Appendix A)

Dr Andreas Barckow Chairman International Accounting Standards Board Columbus Building 7 Westferry Circus Canary Wharf London E14 4HD

[14 December 2023]

Dear Dr Barckow

Exposure Draft Annual Improvements to IFRS Accounting Standards – Volume 11

1The UK Endorsement Board (UKEB) is responsible for endorsement and adoption of IFRS Accounting Standards for use in the UK and therefore is the UK's National Standard Setter for IFRS Accounting Standards. The UKEB also leads the UK's engagement with the IFRS Foundation on the development of new standards, amendments and interpretations. This letter is intended to contribute to the Foundation's due process. The views expressed by the UKEB in this letter are separate from, and will not necessarily affect the conclusions in, any endorsement and adoption assessment on new or amended international accounting standards undertaken by the UKEB.

2There are currently approximately 1,500 entities with equity listed on the London Stock Exchange that prepare their financial statements in accordance with IFRS. ¹ In addition, UK law allows unlisted companies the option to use IFRS and approximately 14,000 such companies currently take up this option. ²

3We welcome the opportunity to provide comment on the International Accounting Standards Board (IASB) Exposure Draft (ED) Annual Improvements to IFRS Accounting Standards–Volume 11. In developing this letter, we have consulted

4with stakeholders in the UK, including preparers of accounts, accounting firms and institutes and a regulator.

5We support the proposals in the ED as they are expected to improve the consistency and understandability of the IFRS Accounting Standards concerned. For detailed responses to the questions in the ED please see Appendix A.

If you have any questions about this response, please contact the project team at [email protected].

Yours sincerely

Pauline Wallace Chair UK Endorsement Board

Appendix A: Questions on ED Annual Improvements to IFRS Accounting Standards – Volume II

IFRS 1 First-time Adoption of International Financial Reporting Standards

Hedge Accounting by a First-time Adopter

Do you agree with the IASB's proposals to amend the IFRS Accounting Standards and accompanying guidance in the manner described in this Exposure Draft?

If not, why not? If you disagree with these proposals, please explain what you would suggest instead and why.

A1We agree with the IASB's proposals to align the terminology in the requirements of hedge accounting in IFRS 1 with IFRS 9 Financial Instruments and to add the cross-referencing to the relevant IFRS 9 paragraphs.

A2We agree these proposed amendments would improve the accessibility and understandability of the hedge accounting requirements for first-time adopters that are required to apply IFRS 9 instead of IAS 39.

IFRS 7 Financial Instruments: Disclosures

Gain or loss on derecognition

Do you agree with the IASB's proposals to amend the IFRS Accounting Standards and accompanying guidance in the manner described in this Exposure Draft?

If not, why not? If you disagree with these proposals, please explain what you would suggest instead and why.

A3We agree with the IASB's proposals to update the obsolete cross-reference in paragraph B38 of IFRS 7 and to streamline the wording in the last sentence of the paragraph in accordance with IFRS 13.

A4We agree these proposed amendments would improve the accessibility and understandability of the disclosure requirements on the gain or loss on derecognition relating to financial assets in which the entity has continuing involvement.

IFRS 7 Financial Instruments: Disclosures

Disclosure of deferred difference between fair value and transaction price

Do you agree with the IASB's proposals to amend the IFRS Accounting Standards and accompanying guidance in the manner described in this Exposure Draft?

If not, why not? If you disagree with these proposals, please explain what you would suggest instead and why.

A5We agree with the IASB's proposal to align the wording in paragraph IG14 of IFRS 7 with the wording in paragraph 28 of IFRS 7.

A6The illustrative example in paragraph IG14 of IFRS 7 is associated with the disclosure requirements in paragraph 28 of IFRS 7 therefore we agree the proposed amendments would improve the understandability of the disclosure requirements on the deferred difference between fair value and transaction price of financial instruments.

IFRS 7 Financial Instruments: Disclosures

Introduction and credit risk disclosures

Do you agree with the IASB's proposals to amend the IFRS Accounting Standards and accompanying guidance in the manner described in this Exposure Draft?

If not, why not? If you disagree with these proposals, please explain what you would suggest instead and why.

A7We agree with the IASB's proposal to add a statement in the introductory paragraph of the Implementation Guidance accompanying IFRS 7 and to remove the disclaimer in paragraph IG20B of IFRS 7.

A8We agree the proposed amendments would improve the understandability by clarifying that the illustrative examples in the Implementation Guidance do not illustrate all the requirements in the accompanying accounting standard.

A9We observe the disclaimer statement only appears in some illustrative examples (IEs) and implementation guidance (IG) accompanying IFRS Accounting Standards therefore we suggest the IASB to take into consideration the consistency of the disclaimer language across IEs and IG when drafting new IFRS Accounting Standards or amending existing ones.

IFRS 9 Financial Instruments

Transaction price

Do you agree with the IASB's proposals to amend the IFRS Accounting Standards and accompanying guidance in the manner described in this Exposure Draft?

If not, why not? If you disagree with these proposals, please explain what you would suggest instead and why.

A10We agree with the IASB's proposals to remove the reference to the IFRS 15's definition of the term 'transaction price' from Appendix A of IFRS 9 and to revise the wording around the term in paragraph 5.1.3 of IFRS 9.

A11We agree the proposed amendments would improve the understandability by maintaining only one meaning of “transaction price” within IFRS 9.

IFRS 9 Financial Instruments

Derecognition of lease liabilities

Do you agree with the IASB's proposals to amend the IFRS Accounting Standards and accompanying guidance in the manner described in this Exposure Draft?

If not, why not? If you disagree with these proposals, please explain what you would suggest instead and why.

A12We agree with the IASB's proposal to add a cross-reference to paragraph 3.3.3 of IFRS 9 in paragraph 2.1(b)(ii) of IFRS 9 which states the requirements of lessee accounting upon the derecognition of lease liabilities.

A13We agree the proposed amendments would improve the understandability and accessibility because the addition of the cross-reference explicitly states the application requirements of the derecognition of lease liabilities.

IFRS 10 Consolidated Financial Statements

Determination of a 'de facto' agent

Do you agree with the IASB's proposals to amend the IFRS Accounting Standards and accompanying guidance in the manner described in this Exposure Draft?

If not, why not? If you disagree with these proposals, please explain what you would suggest instead and why.

A14We agree with the IASB's proposals to address the inconsistency between paragraphs B73 and B74 by clarifying the requirements in paragraph B74.

A15We agree the proposed amendments would improve the understandability of the requirements of the assessment of de facto agency relationships and its interaction with the assessment of control.

IAS 7 Statement of Cash Flows

Cost method

Do you agree with the IASB's proposals to amend the IFRS Accounting Standards and accompanying guidance in the manner described in this Exposure Draft?

If not, why not? If you disagree with these proposals, please explain what you would suggest instead and why.

A16We agree with the IASB's proposal to replace the term 'cost method', which is no longer defined in IFRS Accounting Standards, with the term 'at cost'.

A17We agree the proposed amendment would improve understandability around the measurement requirement of an associate, a joint venture of a subsidiary by removing a term that is no longer defined.

Feedback Statement

IASB Exposure Draft Annual Improvements to IFRS Accounting Standards – Volume II December 2023

The UK Endorsement Board (UKEB) is responsible for endorsement and adoption of IFRS for use in the UK and therefore is the UK's National Standard Setter for IFRS. The UKEB also leads the UK's engagement with the IFRS Foundation on the development of new standards, amendments and interpretations.

The comment letter to which this feedback statement relates forms part of those influencing activities and is intended to contribute to the IFRS Foundation's due process. The views expressed by the UKEB in its comment letter are separate from, and will not necessarily affect the conclusions in, any endorsement and adoption assessment on new or amended international accounting standards undertaken by the UKEB.

Purpose of this feedback statement

This feedback statement presents the views of UK stakeholders received during the UKEB's outreach activities on the IASB's Exposure Draft (ED) Annual Improvements to IFRS Accounting Standards–Volume 11 and explains how the UKEB's Final Comment Letter addressed those views.

The IASB's Exposure Draft

In September 2023 the IASB issued the ED IASB/AI/ED/2023/1 Annual Improvements to IFRS Accounting Standards – Volume 11 (Annual Improvements). The ED included eight proposed amendments which are summarised on the next two pages.

The IASB issues amendments to international accounting standards as part of its continuous effort to maintain and improve IFRS Standards and to support consistent application.

Annual improvements are limited to changes that either clarify the wording in an IFRS Accounting Standard, or correct relatively minor unintended consequences, oversights or conflicts between requirements of the Accounting Standards.

Transaction price (IFRS 9*)

• Revise the wording in paragraph 5.1.3 of IFRS 9; and
• Delete the reference to 'transaction price' and the associated references to IFRS 15 from Appendix A.

Derecognition of lease liabilities (IFRS 9*)

• Add a cross-reference to paragraph 3.3.3 of IFRS 9 in paragraph 2.1(b)(ii) of IFRS 9.

Hedge accounting by a first-time adopter (IFRS 1*)

• Add cross-references to paragraph 6.4.1 of IFRS 9 in paragraphs B5 and B6 of IFRS 1; and
• Replace the word 'conditions' with 'qualifying criteria' in paragraph B6 of IFRS 9.

Cost method (IAS 7*)

• Replace the term 'cost method', which is no longer defined in IFRS Accounting Standards, with 'at cost'.

* IFRS 9 Financial Instruments; IFRS 1 First-time Adoption of International Financial Reporting Standards; IAS 7 Statement of Cash Flows

Gain or loss on derecognition (IFRS 7*)

• Replace the reference to paragraph 27A of IFRS 7, which no longer exists, with a reference to paragraphs 72–73 of IFRS 13; and
• Replace the phrase 'inputs that were not based on observable market data' with 'unobservable inputs'.

Disclosure of deferred difference between fair value and transaction price (Implementation Guidance accompanying IFRS 7*)

• Propose an amendment to paragraph IG14 to improve its consistency with paragraph 28 of IFRS 7 which it illustrates.

Introduction and credit risk disclosures (Implementation Guidance accompanying IFRS 7*)

• Add a statement that the implementation guidance accompanying IFRS 7 does not illustrate all the requirements in IFRS 7 in paragraph IG1 of IFRS 7; and
• Simplify the wording in paragraph IG20B of IFRS 7.

Determination of a 'de facto agent' (IFRS 10*)

• Clarify the requirements in paragraph B74 of IFRS 10.

*IFRS 7 Financial Instruments: Disclosures; IFRS 10 Consolidated Financial Statements

Outreach approach & comment letter assessment

The UKEB's outreach activities took place between September and November 2023 and were conducted to assist the UKEB in developing its Comment Letter.

The outreach approach was underpinned by the UKEB's guiding principles of thought leadership, transparency, independence and accountability.

As the IASB's ED related to targeted improvements to the IFRS Accounting Standards, the Board took a proportionate approach to outreach on the IASB proposals and the UKEB's Draft Comment Letter (DCL).

Outreach activities included:

• discussion with the UKEB's Preparer Advisory Group and Accounting Firms & Institutes Advisory Group; and
• public consultation on the UKEB's DCL.

One written response to the UKEB's Invitation to Comment on its DCL was received and was supportive of the UKEB's DCL.

No substantive comments were received from the UKEB's Advisory Groups and UK stakeholders on the proposed amendments.

Therefore, our final comment letter is supportive of the IASB's ED on Annual Improvements.

All comments and views received were considered in reaching the UKEB final views on the proposals.

Disclaimer

This feedback statement has been produced in order to set out the UKEB's response to stakeholder comments received on the UKEB's project responding to the IASB's Exposure Draft Annual Improvements to IFRS Accounting Standards –Volume 11 and should not be relied upon for any other purpose.

The views expressed in this feedback statement are those of the UKEB at the point of publication.

Any sentiment or opinion expressed within this feedback statement will not necessarily bind the conclusions, decisions, endorsement or adoption of any new or amended IFRS by the UKEB.

Contact Us

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Web: www.endorsement-board.uk

Appendix C: DRAFT Due Process Compliance Statement: Annual Improvements to IFRS Accounting Standards – Volume II

The International Accounting Standards Board (IASB) published Annual Improvements to IFRS Accounting Standards -Volume 11 ¹ Exposure Draft (ED) on 12 September 2023. The IASB comment period ends on 11 December 2023.

Influencing process

Project preparation

Desk-based research

Outreach

Draft Comment Letter (DCL)

Project finalisation and project closure

Feedback Statement

Ongoing communications

Conclusion

This document sets out the main due process activities performed as part of the UKEB's due process to issue its comment letter in response to the IASB's ED.

This project complies with the applicable due process steps, as set out in the UKEB Due Process Handbook at the time of writing.