8 IASB General Update

File information

Publication date
17 May 2024
Format
PDF, 1.7 MB
Download original PDF

24 May 2024 Agenda Paper 8

Executive Summary

Project Type Monitoring
Project Scope Various

Purpose of the paper

This paper provides the Board with an update on projects the Secretariat is currently monitoring, including the work of the IFRS Interpretations Committee.

As agreed with the Board, the Secretariat monitors projects being undertaken by the IASB and IFRS Interpretations Committee. This is undertaken to inform the Board about the progress and decisions being made by the IASB on active projects. Discussion by the Board may also help inform interactions with international standard setter meetings, including the IASB's Accounting Standards Advisory Forum (ASAF).

Summary of the Issue

The topics addressed in this paper were discussed by the IASB in April 2024.

Topic for discussion:

  • Rate-regulated Activities

Topics for noting:

  • Climate-related matters
  • Post-implementation Review of IFRS 15 Revenue from Contracts with Customers
  • Intangible Assets
  • Provisions – Targeted Improvements
  • Post-implementation Review of IFRS 9 – Impairment
  • Updating the Subsidiaries without Public Accountability: Disclosures Standard
  • Interpretations Committee Update

Questions for the Board

Topic for discussion Rate-regulated Activities 1.Do Board members have questions or comments on the tentative decisions the IASB made on the topics included in the Rate-regulated Activities update?

Topics for noting 2.Do Board members have any questions or comments on the topics for noting?

Recommendation

Not applicable.

Appendices

Appendix A Rate-regulated Activities Appendix B Climate-related matters Appendix C Post-implementation Review of IFRS 15 Revenue from Contracts with Customers Appendix D Intangible Assets Appendix E Provisions – Targeted Improvements Appendix F Post-implementation Review of IFRS 9 – Impairment Appendix G Updating the Subsidiaries without Public Accountability: Disclosures Standard Appendix H Interpretations Committee Update Appendix I List of IASB projects

Appendix A: Rate-regulated Activities

UKEB Project Status: Monitoring UKEB Project page1
IASB Next Milestone: Continued redeliberations on remaining topics throughout 2024. UKEB Final comment letter (Published July 2021)2

Background

A1.The IASB is continuing its redeliberations following feedback on its Exposure Draft Regulatory Assets and Regulatory Liabilities (ED). At its April 2024 meeting, the IASB redeliberated the following topics:

a) Discounting of future cash flows—minimum interest rate. b) Scope—interaction with IFRS 17. c) Amendments to IFRS 3 and IFRS 5.

A2.The table below summarises the IASB's proposals contained in the ED, the recommendations made by the UKEB in its final comment letter (FCL)3 and the IASB's tentative decisions made at its April 2024 meeting.

ED proposal UKEB final comment letter4 IASB tentative decision
Discounting of future cash flows—minimum interest rate
The ED proposes that on initial recognition of a regulatory asset: a) an entity assesses whether there is any indication that the regulatory interest rate for the regulatory asset may be insufficient to compensate the entity for the time value of money and for uncertainty in the amount and timing of the future cash flows arising from the regulatory asset. b) If there are indications that the regulatory interest rate may be insufficient, the entity: i. estimates the minimum interest rate sufficient to provide that compensation; and ii. uses, as the discount rate, the higher of the regulatory interest rate and that minimum interest rate. Paragraph 53 of the ED provides examples of situations in which there may be such indications. The ED also proposes that if the regulatory agreement changes the regulatory interest rate subsequently, the entity applies the requirements in paragraphs 50–52 (as set out above) at the date of subsequent change. The entity determines the minimum interest rate to reflect conditions existing at the date of the changes in the regulatory interest rate. To avoid unnecessary cost and complexity, the ED does not propose requiring an entity to assess whether the regulatory interest rate for a regulatory liability is sufficient. Instead, paragraph 53 of the ED proposes that an entity uses the regulatory interest rate as the discount rate for a regulatory liability in all circumstances. The FCL generally agreed with the proposals that an entity discount the estimated future cash flows used in measuring regulatory assets and regulatory liabilities. The FCL also stated that outreach with stakeholders did not identify any examples of situations where the regulatory interest rate for a regulatory asset is not sufficient to compensate the entity for the time value of money and uncertainty risks. The FCL further advised the IASB to simplify the requirements by making it a rebuttable presumption that the regulatory interest rate is sufficient, unless the indicators set out in paragraph 52 of the ED are present. This would mean that entities are only required to make this assessment where there are indicators that the regulatory interest rate for a regulatory asset is insufficient. This would achieve the same outcome whilst reducing the burden on preparers. The FCL also agreed that an entity should translate a series of different regulatory interest rates in successive periods into a single discount rate for use throughout the life of the regulatory asset or regulatory liability. The IASB tentatively decided: a) to retain the proposals in paragraphs 50–52 of the Exposure Draft that would require an entity to assess whether there is any indication that the regulatory interest rate for a regulatory asset may be insufficient to compensate the entity for the time value of money and for uncertainty in the future cash flows arising from the regulatory asset, and to use the minimum interest rate as the discount rate if it is higher than the regulatory interest rate; b) to clarify in the application guidance that an entity performing the assessment described in (a) would not be required to calculate the minimum interest rate for the regulatory asset or carry out an exhaustive search for indications that the regulatory interest rate for the regulatory asset might be insufficient as described in (a); c) to retain the proposal in paragraph 53 of the Exposure Draft that would require an entity to use the regulatory interest rate as the discount rate for a regulatory liability in all circumstances; d) to provide guidance on the estimation of the minimum interest rate, and to include in that guidance principles used in other IFRS Accounting Standards to help entities carry out that estimation; e) to exempt an entity from applying the proposals on the minimum interest rate to a regulatory asset that arises from variances between estimated and actual costs or volume, and to require an entity to apply the requirements once the regulator determines the final balance to be included in future regulated rates; and f) to require an entity that chooses to apply the exemption described in (e) to disclose that fact and the carrying amount of regulatory assets at the end of the reporting period to which the entity has applied that exemption.
Secretariat view The Secretariat will further explore this topic at a future UKEB Rate-regulated Activities Technical Advisory Group (RRA TAG) meeting.
Scope—interaction with IFRS 17
Paragraph 3 of the ED proposes that an entity applies the draft standard to all its regulatory assets and all its regulatory liabilities. The ED does not provide any scope exclusion. Paragraph 6 of the ED specifies that a regulatory asset or a regulatory liability can exist only if: a) an entity is party to a regulatory agreement; b) the regulatory agreement determines the regulated rate the entity charges for the goods or services it supplies to customers; and c) part of the total allowed compensation for goods or services supplied in one period is charged to customers through the regulated rates for goods or services supplied in a different period. The UKEB comment letter did not include views on the interaction of the ED with IFRS 17. The IASB tentatively decided to exclude from the scope of the prospective RRA Standard regulatory assets and regulatory liabilities that might arise when premiums charged in insurance contracts that fall within the scope of IFRS 17 are regulated. Secretariat view The Secretariat will further explore this topic at a future UKEB Rate-regulated Activities Technical Advisory Group (RRA TAG) meeting.

Amendments to IFRS 3 and IFRS 5

UKEB final comment letter5 IASB tentative decision
IFRS 3 The ED proposes to create an exception to the recognition and measurement principles in IFRS 3 for regulatory assets acquired and regulatory liabilities assumed in a business combination. It proposes that an entity apply the recognition and measurement principles in the ED to such regulatory assets and regulatory liabilities, rather than recognising and measuring them at fair value. IFRS 5 The ED proposes to exclude regulatory assets from the scope of IFRS 5 as it would be difficult to determine the fair value of regulatory assets and the measurement requirements proposed in the ED would provide useful information. The UKEB comment letter did not include views on the interaction of the ED with IFRS 3 and IFRS 5. The IASB tentatively decided to retain the proposals in the ED: a. to create an exception to the recognition and measurement principles in IFRS 3 for regulatory assets acquired and regulatory liabilities assumed; and b. to exclude regulatory assets from the scope of IFRS 5. Secretariat view The Secretariat will further explore this topic at a future UKEB Rate-regulated Activities Technical Advisory Group (RRA TAG) meeting.

IASB next steps

A3.The IASB will continue its redeliberations on the feedback received on the ED at future meetings. Future redeliberations will focus on the following topics:

a) Amendments to other IFRS Accounting Standards. b) Effective date and transition.

Question for the Board

1.Do Board members have questions or comments on the tentative decisions the IASB made on the topics included in the Rate-regulated Activities update?

Appendix B: Climate-related matters

B1.The IASB discussed and agreed the project direction for the Climate-related and Other Uncertainties in the Financial Statements (CROUFS) project at its April 2024 meeting.

B2.The requirement to demonstrate connected and cohesive information for users and to use the exposure draft process to obtain their feedback on this topic was discussed by several IASB board members. An IASB member noted that as jurisdictions were still deciding on the adoption of ISSB standards, connectivity may need to be considered in wider terms than ISSB standards. The Chair observed that while the definitions of materiality were aligned between the ISSB and IASB standards, users may require clarity regarding when a material sustainability related financial disclosure would impact the financial statements.

B3.The IASB tentatively decided6 that:

a) the CROUFS project would provide examples illustrating how an entity applies IFRS Accounting Standards to report the effects of climate-related and other uncertainties in the financial statements; b) these illustrative examples would accompany IFRS Accounting Standards; and c) it would publish an exposure draft to obtain feedback from stakeholders about the examples.

B4.In addition, the IASB agreed that due process requirements had been met and that it would begin the process for balloting for the exposure draft. Feedback on the exposure draft, which is planned to be published in the third quarter of 2024, is expected to help the IASB decide whether standard-setting is required.

B5.The IASB currently has several projects that may have implications for connectivity between IFRS Accounting Standards and IFRS Sustainability Disclosure Standards. Annex B of this paper sets out in table format the IASB projects that may be impacted by sustainability matters and any potential connectivity considerations.

Pollutant Pricing Mechanisms

IASB outreach and ASAF July meeting

B6.The IASB is currently conducting outreach with stakeholders to understand the prevalence and nature of any accounting issues with Pollutant Pricing Mechanisms (PPMs). The UKEB Investor Advisory Group7 participated in the IASB investor survey entitled ‘Are Financial Statements Transparent on Company's Participation in the Carbon Markets8?’.

B7.The draft agenda for the Accounting Standards Advisory Forum (ASAF) July 2024 meeting notes that the IASB staff intend to share information gathered from the National Standard Setters survey regarding the nature and prevalence of PPMs in different jurisdictions.

B8.The IASB Emerging Economies Group meeting papers9 noted some preliminary survey results which indicated that for compliance PPM schemes “about half of respondents indicated that they are aware of diversity in practice or other deficiencies in the accounting". In relation to voluntary PPM schemes, the papers noted "more than half of respondents indicated that these schemes give rise to accounting issues that are difficult to resolve”.

B9.The July ASAF draft agenda also includes two further PPM related agenda items. The Canadian national standard setter (AcSB) will present on carbon credits and Financial Accounting Standards Board (FASB) will present findings of its project Accounting for Environmental Credit Programs. The Secretariat plans to bring further information on these items to the UKEB's June meeting, by when the ASAF papers may be available.

B10.Both FASB and AcSB presented on these topics at the April 2024 meeting of the International Forum of Accounting Standard Setters (IFASS). A summary of the key points from those presentations is provided in Annex A for information.

IFRS S2 and a potential IASB PPM project

B11.Users have advised that they find it useful to be able to connect GHG disclosures in the narrative reporting to the financial statements. For example, they may seek to connect GHG emission disclosures to ESG-linked loan metrics to identify any potential impacts in the financial statements.

B12.In the Climate-related targets section of IFRS S2 Climate-related Disclosures (S2), paragraph 36 (e)10 specifies the disclosure requirements relating to an entity's planned use of carbon credits predominantly from the perspective of an entity that generates GHG and therefore requires RECs or carbon credits to reduce or offset those emissions.

B13.S2 Appendix B Application Guidance11 clarifies that the intention is for an entity to describe its planned use of carbon credits to offset emissions to achieve any net greenhouse gas emissions targets. However, S2 does not appear to consider disclosure requirements for entities which generate or trade such certificates or credits.

B14.If the IASB were to proceed with a PPM project and included in its scope entities generating or trading in RECs or credits, collaboration may be required between the international boards to ensure alignment across finalised IFRS Sustainability Disclosure Standards and any new or amended IFRS accounting guidance or requirements.

Annex A: IFASS April 2024 PPM-related presentations

A1.At the April 2024 IFASS meeting, FASB and AcSB gave presentations on their work relating to carbon credits. A summary of the key points from those presentations is provided in this annex for information.

FASB - Accounting for Environmental Credit Programs

A2.The project was added to the FASB technical agenda in May 2022 and seeks to improve the accounting and disclosure requirements for participants in compliance and voluntary programs that result in the creation of environmental credits and for nongovernmental creators of environmental credits.

A3.The project has defined environmental credit and environmental credit obligations (ECO) and key tentative decisions included:

a) An entity would recognise an asset for an environmental credit when it is probable that the credit will be sold or used to settle an ECO; costs of other environmental credits will be generally recognised as an expense. b) An entity should recognise a liability when activities or events occurring on or before a balance sheet date indicate that an ECO exists; ECOs are limited to obligations arising from enacted laws. c) The funded portion of an ECO liability should be measured at the carrying amount of compliance environmental credits; the unfunded portion of an ECO liability should be measured at fair value (with exceptions, depending on how an entity intends to settle the unfunded portion of the ECO liability). Remeasurements of an ECO liability should be recognised in earnings and balance sheet offsetting would be prohibited.

A4.FASB deliberations are ongoing. FASB is currently considering disclosures and the interaction with business combination accounting.

Canadian Accounting Standards Board (AcSB) - Carbon Credits

A5.The AcSB provided an overview of the range of potential approaches to account for carbon credits and sought feedback as to which approaches might provide the most useful information. The AcSB noted the need for guidance and sought to understand approaches applied in practice and how they compared across jurisdictions.

A6.The AcSB observed that the lack of guidance had resulted in diversity in practice which was becoming more pronounced as entities increasingly used carbon credits to meet their carbon reduction targets or to start generating credits themselves. However, they also noted that currently carbon credits are not material for many entities with disclosures largely limited to narrative reporting and sustainability reports.

A7.AcSB noted areas of significant judgement for voluntary schemes in relation to the classification of cardon credits (i.e. either an asset or expensed) and the measurement of assets (i.e. either as inventory or an intangible). Potential accounting issues identified related to:

a) Carbon credits as a commodity. b) Carbon credits as a by-product. c) Determining if there is an active market. d) Internally generated intangibles. e) Ex-ante carbon credits. f) Quality concerns.

A8.Similar accounting issues were noted with compliance schemes. Additional considerations also arose depending on how the credits were granted and then used to settle a compliance obligation.

Annex B: Other IASB projects with possible connectivity matters to consider

B1.The table below summarises IASB projects potentially impacted by sustainability matters.

Project Description IASB status and next steps UKEB Staff view
Amendments to the Classification and Measurement of Financial Instruments (IFRS 9) The IASB project will provide application guidance and require additional disclosures for ESG-linked product features. Final Amendment May 2024. Stakeholders support clarification and consistent application of the classification and measurement requirements for ESG-linked products.
Intangibles The IASB intends to review accounting requirements for intangibles. The IASB met in April 2024 to start a research project and discussed the initial scope of work. Emissions Trading Schemes (ETS) can be accounted for as intangible assets and climate-related 'opportunities' may also be intangibles.
Management Commentary The IASB received an update on the project at its March 2024 meeting. No decisions were taken. Decide project direction June 2024. Stakeholders have expressed concerns that Practice Statements are not an effective means to achieve improved disclosures as they are not endorsed.
Pollutant Pricing Mechanisms (PPM) The PPM project is currently on the IASB Reserve List and would only be added to the work plan if additional capacity becomes available. The IASB is conducting outreach. Most stakeholders considered that the significance and prevalence of both compliance and voluntary PPMs were increasing and that such schemes were likely to become more material in the short to medium term.
Post-implementation Review of IFRS 9 - Impairment A post-implementation review to determine if the new standard is working as intended. The IASB is part way through considering the stakeholder feedback received on this project. Ongoing discussion of stakeholder feedback expected throughout Q2 2024. Some respondents to the post-implementation review requested application guidance or illustrative examples to demonstrate how climate risk is incorporated into forward looking information. The IASB did not support creating new requirements specific to climate-risk matters. The IASB has not yet discussed disclosure. We understand that investors have expressed interest in understanding how climate-risk has been included in the measurement of expected credit losses under IFRS 9.
Power Purchase Narrow-scope amendments to the requirements in IFRS 9 Financial12 Exposure Draft Preliminary stakeholder views support the project, subject to concerns that limiting
Agreements (PPA) Instruments with respect to the 'own-use' and hedge accounting requirements and IFRS 7 Financial Instruments: Disclosures. issued. the scope to 'pay-as-produced' contracts may be too narrow. Draft Comment Letter to be brought to May UKEB meeting.
Primary Financial Statements (PFS) IFRS 18 Presentation and Disclosure in Financial Statements, was issued by the IASB on 9 April 2024. Final standard issued. UKEB stakeholders have indicated overall support for the presentation and disclosure requirements of IFRS 18, although a few concerns have been raised that will require further consideration prior to the endorsement of IFRS 18.
Provisions— Targeted Improvements The IASB is developing proposals to clarify specific aspects in IAS 37 Provisions, Contingent Liabilities and Contingent Assets.13 Exposure Draft expected H2 2024. At its April 2024 meeting, the IASB tentatively decided not to add to IAS 37 requirements relating specifically to net zero transition commitments. However, we understand that the fact pattern in the IFRS IFRIC Agenda Decision Climate-related Commitments could be added as an Illustrative Example accompanying IAS 37.

Appendix C: Post-implementation Review of IFRS 15 Revenue from Contracts with Customers

UKEB Project Status: Active Monitoring UKEB project page14
IASB Next Milestone: Feedback Statement (expected Q3 2024) UKEB Final Comment Letter (Published 26 October 2023)15

Background

C1.In June 2023, the IASB published its Request for Information: IFRS 15 Revenue from Contracts with Customers (RFI) to seek stakeholders' views on the requirements in IFRS 15. The UKEB response to the IASB was submitted on 26 October 2023.

Purpose of this update

C2.The IASB met on 24 April 2024 to continue to discuss stakeholder feedback on the RFI, in particular, in relation to applying:

a) IFRS 15 with other IFRS Accounting Standards; and b) the requirements in IFRS 15 on determining a transaction price16, specifically: i. on consideration payable to a customer (which had started to be discussed by the IASB in March 2024); and ii. on a significant financing component.

C3.The purpose of this paper is to provide the Board with a summary of the tentative decisions taken by the IASB at that meeting. The IASB used the PIR Framework to determine whether action should be taken, and the priority of any such action.

April 2024 IASB meeting

Applying IFRS 15 with other Accounting Standards

C4.The IASB decided to take action in relation to IFRS 10, IFRS 11, IFRS 16 and IFRIC 12, as detailed below, but decided to take no further action in relation to IFRS 3 and IFRS 9.

C5.The UKEB Final Comment Letter (FCL) did not make any recommendations to the IASB in relation to applying IFRS 15 with other Accounting Standards17.

Applying IFRS 15 with IFRS 3 Business Combinations

C6.Having considered the feedback, the IASB tentatively decided to take no further action on the matters related to:

a) the measurement of contract assets and contract liabilities acquired as part of a business combination18; and b) other aspects of applying IFRS 15 with IFRS 319.

C7.The UKEB FCL noted that, consistent with the IASB's post-implementation review of IFRS 3 and the subsequent Discussion Paper in 2020, no new information had come to light to suggest that the IASB need reopen this question, despite the recent amendment to US GAAP requiring contract assets acquired and contract liabilities assumed in a business combination to be accounted for on acquisition at transaction price under the US GAAP equivalent revenue standard.

Applying IFRS 15 with IFRS 9 Financial Instruments

C8.In response to the feedback, the IASB tentatively decided to take no further action on the matters related to:

a) the accounting for cases when an entity accepts lower consideration from a customer (price reductions) – for example, because the customer's financial position has deteriorated over the course of their relationship or because the entity wishes to enhance a customer relationship20; b) whether to classify some of the liabilities arising from IFRS 15 as non-financial (contract) liabilities or as financial liabilities applying IFRS 921; and c) other aspects of applying IFRS 15 with IFRS 922.

Applying IFRS 15 with IFRS 10 Consolidated Financial Statements and IFRS 11 Joint Arrangements

C9.Some respondents to the RFI asked the IASB to clarify how to account for transactions in which an entity—as part of its ordinary activities—sells an asset by selling an equity interest in a single-asset entity that is a subsidiary (a so-called ‘corporate wrapper’). Most respondents’ questions related to the presentation of the sale results—whether they should be presented net (as a gain or loss on the disposal) or gross (as proceeds from the disposal and related expense). A few respondents reported diversity in practice, in particular in the real estate, pharmaceutical and utilities sectors.

C10.In March 2023, in discussing the initial feedback on this matter in the first phase of the PIR of IFRS 15, the IASB noted that accounting for sales of assets via corporate wrappers is a cross-cutting issue, and developing a comprehensive solution for corporate wrappers could affect multiple IFRS Accounting Standards which would require significant resources.

C11.In light of the feedback to the RFI, the IASB decided to consider the priority of the matters related to applying IFRS 15 with IFRS 10 and IFRS 11 in the next agenda consultation, instead of as part of the post-implementation review of IFRS 15.

Applying IFRS 15 with IFRS 16 Leases

C12.Responding to the feedback, the IASB tentatively decided:

a) to gather further evidence in the forthcoming post-implementation review of IFRS 16 on the application matters related to assessing whether the transfer of an asset is a sale in a sale and leaseback transaction; and b) to take no further action on the matters related to: i. the accounting for contracts that contain lease and non-lease components, in particular whether to use the duration of the contract applying IFRS 15 or the lease term applying IFRS 16, and whether to measure variable consideration based on the requirements of IFRS 15 or those of IFRS 16; and ii. other aspects of applying IFRS 15 with IFRS 1623.

Applying IFRS 15 with other IFRS Accounting Standards

C13.In response to the feedback, the IASB tentatively decided:

a) to classify as low priority (to be considered in the next agenda consultation) the matter related to applying the requirements in IFRIC 12 Service Concession Arrangements on contractual obligations to maintain or restore service concession infrastructure24; and b) to take no further action on the other matters related to applying IFRS 15 with other IFRS Accounting Standards25.

C14.Accounting for contractual obligations to maintain or restore infrastructure was the most common matter raised in relation to IFRIC 12. Paragraph 21 of IFRIC 12 requires such contractual obligations to be recognised and measured in accordance with IAS 37, that is at the best estimate of the expenditure that would be required to settle the present obligation at the end of the reporting period. However, in some respondents' view, such obligations should be accounted for applying IFRS 15 as a contract liability relating to a separate performance obligation. Others argued that these obligations should be accounted for as contract liabilities regardless of the accounting model ('financial asset model' or 'intangible asset model') applied by the operator.

C15.Whilst the requirements are likely to affect a limited number of entities, an entity's accounting for contractual obligations to maintain or restore infrastructure would affect the amount of revenue or provision presented in financial statements, and hence profit margins and users' decisions. The IASB decided there is some evidence to suggest that the clarity and suitability of the requirements in IFRIC 12 could be improved by reviewing whether they should be further aligned with IFRS 15.

Determining a transaction price

C16.In March 2024, the IASB started discussing the feedback received on this topic and had decided at that meeting to take no further action on certain application matters26.

Consideration payable to a customer

C17.Following on from the initial discussions in March 2024 on this matter, and having subsequently sought feedback from ASAF members in March 2024, in April 2024 the IASB tentatively decided to classify as low priority the matters related to the consideration payable to a customer.

C18.The matters related to:

a) Accounting for consideration paid by an agent to an end customer (often in the form of marketing incentives) that is not made in exchange for a distinct good or service. b) Accounting for ‘negative' revenue, including: i. whether and in what circumstances an entity should reclassify 'negative' revenue and present it as an expenses; and ii. what the unit of account should be for assessing whether there is 'negative revenue'.

C19.Consistent with other stakeholder comments, the UKEB FCL recommended, that to reduce diversity in practice, the IASB clarifies in what circumstances:

a) consideration payable to a customer (that does not relate to a distinct good or service) should be netted against revenue; and b) net negative revenue should be reclassified and presented as an expense.

C20.In March 2024 the IASB determined that there is evidence to suggest that the requirements in IFRS 15 are insufficient for entities to consistently account for incentives paid by an agent to an end customer and for 'negative' revenue, and that the benefits to users are significantly lower than expected. However, further feedback was sought from ASAF members on whether these matters are prevalent and on whether the benefits of any action would be expected to exceed the costs.

C21.The feedback from the ASAF did not suggest that matters related to consideration payable to a customer are a high priority in many jurisdictions.

Significant financing component

C22.In response to the feedback, the IASB tentatively decided to take no further action on the matters related to:

a) the discount rate for contracts with a significant financing component27; and b) other aspects of accounting for a significant financing component28.

C23.The UKEB FCL did not make any recommendations to the IASB in relation to significant financing component.

Next Steps

C24.In May 2024, the IASB will discuss the remaining feedback raised by stakeholders on the RFI and discuss an updated academic literature review, in line with its planned timetable:

Topics for discussion Expected timing
Quarter 2 2024
1. Academic literature review May 2024
2. Summary discussion—Joint IASB—FASB education session 21 June 2024
Quarter 3 2024
3. Overall assessment of IFRS 15 July 2024
4. Summary discussion—IASB only

C25.The UKEB Secretariat will continue to monitor the IASB discussions and will update the Board on the IASB's tentative decisions.

C26.We expect the IASB to publish a project report and feedback statement in Q3 2024.

Appendix D: Intangible Assets

UKEB Project Status: Monitoring IASB Next Milestone: Review Research Q4 2024

D1.At its April 2024 meeting, the IASB started its research project on intangible assets and discussed the initial work it will do on this project. The IASB was not asked to make any decisions.

D2.The IASB discussed three topics29:

a) National standard-setter (NSS) research on intangibles. b) Academic literature on intangibles. c) Approaches to commencing the IASB's intangibles project.

D3.These discussions are summarised below.

Background

D4.The IASB's project will assess whether the requirements of IAS 38 Intangible Assets remain relevant and continue to fairly reflect current business models or whether the IASB should improve the requirements.

D5.The initial research and planning phase aims to define the scope of issues to be explored and identify the best approach to plan and organise the work.

D6.The IASB has noted that many stakeholders responding to its Third Agenda Consultation highlighted deficiencies in the reporting of intangible assets relating to all aspects of IAS 38, including its scope, its recognition and measurement requirements and the adequacy of disclosures. The IASB also noted that the project should "aim to address intangibles more broadly”, focusing not just on assets but also including intangible items currently expensed.

D7.In anticipation of the IASB's review of intangibles, the UKEB decided to initiate a research project focused on understanding UK stakeholders' views on the accounting for intangibles and gathering evidence about the UK intangibles landscape.30

National standard-setter (NSS) research on intangibles

D8.The IASB staff reviewed research outputs from a number of NSSs, including the UKEB's Qualitative Report (March 2023). Reference was also made to the (then) forthcoming Survey Report and Quantitative Report.

Key messages from NSS research

D9.Stakeholders are concerned about the IAS 38 requirements, and do not feel financial statements provide enough information about unrecognised internally generated intangible assets.

D10.The most commonly expressed stakeholder view was that disclosure of intangible items needs to be improved. However, there are mixed views, both across jurisdictions and between different stakeholder groups such as preparers, auditors, investors within jurisdictions, on whether the information should be within or outside the financial statements, or both.

D11.The UKEB's Qualitative Report and Survey Report highlighted similar concerns. The Survey Report suggested that users prefer the information to be in the financial statements as opposed to in the narrative disclosures.

D12.There are mixed views on what should be done in response to these concerns:

a) Reconsider the IAS 38 recognition criteria for different types of intangible items. b) Reconsider the IAS 38 prohibitions on recognition of many internally generated intangible assets. c) Reconsider the need to refer to an active market to be able to use the revaluation model for the subsequent measurement of intangible assets. d) Consider commercial sensitivity of additional disclosures. e) Improve disclosure requirements about unrecognised internally generated intangible assets, including key performance indicators relating to intangible items key to the business model and disaggregation of future-oriented/intangible expenses.

D13.It was noted that some of the concerns about accounting for intangibles may be auditing/enforcement issues rather than standard-setting issues, particularly where existing requirements are not being followed by entities.31

D14.The UKEB Qualitative Report was mentioned in reference to a lack of stakeholder information on expenses related to intangibles (the Quantitative Report provides more UK evidence on this issue).

D15.There are also mixed views on whether and how to address the inconsistency between the accounting requirements for internally generated and acquired intangible items. Some concerns were raised by IASB Board members that in attempting to solve this problem, inconsistencies might be introduced between goodwill and identifiable intangible assets that do not currently exist.32

D16.Some stakeholders are concerned about understandability of intangibles information and a lack of consistency in intangibles terminology used.33

NSS research gaps

D17.Several IASB members considered that there is a lack of evidence on best practice reporting, and on enforcement themes.

D18.The IASB staff confirmed they are working on a review of enforcement themes, primarily drawing from European Securities and Markets Authority data.

Academic literature on intangibles

D19.The IASB staff provided a comprehensive review of academic literature on the accounting for intangibles. They identified over 80 relevant papers.

D20.At a high level the themes identified include:

a) Recognition: i. Internally generated intangible assets, which do not meet the IAS 38 recognition criteria (or are prohibited in IAS 38) and items that do not meet the asset definition, have been linked to future benefits. ii. Separate recognition of identifiable intangible assets acquired in business combinations has shown that identifiable intangible assets are value relevant and have predictive ability for future operating and financial performance. b) Measurement i. Researchers have suggested relaxing the requirements for an "active market" to fair value intangible assets under the revaluation model, aligning the valuation of intangible assets with IFRS 13 Fair Value Measurement. c) Disclosure i. High-quality information disclosed about intangible assets and intangible items can have a positive effect on an entity's market value. ii. There is mixed evidence on the benefits of expense disaggregation in the income statement with concerns over revealing commercially sensitive information. d) Other topics included a discussion of terminology.

Approaches to commencing the IASB's intangibles project

D21.The IASB staff paper focused on possible topics for the initial research project, and the approaches that could be taken to the intangibles project.

Possible topics for the initial research project

D22.A list of possible topics presented in the agenda papers is summarised in the table below.

| Topic | Possible topics for the IASB intangibles research project

Footnotes

Footnotes

  1. https://www.endorsement-board.uk/projects/rate-regulated-activities ↩

  2. https://www.endorsement-board.uk/publications/ukeb-comment-letter-on-iasb-exposure-draft-regulatory-assets-and-regulatory-liabilities ↩

  3. The IASB's Exposure Draft was published in January 2021 and can be found https://www.ifrs.org/content/dam/ifrs/projects/past-projects/2021/regulatory-assets-and-regulatory-liabilities/exposure-draft-regulatory-assets-and-regulatory-liabilities.pdf. The UKEB final comment letter can be found https://www.endorsement-board.uk/publications/ukeb-comment-letter-on-iasb-exposure-draft-regulatory-assets-and-regulatory-liabilities. ↩

  4. The UKEB final comment letter can be found https://www.endorsement-board.uk/publications/ukeb-comment-letter-on-iasb-exposure-draft-regulatory-assets-and-regulatory-liabilities. ↩

  5. The UKEB comment letter did not include views on the interaction of the ED with IFRS 3 and IFRS 5. ↩

  6. IASB Update April 2024 - Climate-related and Other Uncertainties in the Financial Statements (Agenda Paper 14) ↩

  7. https://www.endorsement-board.uk/about/investor-advisory-group ↩

  8. Are Financial Statements Transparent on Company's Participation in the Carbon Markets? (IASB PPM investor survey - deadline 24 May 2024) ↩

  9. Emerging Economies Group meeting (May 2024) ↩

  10. S2 paragraph 36 (e) states 'the entity's planned use of carbon credits to offset greenhouse gas emissions to achieve any net greenhouse gas emissions target.' IFRS S2 Climate-related Disclosures. (Page 17) ↩

  11. S2 Appendix B Application guidance (paragraphs B70 – B71, page 41) ↩

  12. IASB General Update – Appendix A: Pollutant Pricing Mechanisms – IASB survey response ↩

  13. Please refer to Agenda Paper 8 for a high-level summary of the IASB tentative decisions. ↩

  14. https://www.endorsement-board.uk/projects/post-implementation-review-of-ifrs-15-revenue-from-contracts-with-customers ↩

  15. https://www.endorsement-board.uk/publications/ukeb-comment-letter-on-iasb-request-for-information-ifrs-15-revenue-from-contracts-with-customers ↩

  16. IASB Staff Agenda Paper 6F April 2024 meeting ↩

  17. See paragraphs A25–A26 of the UKEB Final Comment Letter submitted to the IASB on 26 October 2023. ↩

  18. Only a small majority of eight out of 14 IASB members agreed with this decision to take no further action. ↩

  19. Appendix A of IASB Staff Agenda Paper 6B April 2024 meeting includes three application matters raised by respondents to the RFI relating to applying IFRS 15 with IFRS 3. ↩

  20. Some entities account for the reduction by reducing revenue while others apply IFRS 9 and recognise an expected credit loss. ↩

  21. The concerns mostly relate to liabilities for which it is uncertain whether the liability will be settled in cash or non-cash items, for example liabilities relating to points under loyalty programmes or gift cards and refund liabilities. ↩

  22. Appendix A of IASB Staff Agenda Paper 6A April 2024 meeting includes 13 application matters raised by respondents to the RFI relating to applying IFRS 15 with IFRS 9. ↩

  23. Appendix A of IASB Staff Agenda Paper 6D April 2024 meeting includes eight applications matters raised by respondents to the RFI related to applying IFRS 15 with IFRS 16. ↩

  24. Only half of the 14 IASB members agreed with decision to take action on this topic, with the Chair using their additional casting vote in favour of taking action. ↩

  25. Appendix A of IASB Staff Agenda Paper 6E April 2024 meeting includes 21 application matters raised by respondents to the RFI related to applying IFRS 15 with other Accounting Standards not already discussed. ↩

  26. As noted in the IASB update paper to the Board in April 2024, the IASB decided to take no further action on application matters in relation to a) variable consideration; b) sales-based taxes; and c) non-cash consideration. ↩

  27. A majority of 11, but not all 14, members agreed with the decision to take no further action with regards to the discount rate for contracts with a significant financing component. ↩

  28. Appendix A of IASB Staff Agenda Paper 6F April 2024 meeting includes five application matters raised by respondents to the RFI relating to a significant financing component. ↩

  29. IASB Papers can be found here. ↩

  30. Intangibles Project | UK Endorsement Board ↩

  31. The UKEB intangibles research also reflected these mixed views. The Survey Report suggested that there was not a strong appetite among users for significant revisions to the recognition criteria or measurement requirements for intangible assets. However, there were specific views on opportunities to improve the recognition and measurement for different types of intangible items, including non-traditional intangibles such as cryptoassets and emissions trading certificates. ↩

  32. All three UKEB reports identified the lack of comparability as an issue. Again, from a UK perspective, there was a lack of consensus on whether there is a case for change to accounting requirements in response to this issue. Goodwill was not a focus of the UKEB research. It is unclear as yet whether goodwill/IFRS 3 will be in the scope of the IASB project, or whether the scope will be restricted to IAS 38. ↩

  33. The UKEB Quantitative Report demonstrated inconsistencies in the use of terminology from the sample of UK listed companies' financial statements reviewed. ↩

  34. Paragraph 25 in IFRS 16 clarifies that the obligations for the costs are recognised and measured applying IAS 37. (The obligation is recognised as a provision, it is not included in the measurement of the lease liability). ↩

  35. Link to 14 Dec. 2023 IASB General Update - Agenda Paper 6 - Appendix E, paragraph E6. ↩

  36. Link to 14 Dec. 2023 IASB General Update - Agenda Paper 6 - Appendix E, paragraph E7. ↩

  37. IASB staff paper Loan commitments and financial guarantee contracts ↩

  38. IASB staff paper Purchased or originated credit-impaired financial assets ↩

  39. IASB staff paper Interaction of impairment requirements with other requirements ↩

  40. Transition Resource Group for the Impairment of Financial Instruments, Meeting Summary paragraphs 40-44 April 2015 ↩

  41. Transition Resource Group for the Impairment of Financial Instruments, Meeting Summary paragraphs 14-18, December 2015 ↩

  42. Credit Enhancement in the Measurement of Expected Credit Losses, March 2019 ↩

  43. Lessor Forgiveness of Lease Payments, October 2022 ↩

  44. IASB April 2024 meeting Agenda paper 32B, project: Updating the Subsidiaries without Public Accountability: Disclosures Standard, topic: Due process. ↩

  45. See paragraphs G8–G11 Agenda Paper 6: Appendix G of the February 2024 UKEB meeting, paragraphs F6–F13 Agenda Paper 9: Appendix F of the March 2024 UKEB meeting and paragraphs B6–B23 Agenda Paper 7: Appendix B of the March 2024 UKEB meeting. ↩

  46. See paragraphs B24–B32 Agenda Paper 7: Appendix B of the April 2024 UKEB meeting. ↩

  47. IFRS 18 Presentation and Disclosure in Financial Statements. ↩

  48. E.g. Lack of Exchangeability (Amendments to IAS 21), International Tax Reform—Pillar Two Model Rules (Amendments to IAS 12). ↩

  49. For details of these matters see Agenda Paper 7 Appendix H of the Board's October 2023 meeting. ↩

  50. This list does not include projects related to the IFRS Interpretations Committee or IASB's projects outside the UKEB's work remit (such as the Second Comprehensive Review of the IFRS for SMEs Accounting Standard). ↩

  51. https://www.endorsement-board.uk/projects/classification-and-measurement-of-financial-instruments ↩

  52. https://www.endorsement-board.uk/publications/ukeb-project-initiation-plan-ifrs-17 ↩

  53. https://www.endorsement-board.uk/publications/ukeb-final-comment-letter-on-iasb-exposure-draft-amendments-to-ifrs-17 ↩

  54. https://www.endorsement-board.uk/publications/ukeb-feedback-statement-financial-instruments-with-characteristics-of-equity ↩

  55. https://www.endorsement-board.uk/publications/ukeb-due-process-compliance-statement-financial-instruments-with-characteristics-of-equity ↩

  56. https://www.endorsement-board.uk/projects/annual-improvements ↩

  57. https://www.endorsement-board.uk/publications/ukeb-project-initiation-plan-ias-7-ifrs-7-ifrs-1 ↩

  58. https://www.endorsement-board.uk/publications/ukeb-final-comment-letter-ias-7-ifrs-7-ifrs-1 ↩

  59. https://www.endorsement-board.uk/publications/ukeb-feedback-statement-annual-improvements-2018-2020 ↩

  60. https://www.endorsement-board.uk/publications/ukeb-due-process-compliance-statement-annual-improvements-2018-2020 ↩

  61. https://www.endorsement-board.uk/projects/business-combinations-goodwill-and-impairment ↩

  62. https://www.endorsement-board.uk/publications/ukeb-comment-letter-on-iasb-discussion-paper-business-combinations-disclosures-goodwill-and-impairment ↩

  63. https://www.endorsement-board.uk/publications/ukeb-feedback-statement-business-combinations-goodwill-and-impairment ↩

  64. https://www.endorsement-board.uk/publications/ukeb-report-subsequent-measurement-of-goodwill-a-hybrid-model ↩

  65. https://www.endorsement-board.uk/projects/business-combinations-goodwill-and-impairment-influencing ↩

  66. https://www.endorsement-board.uk/publications/ukeb-project-initiation-plan-goodwill ↩

  67. https://www.endorsement-board.uk/projects/financial-instruments-with-characteristics-of-equity ↩

  68. https://www.endorsement-board.uk/publications/ukeb-project-initiation-plan-financial-instruments-with-characteristics-of-equity ↩

  69. https://www.endorsement-board.uk/publications/ukeb-draft-comment-letter-on-iasb-exposure-draft-financial-instruments-with-characteristics-of-equity ↩

  70. https://www.endorsement-board.uk/publications/ukeb-final-comment-letter-on-iasb-exposure-draft-financial-instruments-with-characteristics-of-equity ↩

  71. https://www.endorsement-board.uk/publications/ukeb-feedback-statement-financial-instruments-with-characteristics-of-equity ↩

  72. https://www.endorsement-board.uk/publications/ukeb-due-process-compliance-statement-financial-instruments-with-characteristics-of-equity ↩

  73. https://www.endorsement-board.uk/projects/intangible-assets ↩

  74. https://www.endorsement-board.uk/projects/post-implementation-review-of-ifrs-15-revenue-from-contracts-with-customers ↩

  75. https://www.endorsement-board.uk/publications/ukeb-project-initiation-plan-ifrs-15 ↩

  76. https://www.endorsement-board.uk/publications/ukeb-draft-comment-letter-on-iasb-request-for-information-ifrs-15-revenue-from-contracts-with-customers ↩

  77. https://www.endorsement-board.uk/publications/ukeb-comment-letter-on-iasb-request-for-information-ifrs-15-revenue-from-contracts-with-customers ↩

  78. https://www.endorsement-board.uk/publications/ukeb-feedback-statement-ifrs-15-revenue-from-contracts-with-customers ↩

  79. https://www.endorsement-board.uk/publications/ukeb-due-process-compliance-statement-ifrs-15-revenue-from-contracts-with-customers ↩

  80. https://www.endorsement-board.uk/projects/post-implementation-review-of-ifrs-9-impairment ↩

  81. https://www.endorsement-board.uk/publications/ukeb-project-initiation-plan-ifrs-9-impairment-pir ↩

  82. https://www.endorsement-board.uk/publications/ukeb-draft-comment-letter-on-iasb-request-for-information-ifrs-9-impairment ↩

  83. https://www.endorsement-board.uk/publications/ukeb-comment-letter-on-iasb-request-for-information-ifrs-9-impairment ↩

  84. https://www.endorsement-board.uk/publications/ukeb-feedback-statement-ifrs-9-impairment-pir ↩

  85. https://www.endorsement-board.uk/publications/ukeb-due-process-compliance-statement-ifrs-9-impairment-pir ↩

  86. https://www.endorsement-board.uk/projects/power-purchase-agreements ↩

  87. https://www.endorsement-board.uk/publications/ukeb-project-initiation-plan-power-purchase-agreements ↩

  88. https://www.endorsement-board.uk/projects/rate-regulated-activities ↩

  89. https://www.endorsement-board.uk/publications/ukeb-preliminary-economic-assessment-rate-regulated-activities-ed ↩

  90. https://www.endorsement-board.uk/projects/rate-regulated-activities-influencing ↩

  91. https://www.endorsement-board.uk/publications/ukeb-comment-letter-on-iasb-exposure-draft-regulatory-assets-and-regulatory-liabilities ↩

  92. https://www.endorsement-board.uk/publications/ukeb-feedback-statement-on-iasb-exposure-draft-regulatory-assets-and-regulatory-liabilities ↩