7 IASB General Update

18 July 2024 Agenda Paper 7

Executive Summary

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

Topics addressed in this paper include topics discussed by the IASB at its June 2024 meeting.

Topics for discussion

• Provisions – Targeted Improvements

Topics for noting

• IASB Work Plan
• Climate-related Matters
• Equity Method
• Post-implementation Review of IFRS 16 Leases

IFRIC Update

Questions for the Board

Topics for discussion

• Do Board members have questions or comments on the tentative decisions the IASB has made on the Provisions – Targeted Improvements project?

Topics for noting

• Do Board members have any questions or comments on the topics for noting?

IFRIC Update

• Do Board members agree that the UKEB will NOT undertake further work on either of the matters received but not yet presented to the Interpretations Committee at this time [Recognition of revenue from tuition fees and Accounting for corporate guarantee contracts issued by the investor entity in relation to obligations of its joint venture in its separate financial statements]?

Recommendation

N/A

Appendices

• Appendix A: Provisions – Targeted Improvements
• Appendix B: IASB Work Plan
• Appendix C: Climate-related Matters
• Appendix D: Equity Method
• Appendix E: Post-implementation Review of IFRS 16 Leases
• Appendix F: Interpretations Committee Update
• Appendix G: List of IASB projects

Appendix A: Provisions – Targeted Improvements

Background

A1The IASB is assessing potential amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets. A summary of the IASB's previous tentative decisions was presented to the Board in June 2024¹.

A2In June 2024, the IASB finalised the technical discussions on this project and made the tentative decisions presented in the paragraphs below.

Scope of IAS 37

Current requirements

A3IAS 37 applies to provisions, which it defines in paragraph 10 as liabilities ‘of uncertain timing or amount’.

A4IFRIC 21 Levies addresses the accounting for a liability to pay a levy if that liability is within the scope of IAS 37. It also addresses the accounting for a liability to pay a levy whose timing and amount is certain.

What is the issue?

A5At its April 2024 meeting the IASB tentatively decided to propose withdrawing IFRIC 21, replacing it with examples in IAS 37 illustrating how the amended requirements would apply to levies.

A6A question therefore arises as to whether the proposed amendments should include a proposal to widen the scope of IAS 37 to include not only provisions (liabilities of uncertain timing or amount) but also levies whose timing and amount is certain.

IASB tentative decision

A7In June 2024 the IASB tentatively decided to retain the current scope of IAS 37, instead of widening it to include levies whose timing and amount are certain.

A8The IASB staff paper noted that with many types of obligations within the scope of IAS 37, the entity's liability can become certain in both timing and amount before the entity settles the liability. The paper noted that there is no explicit statement in IAS 37 that these obligations are within the scope of IAS 37, and nothing in IAS 37 that says once the uncertainty has been resolved, the liability is no longer in the scope of IAS 37. In their view, there is no need to widen the scope of IAS 37. In addition, widening the scope of the Standard could create a risk of unintended consequences.

Disclosure requirements in IFRS 19

Current requirements

A9IFRS 19, as published in May 2024, includes all existing disclosure requirements in IAS 37.

Why a consequential amendment to IFRS 19 is needed?

A10As decided by the IASB, on an ongoing basis each exposure draft of a new or amended IFRS Accounting Standard will, if relevant, propose amendments to IFRS 19 so that the disclosure requirements in that Standard remain up to date.

A11In April 2024 the IASB tentatively decided to add to IAS 37 a requirement to disclose the discount rates used in measuring provisions and the approach used to determine those rates.

IASB tentative decision

A12In June 2024 the IASB tentatively decided to add to IFRS 19 Subsidiaries without Public Accountability: Disclosures a requirement for an entity to disclose the discount rate(s) used in measuring a provision, but not to add to IFRS 19 a requirement for an entity to disclose the approach used to determine the rate(s).

A13The IASB staff paper noted that although it could be argued that information about the approach used to determine the discount rate is equally relevant for entities in the scope of IFRS 19, they noted that except in relation to IFRS 17 Insurance Contracts, none of the other requirements in IFRS 19 requires disclosure of the approach used to determine the discount rate.

Consequential amendment to IFRS 3

Current requirements

A14The IASB staff paper notes that there are two ‘recognition principles’ underpinning the requirements in IFRS 3 for recognising assets and liabilities acquired in a business combination:

1. Initial recognition at the acquisition date – the acquirer recognises the identifiable assets it has acquired and the liabilities it has assumed, recognising items that meet the definitions of an asset or a liability in the Conceptual Framework for Financial Reporting (the Conceptual Framework) (IFRS 3 paragraphs 10-11).
2. Subsequent recognition – the acquirer accounts for the assets acquired and liabilities assumed in accordance with the applicable IFRS Accounting Standard for those items, according to their nature (IFRS 3 paragraph 54).

A15Until 2020, IFRS 3 referred to an old version of the Conceptual Framework. In 2020, the IASB updated the reference so that IFRS 3 now refers to the 2018 Conceptual Framework.

A16The recognition requirements in IAS 37 and in IFRIC 21 are not consistent with those of the 2018 Conceptual Framework². Consequently, updating the IFRS 3 reference to the Conceptual Framework could have required acquirers to recognise, on the acquisition of a business, liabilities that they would be required to derecognise subsequently (resulting in ‘day 2’ gains).

A17To avoid this outcome, the IASB made a second amendment to IFRS 3, adding an exception³ to the initial recognition principle. The exception applies to liabilities and contingent liabilities that would be within the scope of IAS 37 or IFRIC 21 if they were incurred separately rather than assumed in a business combination. It specifies that an entity applies IAS 37 or IFRIC 21 (not the 2018 Conceptual Framework) to determine whether to recognise a liability for those items at the acquisition date.

What is the issue?

A18The amendments to IAS 37 proposed as part of the Provisions – Targeted Improvements project would make the exception in IFRS 3 redundant.

IASB tentative decision

A19In June 2024 the IASB tentatively decided to delete paragraphs 21A-21C from IFRS 3, thereby removing the exception to the recognition principle in IFRS 3 (that would become redundant as a result of the proposed amendments to IAS 37).

Other more minor consequential amendments

A20Several other IFRS Accounting Standards refer to IAS 37, with their references including terminology from IAS 37. Some of that terminology will change as a result of the amendments proposed as part of this project. Consequential amendments to the other Standards would be needed to ensure consistency.

A21The exposure draft of the proposed amendments to IAS 37 could include a proposal to make those minor consequential amendments. The exposure draft could include a list of the Standards and paragraphs the IASB have identified for amendment, without necessarily drafting all the consequential amendments⁴.

A22The IASB staff intend to prepare a list of potential minor consequential amendments and ask the IASB to approve proposals for those amendments as part of the balloting process for the exposure draft.

Threshold-based variable lease payments

Current requirements

A23IFRS 16 Leases has specific requirements for ‘variable lease payments’. Paragraph 38 in IFRS 16 states that variable lease payments that are not based on an index or a rate (such as payments based on specified revenue or the output of a wind farm) are not part of the lease liability, but are recognised in the income statement in the period in which the event or condition that triggers those payments occurs.

What is the issue?

A24This item was not presented as part of the IASB staff papers, but it was brought to the IASB's attention by one IASB member at the June 2024 meeting.

A25That IASB member noted that some entities apply IFRIC 21 by analogy to threshold-triggered variable lease payments. The IASB tentative decision to withdraw IFRIC 21 could create a challenge for those entities.

IASB discussion

A26During the meeting there were mixed views amongst IASB members as to whether this issue should be addressed within the Provisions – Targeted Improvements project or as part of the Post-implementation Review of IFRS 16.

A27The IASB was not asked formal questions (and therefore no tentative decisions were made). However, during the meeting Board members agreed that this issue would be brought to stakeholders' attention, either by adding a direct question in the exposure draft for this project or by adding information in the basis for conclusions to trigger stakeholder feedback.

Transition requirements

General requirements for applying changes in accounting policies

A28Paragraph 19 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors requires an entity to account for a change in an accounting policy resulting from the initial application of an IFRS Accounting Standard:

1. in accordance with the specific transition requirements set out in that Standard, if any; or
2. retrospectively (as if the policy had always been applied) if there are no specific transition requirements in the Standard.

A29The IAS 8 requirement for retrospective application is subject to limitations. An entity is required to apply a change in accounting policy retrospectively only as far back as it is practicable.

IASB tentative decisions

A30In June 2024 the IASB tentatively decided to propose in the exposure draft that an entity applies the proposed amendments retrospectively in accordance with IAS 8, with two exceptions.

A31The first exception would apply to the proposed amendment to the discount rate requirements affecting provisions for asset decommissioning, restoration or similar costs that are added to the cost of the related asset. The exception would permit an entity to apply a simplified retrospective approach, whereby in the year of transition the entity would⁵:

1. apply the amended requirements in IAS 37 to restate the provision at the start of the first period for which it provides comparative information; and
2. apportion the amount by which it adjusts the provision at that date between the related asset and retained earnings:
   1. assuming the current discount rate(s) and estimates of cash flows used in measuring the provision have not changed since the provision was first recognised; and
   2. using current estimates of the useful life of the related asset.

A32The rationale for permitting the simplified retrospective approach described above is that where the cost of fulfilling an asset decommissioning or environmental rehabilitation obligation is added to the cost of the related asset, applying a change in the discount rate fully retrospectively could be difficult and potentially impracticable. It would require the entity to gather or reconstruct information generated from the time of initial recognition of the provision⁶, which could be decades in the past if the provision relates to long-lived assets. Even where practicable, the costs of full retrospective application might exceed the benefits.

A33During the meeting it was noted that a similar exception is currently provided for first-time adopters in IFRS 1 First-time Adoption of International Financial Reporting Standards, paragraph D21.

A34The second exception would apply to the proposed amendment specifying the costs an entity would include in measuring a provision. The exception would require an entity to apply the proposed amendment:

1. Only to obligations that exist on, or arise after, the beginning of the annual reporting period in which the entity first applies that amendment.
2. Without restating comparative information. Instead, the entity would recognise the cumulative effect of applying the amendment as an adjustment to the opening balance of retained earnings or other component of equity, as appropriate, at the date of initial application.

A35Arguments presented in the IASB staff paper⁷ in support of the second exception included:

1. It may be difficult and costly for an entity to obtain the information needed to restate comparative amounts, and the information provided by doing so was unlikely to be sufficiently useful to justify the costs that the entity might incur.
2. Items in scope are often non-recurring in nature, meaning retrospective application would not generally provide users of financial statements with useful trend information.
3. The proposed transition requirement is similar to the modified retrospective approach prescribed for the 2020 amendment to IAS 37 specifying costs an entity includes in assessing whether a contract is onerous (that is, whether a provision should be recognised).

First time IFRS reporters

A36The IASB tentatively decided to propose in the exposure draft to make no amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards as a result of the amendments proposed in this project.

Effects analysis and review of due process

A37In June 2024 the IASB set a 120-day comment period for the exposure draft.

A38All IASB members confirmed they were satisfied the IASB has complied with the applicable due process requirements and has undertaken sufficient consultation and analysis to begin the process for balloting the exposure draft.

A39No IASB member indicated an intention to dissent from the proposals in the exposure draft.

Next steps

A40The IASB will begin the process for balloting the exposure draft. The UKEB Secretariat plans to discuss with the UKEB Financial Instruments Working Group the amendments proposed to replace IFRIC 21, with a focus on the possible implications for the accounting of the UK bank levy.

Question for the Board

1Do Board members have questions or comments on the tentative decisions the IASB has made on the Provisions – Targeted Improvements project?

Appendix B: IASB Work Plan

June 2024 IASB Work Plan

B1At its June 2024 meeting the IASB was provided with an update on its Work Plan⁸. The purpose of the update was to support any decisions about projects required by other individual project papers and to support an assessment of overall progress. The IASB was not asked to make any decisions.

UKEB work on current IASB Work Plan

B2At the time of writing, and counting the Annual Improvements projects as one project, the IASB Work Plan⁹ includes 14 IFRS Accounting projects that are within the UKEB's core remit.¹⁰

B3The UKEB Secretariat has active projects covering all IFRS Accounting projects in the IASB's current work plan with the exception of:

1. Dynamic Risk Management (standard-setting project) – exposure draft expected in H1 2025.
2. Post-implementation Review of IFRS 16 Leases (research project) – request for information expected in H1 2025.
3. Use of a Hyperinflationary Presentation Currency by a Non-hyperinflationary Entity (IAS 21) (maintenance project) - exposure draft expected July 2024.

B4Regarding a), as set out in the UKEB 2024-2025 Regulatory Strategy, UKEB work on this project is planned to commence in 2025, as resource becomes available.

B5Regarding b), this IASB project was added to the IASB Work Plan in June 2024 and is at an early stage. The UKEB 2024-2025 Regulatory Strategy indicates that the Secretariat will commence an influencing project, with a moderate scope, during the remainder of 2024-2025. This project is on the draft ASAF agenda for September 2024.

B6Regarding c), no work is currently being carried out by the Secretariat. As set out in the UKEB 2024-2025 Regulatory Strategy, this project will be addressed subject to resource availability.

B7The IASB completed its Post-implementation Review of IFRS 9 – Impairment in early July 2024¹¹ and expects to complete its Post-implementation Review of IFRS 15 Revenue from Contracts with Customers in Q3 2024. The Secretariat plans to bring updates on the outcome of these projects to the Board in Q3 2024.

B8The UKEB 2024-2025 Regulatory Strategy presented the IASB research project on Intangible Assets as a ‘project to be deferred’ - be addressed subject to resource availability. The IASB has recently added this research project to its Work Plan and it is now one of the Secretariat active projects, which will use the available resource subsequent to the finalisation of the UKEB's intangibles research.

IASB pipeline projects

B9The IASB has already committed to carrying out several pipeline projects and the June 2024 Work Plan update¹² provided an indication of timing for these projects. Based on the IASB staff paper, the following are expected to commence in Q3 2024:

1. Statement of cash flows and related matters.
2. Amortised cost measurement.

B10The UKEB 2024-2025 Regulatory Strategy indicates that monitoring projects on each of these projects will be commenced once they are added to the IASB Work Plan, subject to resource availability.

B11In addition, the IASB is gathering information about accounting matters involving pollutant pricing mechanisms (PPMs) and their prevalence, including through ASAF. The IASB staff plan further outreach in the coming months. The UKEB has encouraged the IASB to add a project on PPMs to its Work Plan.

Appendix C: Climate-related matters

Pollutant Pricing Mechanisms (PPMs)

Pollutant Pricing Mechanisms

C1The IASB met on 20 June 2024 to discuss information gathered to help it decide whether to prioritise a project on PPMs. The IASB was not asked to make any decisions. At the UKEB's June 2024 meeting the Secretariat provided a verbal update on the IASB discussion. Key points are summarised below.

IASB June meeting – PPM discussion

C2IASB board members' overarching comments were that enough information had now been gathered and that the discussion should focus on which project to mobilise from the IASB reserve project list, its scope and resource availability.

C3The IASB considered the following points in relation to a potential PPM project:

1. The relationship with the Intangibles and Provisions projects and whether PPMs could be included in the scope of those projects.
2. That PPMs were a component of connected information between the sustainability disclosures and the financial statements.
3. That a PPM project could potentially be considered as part of the next Agenda Consultation, which was anticipated to start at end of 2025.
4. The possibility of delaying a decision and gauging the reaction to FASB's carbon credit consultation.

Next steps

C4The IASB will discuss the potential project with members of ASAF¹³ at ASAF's July 2024 meeting.

Appendix D: Equity Method

Background and purpose of this update

D1At its March 2024 meeting, the IASB agreed the staff should begin the process for balloting the Exposure Draft Equity Method of Accounting IAS 28 Investments in Associates and Joint Ventures (Revised) (the ED)¹⁴.

D2The IASB staff have prepared the pre-ballot draft of the ED and submitted it for review. When analysing the comments from the review five sweep issues were identified and at its June 2024 meeting the IASB discussed these issues.

Tentative decisions on sweep issues

D3The table below summarises the five sweep issues identified and the IASB's tentative decisions:

Next steps

D4The IASB is expected to publish the ED in September 2024. We plan to present a Project Initiation Plan to the Board in due course.

Appendix E: Post-implementation Review of IFRS 16 Leases

Background

E1The IASB has commenced its Post-implementation Review of IFRS 16 Leases (PIR). At its June 2024 meeting the IASB discussed the objective of the project, activities to be conducted in phase one and the timelines for the PIR.

E2The board was not asked to make any decisions at this meeting.

Purpose of this update

E3This update provides the board with a brief outline of the expected activities and timeline of phase one of the PIR.

Post-implementation Review

E4The PIR process consists of two phases:

1. Phase one—Identification of matters to be examined, drawing on discussions with the Interpretations Committee, IASB advisory groups and other interested parties. The IASB then conducts public consultation on the matters identified during this phase.
2. Phase two—the IASB considers the comments from public consultation in phase one together with other information gathered from additional analysis and other consultative activities.

E5This update focuses only on the IASB's plans for phase one of the PIR.

Phase one activities

E6The objective of this phase is to gather sufficient information to enable the IASB to identify the areas of IFRS 16 on which it should seek further information in phase two of the PIR.

E7In phase one of the PIR the IASB staff will consult with a variety of stakeholders including auditors, users, preparers, national standard setters, regulators and users of financial statements. This will be achieved through the IASB's advisory groups and through inputs from other smaller groups such as auditors, industry groups and other users who have an interest in IFRS 16.

Timelines

E8The timeline for phase one of the PIR is based on the IASB's due process and its previous experience of conducting PIRs and is expected to take around 24 months to complete.

E9A summary of the proposed timeline is as follows:

E10The comment period for the request for information is anticipated to be 120 days, subject to future IASB decisions.

Next steps

E11The UKEB Secretariat will continue to monitor the IASB discussions and will update the Board on further developments and any tentative decisions at future meetings.

Appendix F: Interpretations Committee Update

Background

F1The UKEB's Due Process Handbook notes that the UKEB expects to respond to a limited number of tentative agenda decisions published by the IFRS Interpretations Committee (Interpretations Committee). Some factors to consider when deciding whether to respond may be:

1. the degree of impact of the tentative agenda decision on UK companies (for example, in cases where the tentative agenda decision is expected to affect a significant number of UK companies);
2. disagreement with the Interpretations Committee's analysis; or
3. usefulness of the explanations and clarifications included in the tentative agenda decision.

F2The Secretariat reported on the 11 June 2024 Interpretations Committee meeting in the June IASB Update (Appendix H).

F3In July the Interpretations Committee received a new question “Recognition of revenue from tuition fees (IFRS 15)”. This is summarised below.

Question for the Board

1Do Board members agree that the UKEB will NOT undertake further work on either of the matters received but not yet presented to the Interpretations Committee at this time?

Appendix G: List of IASB projects

This Appendix provides a list of all IASB projects²⁴, including links to the IASB project page and, where relevant, to the UKEB project page and any UKEB reports or comment letters. Items highlighted in grey are changed from the last report.

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Footnotes