7 IASB General Update

Header	Value
Project Type	Monitoring
Project Scope	Various

Header	Value
UKEB Project Status:	Influencing
IASB Next Milestone:	Submission of Comment Letters 28 November 2024 Climate-related and Other Uncertainties in the Financial Statements

Header	Value
UKEB Project Status:	Monitoring
IASB Next Milestone:	Discussion with ASAF, December 2024. IASB Management Commentary project

Header	Value
UKEB Project Status:	Monitoring
IASB Next Milestone:	IFRS Advisory Council consultation

Header 1	Header 2
UKEB Project Status: Completed	UKEB project page
IASB Project Summary and Feedback Statement (published 30 September 2024)	UKEB Final Comment Letter (published 26 October 2023)

Key UKEB comment letter recommendations	IASB decisions
In relation to the determination of the transaction price, recommended that the IASB clarifies in what circumstances:	As per the project summary9 the IASB decided to consider in its next agenda consultation the matters related to reporting consideration payable to a customer, including:
i. consideration payable to a customer (that does not relate to a distinct good or service) should be netted against revenue; and	(a) 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; and
ii. net negative revenue should be reclassified and presented as an expense.	(b) consideration payable to a customer that exceeds the amount of consideration expected to be received from the customer ('negative' revenue), including:
	(i) whether and in what circumstances an entity reclassifies 'negative' revenue and presents it in an 'expenses' category; and
	(ii) which unit of account an entity uses to assess whether 'negative' revenue exists.
In the context of principal versus agent considerations, recommended that the IASB:	The IASB decided not to add some explanations from the Basis for Conclusions10 to the Standard itself, despite
i. expands the indicators of control (IFRS 15 paragraph B37) to cover indicators that are more relevant to services and intangibles; and	stakeholders' requests to the IASB to clarify some aspects of the guidance on identifying performance obligations and principal versus agent considerations.
ii. elevates paragraph B385H from the Basis for Conclusions to the standard, to highlight the importance of the primary assessment of transfer of control and that the indicators of control are secondary in the assessment.	As per the project summary11, the IASB decided not to undertake standard setting at this time. Instead, the IASB decided to consider in its next agenda consultation the matter related to assessing control over services and intangible assets to determine whether an entity acts as a principal or an agent.
This would minimise the risk that the control framework for principal versus agent considerations is inappropriately applied and ensure greater consistency in practice.
Recommended that the IASB and the FASB continue to work together to ensure that IFRS 15 and Topic 606 remain substantially converged.	As per the project summary12, the IASB the IASB considered the effects on convergence when considering whether to take action on application matters. The IASB also held an education session with the FASB to share each board's findings in their respective post-implementation reviews before finalising their decisions13. The boards observed that they are not expecting to take any actions that would lead to significant changes in the degree of convergence between IFRS 15 and Topic 606.

Header	Value
UKEB Project Status:	Monitoring
IASB Next Milestone:	Review research (January 2025)

Header	Value
UKEB Project Status:	Monitoring
IASB Next Milestone:	Review research (January 2025)

Header 1	Header 2
UKEB Project Status: Monitoring	UKEB Project page
IASB Next Milestone: Final Amendments expected December 2024	UKEB Final Comment Letter (published August 2024)

Header	Value
UKEB Project Status:	Monitoring
IASB Next Milestone:

Header	Value
Topic	Recognition of intangible assets resulting from climate-related commitments
Standard	IAS 38 Intangible Assets
Question¹	Whether (and if so, how) an entity recognises an intangible asset that may result from an entity's climate-related commitments.

| Header | Value ```

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 those discussed by the IASB at its September 2024 meeting.

Topic for discussion

• Climate-related and Other Uncertainties in the Financial Statements - additional connectivity examples presented at World Standard Setters forum

Topics for noting

• Management Commentary (sustainability-related)
• Pollutant Pricing Mechanisms
• Post-implementation Review of IFRS 15 Revenue from Contracts with Customers
• Statement of Cash Flows and Related Matters
• Amortised Cost Measurement
• Power Purchase Agreements

IFRIC Update

Decisions for the Board

Topic for discussion

• Do Board members have any comments on the three new connectivity examples presented at the World Standard Setters forum?
• Do Board members consider that reference should be made to the three new connectivity examples in the UKEB Final Comment Letter on the CROUFS ED?

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 the matter received but not yet presented to the Interpretations Committee at this time [Assessing indicators of hyperinflationary economies]?

Recommendation

N/A

Appendices

• Appendix A: Climate-related and Other Uncertainties in the Financial Statements
• Appendix B: Management Commentary (sustainability-related)
• Appendix C: Pollutant Pricing Mechanisms
• Appendix D: Post-implementation Review of IFRS 15
• Appendix E: Statement of Cash Flows and Related Matters
• Appendix F: Amortised Cost Measurement
• Appendix G: Power Purchase Agreements
• Appendix H: Interpretations Committee Update
• Appendix I: List of IASB projects

Appendix A: Climate-related and Other Uncertainties in the Financial Statements (CROUFS) project update

Context

A1At the September World Standard Setters (WSS) Forum the IASB and ISSB staff presented three new climate-related connectivity examples for discussion. The recording of the WSS session can be found here, and a link to the presentation material here.

A2The CROUFS project was not on the agenda for the September IASB meeting, but it was discussed at the September ASAF conference, and the new examples were referred to by the IASB in that context. A summary of the CROUFS ASAF discussion is provided for context in Annex One.

World Standard Setters (WSS) Forum – connectivity examples

A3Staff from the IASB and ISSB presented three additional climate-based examples to demonstrate how IFRS Accounting and Sustainability Disclosure Standards could complement each other and connect reported information. While one of the examples builds on the illustrative examples in the CROUFS ED, they were not intended to form a part of the CROUFS ED consultation and did not appear to have a formal status.

A4The IASB and ISSB staff advised that members of both boards and their technical staff had contributed to the development of these examples. The presenters noted that investors had expressed consistent strong support for connectivity and that the ISSB was currently developing guidance on the application of materiality jointly with the IASB.

A5Each example contained a high-level fact pattern and potential financial statement disclosures of current and anticipated financial effects, as required by ISSB Sustainability Disclosure Standards. The examples also illustrated actual impacts on the financial statements, consistent with the UKEB's recommendation in its CROUFS Draft Comment Letter¹. However, analysis was not provided regarding how the fact pattern had been interpreted to derive the financial statement disclosures.

A6The topics addressed by the new examples are set out for information below.

Example one: Climate-related risks and impairment of non-financial assets

A7Example one contained the following three scenarios:

1. Part A - An entity assesses a Cash Generating Unit (CGU) for impairment and concludes that no impairment loss is required to be recognised in the financial statements.
2. Part B - Due to a significant weather-related event the entity does recognise an impairment loss in the financial statements.
3. Part C - The entity recognises an impairment loss in the financial statements due to adverse economic and market conditions of which shifting climate-related consumer demands are a contributing factor.

Example two: Climate-related opportunities and changes in product mix

A8The example illustrates how an entity might consider the recognition and measurement of revenue and inventory and disaggregated information in the initial years of a change in operating model to more sustainable products.

Example three: Net-zero commitments

A9Example three reflects the recent IFRIC agenda decision regarding net zero commitments. The first part of the example considers financial statement disclosures when the entity announces its net zero target, and the second part illustrates disclosures post the net zero target date.

A10Comments from the WSS audience indicated that the examples were a helpful starting point to illustrate connectivity. However, there were also questions regarding the role of the Management Commentary project, the risk of duplication in reporting and a request to use another sustainability topic, other than climate, in illustrations.

Next steps

A11The IASB and ISSB staff emphasised that the examples were an initial step illustrating how the two sets of IFRS Standards worked together. They would consider the feedback from the WSS and advise the next steps in due course.

Questions for the Board

1. Do Board members have any comments on the three new connectivity examples presented at the World Standard Setters forum?
2. Do Board members consider that reference should be made to the three new connectivity examples in the UKEB Final Comment Letter on the CROUFS ED?

Annex 1: CROUFS ASAF discussion

ASAF - CROUFS discussion

A13Many members caveated their comments as their outreach was in progress. Most members were supportive of the proposal that the examples should accompany accounting standards and considered the illustrative examples would be helpful. However, they considered them unlikely to make a significant difference in practice.

A14Several members noted that examples one and two, as drafted, were unlikely to achieve the stated objective of strengthening connectivity between narrative sustainability disclosures and the financial statements.

A15Most members supported publishing the examples in a single document in addition to including them with the relevant standards. It was considered that this would provide context, facilitate accessibility and help preparers to make the connections between the illustrations.

A16Several members noted the emphasis on climate with limited examples addressing other uncertainties and sought guidance on how the IASB intended to update the examples to reflect developments in sustainability and other uncertainties. Several members also suggested that transition provisions similar those used in IFRIC agenda decisions would be helpful for preparers.

A17Members noted concerns that the examples may go beyond how the requirements of IAS 1 paragraphs 31 and 125 are currently applied. In relation to paragraph 31, the examples implied that disclosure of a 'lack of effect' may be required, which is not typically how the requirement is currently interpreted. In relation to paragraph 125, members noted concerns with potential over reliance on this paragraph to capture medium- and longer-term risks. Several members emphasised the importance of maintaining the boundary of the financial statements.

A18The IASB enquired if members considered that the additional examples on connectivity presented at the WSS conference would be helpful for stakeholders.

Next steps

A19The IASB's consultation period is open until 28 November 2024. Comment letters will then be reviewed, feedback provided, and the examples finalised in accordance with the requirements of the IASB due process.

Appendix B: IFRS Practice Statement I Management Commentary project (sustainability-related)

Context

B1The Exposure Draft (the ED) updating IFRS Practice Statement 1 Management Commentary was published by the IASB in May 2021. In June 2024, the IASB decided to finalise the project by making targeted amendments to the proposals in the ED.

B2At the IASB September meeting it was noted¹ that nearly all respondents to the ED had referred to the interaction between the project and the future work of the ISSB and that most stakeholders had emphasised the need for connectivity between the IASB and ISSB's respective requirements.

B3As the scope if limited to targeted refinements to its proposals, the IASB has decided that outreach will be limited to collaboration with the ISSB, the Integrated Reporting Communities and the Management Commentary Consultative Group.

B4We understand is now at an advanced stage. The IASB expects to issue the revised Practice Statement in the first half of 2025.

B5As there are potential implications for connectivity with IFRS Accounting Standards the UKEB is monitoring this project.

IASB September meeting

B6The IASB met on 18 September 2024 to discuss targeted refinements to the proposals in the ED. The refinements are intended to support connectivity of information across a company's general purpose financial reports and provide a platform for greater integration in reporting. The IASB was not required to make any decisions.

B7Regarding refinements relating to sustainability reporting, the IASB tentatively decided to:

1. Acknowledge information about sustainability-related factors in the objective of the Management Commentary.
2. Acknowledge that Management Commentary complements information provided as part of general-purpose financial reports which includes sustainability-related financial disclosures.
3. Extend the requirement to identify financial statements to which the Management Commentary relates to reports containing sustainability-related financial disclosures, if these disclosures are excluded from the report that includes the Management Commentary.
4. Require an entity to disclose the basis on which sustainability-related financial disclosures are prepared.
5. Give greater importance to local laws or regulatory requirements that require an entity to include specific information in the Management Commentary.
6. Include in the defined terms the definition of 'sustainability-related financial disclosures' set out in IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information.

Next steps

B8The IASB staff will provide a project update and an overview of the targeted refinements made to the proposals in the ED to the ASAF meeting in December 2024.

Appendix C: Pollutant Pricing Mechanisms (PPMs)

Context

C1As part of their horizon-scanning activities to gather feedback on the prevalence of PPMs in IFRS financial statements, the IASB staff consulted the IFRS Interpretations Committee and the Accounting Standards Advisory Forum meeting (ASAF) in September. They also held 1:1 meetings with members of the Global Preparers Forum.

C2The sections below are provided for information and summarise the key points made during the September 2024 Interpretations Committee and ASAF discussions on a potential PPM project.

IFRS Interpretations Committee

C3Interpretations Committee members gave consistent feedback that a PPMs project should be prioritised due to:

1. PPMs increasing in prevalence and complexity – both compulsory and voluntary schemes;
2. investors considering PPMs as qualitatively material given their growing significance, connectivity to financial statement disclosures, and proximity to the work of the ISSB; and
3. a lack of authoritative guidance and diversity of accounting treatments which may become increasingly difficult to address if a project is not started in the near term.

C4Most Interpretations Committee members felt that the project scope should include disclosure, recognition and measurement and should cover both compulsory and voluntary schemes.

C5Members were generally not in favour of including PPMs as part of the intangible assets project as a solution was required in the near term.

ASAF

C6ASAF members provided feedback which was largely consistent with that of IFRIC members on the topics of prevalence, materiality, complexity, and diversity of accounting treatments.

C7A majority of ASAF members commented that their stakeholders are seeking authoritative guidance from the IASB on PPMs. Some argued it should be a higher priority than Operating Segments because there is no current accounting standard for PPMs since the withdrawal of IFRIC 3 Emission Rights in 2005.

C8The UKEB Chair commented that PPMs could be subsumed into the intangibles project, but that the approach should be principle-based rather than rule-based. A separate PPMs project risked not being an appropriate use of resources at this time, as the markets were still developing so a standard-setting solution may not align with the underlying substance of PPMs.

C9Other ASAF members raised concerns about PPMs being included in the intangibles project because it may increase the scope of an already large and long-term project.

C10It was noted that FASB intended to issue a narrow-scope Exposure Draft (ED) on these mechanisms early in 2025. The ED will propose additional disclosures, which FASB considered would address transparency concerns.

C11The IASB staff commented that reading across from the US proposals to IFRS might be difficult because of the diversity of schemes and markets globally, compared with in the US, and because of conceptual differences between IFRS and US GAAP, such as the definitions of a liability.

Next steps

C12The IASB staff will consult the IFRS Advisory Council for their views on a potential PPMs project and then present a summary of feedback from their horizon-scanning activities to a future IASB meeting, likely to be towards the end of 2024 or early in 2025.

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

Purpose of this update

D1The purpose of this paper is to provide the Board with a final update on the International Accounting Standards Board (IASB) post-implementation review (PIR) of IFRS 15 Revenue from Contracts with Customers.

D2On 30 September 2024 the IASB concluded its PIR of IFRS 15 by publishing a Project Summary and Feedback Statement.

D3The Secretariat has previously provided the Board with summaries of IASB discussions on the recognition and measurement findings from the PIR¹. This paper provides an update on the IASB activities in June 2024 (see paragraph D4), its final decisions in July 2024 (see paragraph D5-D6 and D14-D18), plus an overview of the IASB project summary and feedback statement published in September 2024.

IASB conclusions on the Post-implementation Review

D4Before making its final decisions, the IASB held an education meeting with the FASB on 21 June 2024. The two boards discussed their post-implementation reviews of revenue standards—IFRS 15 and FASB ASC Topic 606, Revenue from Contracts with Customers. The boards were not asked to make any decisions.

D5On 22 July 2024, the IASB finalised its decisions to conclude the IFRS 15 PIR. After analysing the evidence gathered in the PIR, the IASB concluded that the requirements in IFRS 15 are working as intended. In particular, the IASB concluded that:

1. there are no fundamental questions (fatal flaws) about the clarity or suitability of the core objectives or principles in the requirements;
2. the benefits to users of financial statements from the information arising from applying the requirements in IFRS 15 are not significantly lower than was expected; and
3. the costs of applying the requirements and auditing and enforcing their application are not significantly greater than was expected.

D6At the July meeting the IASB decided to confirm its tentative decisions on application matters raised by stakeholders, as set out in paragraphs D14 to D18 below.

Background

D7IFRS 15 was issued in May 2014 and became effective for annual periods beginning on or after 1 January 2018². The objective of IFRS 15 is to establish the principles that an entity applies to report useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from a contract with a customer [IFRS 15.1]. To meet the objective the standard establishes a core principle for revenue recognition³ and introduces a five-step model to support the core principle.

D8In 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 IASB received 74 responses⁴. The UKEB response was submitted on 26 October 2023.

D9In January 2024, the IASB discussed the feedback on the PIR as a whole⁵ and a plan for the second phase of the PIR. In February to May 2024 the IASB discussed specific application matters raised by respondents on the various questions in the RFI, including identifying performance obligations in a contract, principal versus agent considerations, licensing requirements, determining the transaction price, determining when to recognise revenue, disclosure requirements, and the interaction of IFRS 15 with other IFRS standards.

D10In those meetings, using the IASB's PIR Framework, the IASB tentatively decided whether action should be taken on any of those matters, and the priority of any such action. A summary of the IASB tentative decisions to date was provided in the IASB update to the Board in June 2024⁶.

D11In May 2024, the IASB also discussed additional academic literature identified since the initial review discussed at the March 2023 IASB meeting. The main findings were:

1. Most evidence showed that IFRS 15 has improved the usefulness of financial statement revenue information for users' decision-making, particularly though enhanced disclosures.
2. The effects of making the transition to IFRS 15 depended on an entity's characteristics and the sector in which it operated. The overall effect of making the transition to IFRS 15 on the amounts in financial statements was minimal but involved high implementation costs. IFRS 15 implementation improved operational efficiencies despite high initial costs.
3. Compliance with IFRS 15 disclosure requirements varied between sectors and regions.
4. Most entities elected to apply the modified retrospective transition method in IFRS 15.

D12IFRS 15 was developed jointly with the US Financial Accounting Standards Board (FASB). When issued in May 2014, the requirements in IFRS 15 and FASB ASC Topic 606 Revenue from Contracts with Customers were substantially converged, except for some minor differences. In their feedback to the PIR of IFRS 15, many stakeholders—including users of financial statements—highlighted the importance of retaining at least the current level of convergence with Topic 606. Therefore, the IASB considered the effects on convergence before deciding whether to take action on application matters raised by stakeholders in the PIR.

D13On 20 August 2024, the IASB's Due Process Oversight Committee (DPOC) considered the draft Project Summary and Feedback Statement (PSFS). The DPOC was satisfied that the IASB had completed the PIR of IFRS 15 satisfactorily and the IASB finalised and published the PSFS on 30 September 2024.

Outcomes

D14In considering whether to take any action on matters identified in the PIR, the IASB applied the priority categorisation of matters as 'high', 'medium' or 'low', based on the criteria set out in the IASB PIR framework. Most of the application matters identified during the PIR did not meet the IASB's criteria for taking action. The IASB identified no matters which would be classified as a 'high' or 'medium' priority⁷.

Matters to be considered in the IASB's next agenda consultation

D15The IASB decided it will consider matters classified as low priority in its next agenda consultation. Such matters relate to:

1. how to account for consideration payable to a customer;
2. how to assess control over services and intangible assets in determining whether an entity acts as a principal or an agent;
3. how to apply IFRS 15 with IFRIC 12 Service Concession arrangements, including accounting for contractual obligations to maintain or restore service concession infrastructure. The IASB is planning to consider whether to ask stakeholders about the scope of any potential project on IFRIC 12.

D16The IASB also confirmed it will assess, in its next agenda consultation, the demand for resolving matters in relation to:

1. the interaction between IFRS 15 and IFRS 10 Consolidated Financial Statements – in particular, accounting 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'); and
2. the interaction between IFRS 15 and IFRS 11 Joint Arrangements – in particular, accounting for collaborative arrangements.

The IASB will undertake further research on these matters if they are identified as a priority in the IASB's next agenda consultation.

Other action

D17In addition, the IASB will gather further evidence on some aspects of applying IFRS 15 with IFRS 16 Leases in the PIR of the leases standard which commenced in June 2024, including matters related to assessing whether the transfer of an asset is a sale in a sale and leaseback transaction.

Matters on which no further action is required

D18The IASB decided to take no further action on other matters identified in the PIR of IFRS 15⁸.

Resolution of key issues raised in the UKEB comment letter

D19The UKEB comment letter concluded that there were no high priority matters for the IASB to address. However, there were a small number of areas, set out below, where the UKEB suggested that IFRS 15 could be improved to reduce diversity in application, if the IASB decided to pursue other amendments as a result of feedback received.

Next Steps

D20The IASB PIR of IFRS 15 project is now concluded.

Appendix E: Statement of Cash Flows and Related Matters – project commencement

E1The IASB commenced its research project Statement of Cash Flows and Related Matters at its September 2024 meeting. At the meeting, the IASB discussed an academic literature review and the project direction, including the initial work it will do on the project. The IASB was not asked to make any decisions.

E2This paper provides background information and sets out the IASB staff recommendations on project approach and criteria to determine its scope, as well as issues identified.

Background

E3The IASB decided to add a project on the Statement of Cash Flows and Related Matters to the research pipeline following feedback on its Request for Information: Third Agenda Consultation.

E4Most respondents to the Request for Information on the Third Agenda Consultation recommended addition of a potential project on this topic to the IASB's workplan and many of them rated it as high priority. It is notable that most users of financial statements who recommended addition of this topic rated it as high priority.

E5In its feedback statement on the Third Agenda Consultation the IASB noted (page 28) that:

Matters relating to the statement of cash flows to consider include both presentation issues (such as the classification of cash flows into operating, investing and financing activities) and other issues (including improved disclosures about non-cash movements, such as factoring of trade receivables and reverse factoring of trade payables). Also, the project could address some issues relating to the statement of cash flows that arose in the Primary Financial Statements project but which were outside its scope.

Academic literature on the statement of cash flows and related matters.

E6The IASB staff provided a comprehensive review of academic literature on the accounting for the statement of cash flows and related matters. They identified over 60 relevant papers. Four are specifically identified as including UK data:

1. Almamy, J., Aston, J., and Ngwa, L. N. (2016), 'An Evaluation of Altman's Z-score Using Cash Flow Ratio to Predict Corporate Failure Amid the Recent Financial Crisis: Evidence from the UK', Journal of Corporate Finance, 36, 278-285.
2. Charitou, A., Neophytou, E., and Charalambous, C. (2004), 'Predicting Corporate Failure: Empirical Evidence for the UK', European Accounting Review, 13 (3), 465-497.
3. Jeppson, N., Ruddy, J. and D. Salerno. 2016. ‘The Statement of Cash Flows and the Direct Method of Presentation.' Management Accounting Quarterly 17(3):1-9.
4. Rizzo, L., Valentinuz, G., Obratil, D., and Pediroda, V. (2020), 'Bankruptcy Prediction: A Model Based on Cash Flow Ratios: Evidence From Selected European Countries', International Journal of Business Administration, 11 (6).

E7At a high level, the academic evidence on the usefulness of the statement of cash flows for non-financial entities shows that:

1. cash flow information is value relevant – associated with share prices and returns;
2. cash flow information is useful for predicting future cash flows from operating activities;
3. evidence on whether cash flows or earnings are better in predicting future cash flows from operating activities is mixed; and
4. disaggregating earnings into cash and non-cash components improves forecasts of future cash flows from operating activities.

E8The IASB paper identified studies that address specific areas of concern including:

1. Requirements for classifying cash flows into operating, investing and financing categories: entities can behave opportunistically in how they categorise cash flows.
2. Disaggregation requirements for information about cash flows: disaggregated cash flow components predict future cash flows and earnings differently.
3. Definition of cash and cash equivalents: cryptocurrencies could be considered as cash or cash equivalents.
4. Use of the direct method (instead of, or as well as, the indirect method): mixed evidence on which approach is more useful for forecasting entities' future cash flows and earnings.
5. Requirements for information about commonly-used cash flow measures: an increasing number of entities disclosed free cash flow but free cash flow definitions varied among entities.
6. Specific requirements for the statement of cash flows for financial institutions: academic research on financial institutions' statements of cash flows is limited and the existing evidence is mostly based on US commercial banks. The evidence on the value relevance of financial institutions' cash flows from operating activities and their predictive ability for future cash flows, earnings and bank failures is mixed.

IASB preliminary feedback and research plan

E9The IASB staff presented a paper that switched the project from the research pipeline to an active research project. It also provided the IASB with an overview of:

1. the preliminary feedback on the project; and
2. the work the staff plan to undertake to support a decision on the project scope.

Preliminary feedback on the project

E10Based on a review of the responses to the IASB's Third Agenda Consultation and subsequent discussions at the June 2024 joint Capital Markets Advisory Committee (CMAC) and Global Preparers Forum (GPF) meeting, the IASB staff have identified the following topics that the IASB might explore in this project. These are:

1. changing the requirements for classifying cash flows into operating, investing and financing categories;
2. specific disaggregation requirements for information about cash flows (for example, separating capital expenditures into maintenance and growth);
3. changing the definition of cash and cash equivalents;
4. requiring the use of the direct method;
5. presentation or disclosure requirements for additional information about the non-cash effects of some transactions;
6. presentation or disclosure requirements for information about commonly used cash flow measures (for example, free cash flow); and
7. specific requirements for the statement of cash flows for financial institutions.

IASB plan for research to support a decision on project scope

E11The IASB staff plan to perform initial research to gather evidence of the nature and extent of the perceived deficiencies and the likely benefits of developing new financial reporting requirements for IAS 7 Statement of Cash Flows. This research is intended to provide evidence to support the IASB's decision on the scope of the project. The initial research will also address possible ways of improving the perceived deficiencies.

E12It was noted that several national standard-setters (NSS) have conducted or are conducting projects on the topic. The IASB staff are planning to meet with these project teams.

E13Initial research findings are expected to be reported to the IASB in Q1 2025, when the IASB will be asked whether it has enough evidence to decide on the project scope at a subsequent meeting.

IASB discussion

E14IASB members indicated that the themes from the staff papers aligned with what they were hearing from various sources.

E15It was noted that a decision will need to be made at some point about whether this is a comprehensive review or a targeted improvements project. Board members wanted more engagement with users about how the project could address their information needs, but also preparer views on what was pragmatic.

E16A number of IASB members noted that the usefulness of the Statement of Cash Flows for financial institutions was a key issue.

E17Several IASB members highlighted the need to consider updates to IAS 7 in the context of the principles and requirements developed in IFRS 18 Presentation and Disclosure in Financial Statements (such as aggregation and disaggregation, the definitions of the operating/investing/financing categories for the Statement of Financial Performance and requirements on management-defined performance measures) and early evidence on implementation of that standard.

E18One IASB member felt that the issues described were largely consistent with those set out in the 2017 Feedback Statement on the Financial Reporting Council's 2016 Discussion Paper on Improving the Statement of Cash Flows, so these should be used as a source of reference by the IASB staff.

Next steps

E19The IASB staff will undertake research to support the decision on project scope over the coming months and expect to present their initial research findings to the IASB in Q1 2025. The UKEB has been asked to assist with outreach with UK stakeholders on this project and discussions are now underway.

E20The Secretariat will provide an update on the IASB's progress at a future Board meeting.

Appendix F: Amortised Cost Measurement – project commencement

F1At its September 2024 meeting, the IASB commenced its research project Amortised Cost Measurement. At the meeting the IASB discussed the project direction, including the initial work it will do on the project. The IASB was not asked to make any decisions.

F2This paper provides background information and sets out the IASB staff recommendations on project approach and criteria to determine its scope, as well as issues identified.

Background

F3The IASB staff noted that over the years, stakeholders have consistently raised application questions and accounting challenges pertaining to amortised cost measurement, specifically in relation to:

1. the effective interest method; and
2. the modification of financial instruments, including modifications that lead to derecognition, and write-off of financial assets.

F4The issues reported have a long history, pre-dating IFRS 9. Despite this, IFRS 9 Financial Instruments did not introduce new requirements in respect of amortised cost measurement and the application of the effective interest method, or the modification of financial instruments. These requirements were carried forward from IAS 39 Financial Instruments: Recognition and Measurement largely unchanged¹.

F5In September 2021, the IASB published its Request for Information on its Post-implementation Review (“PIR”) of IFRS 9 – Classification and Measurement. The UKEB's Final Comment Letter ("FCL") in response highlighted the need for further guidance on amortised cost and the effective interest method (particularly in relation to the application of IFRS 9 paragraphs B5.4.5² and B5.4.6).

F6In July 2022, the IASB added the Amortised Cost Measurement Project to its research pipeline, in response to feedback on the PIR. The stated aim of the project was to clarify the requirements in IFRS 9 for the application of the effective interest method, and the modification of financial instruments³. At the time, the IASB acknowledged the potential interaction between these issues and the expected credit loss requirements in IFRS 9 (see para F7 below).

F7During the Post-implementation Review of IFRS 9 – Impairment, stakeholders identified several issues relating to the interaction between the impairment requirements and the requirements for modification, derecognition and write-off of financial instruments. This was raised in the UKEB's Final Comment Letter, which states that "As [IFRS 9] is unclear regarding such interaction of the modification, derecognition and impairment requirements, it gives rise to issues which cause diversity in practice...further application guidance should be provided in [IFRS 9] on the interaction of ECL with the modification and derecognition requirements for financial assets.”

F8In response to this feedback, in April 2024 the IASB added this topic to the scope of the Amortised Cost Measurement project.

Project approach

F9The IASB is expected to take a 'targeted improvements' approach. This is a principle-based approach, designed to resolve long standing application issues that are widespread and have a material effect. This may involve clarifying underlying principles or developing new principles in IFRS 9, and adding guidance where necessary.

F10The IASB staff considered and rejected several alternative approaches:

1. a fundamental review of the amortised cost measurement requirements;
2. narrow-scope amendments to IFRS 9 for a specific fact pattern or feature of financial instruments; and
3. an approach that would be limited to improvements in disclosure.

F11The IASB was supportive of the targeted approach, although some IASB members observed that a targeted improvement approach could nevertheless result in potentially significant impacts for stakeholders (e.g., to system infrastructure), and changes in practice. Therefore, they noted it would be important to draw a clear distinction between ‘targeted' and 'narrow-scope'; and to ensure that the targeted improvements approach was well understood by stakeholders.

Criteria to determine scope

F12The IASB staff have developed preliminary criteria for determining the issues which should be in scope of the project, being those:

1. that are widespread and have, or are expected to have, a material effect;
2. for which clarifications to IFRS 9 requirements will reduce diversity in application;
3. for which the benefits from the resulting information are expected to exceed the operational costs; and
4. that can be resolved by the IASB efficiently and effectively without fundamentally rewriting or creating internal inconsistencies in IFRS 9, or amending other IFRS Accounting Standards (except for consequential amendments).

Initial list of topics

F13The IASB staff have analysed the feedback from the two PIRs of IFRS 9 referred to at paragraphs F5 and F7 above. Based on that review, they identified a list of potential issues for consideration in this project, mainly concerning the guidance on the effective interest method and the modification, derecognition and write-off of financial instruments. The issues are set out in detail in Appendix A to the Staff Paper and are summarised below:

1. conditions attached to the contractual interest rate and determining effective interest rate (EIR);
2. accounting for subsequent changes in estimated future cash flows;
3. the effect of modifications on EIR;
4. unamortised transaction costs and fees received as part of a modification;
5. the meaning of 'fees and costs incurred';
6. the meaning of 'modification' of financial instruments;
7. assessment of modifications that lead to derecognition of a financial instrument;
8. partial derecognition versus modification of a financial instrument;
9. accounting for modification gains or losses;
10. accounting for write-offs and subsequent recoveries; and
11. accounting for changes in expected cash flows.

Next steps

F14The next step for the IASB is to develop a project plan (including the scope of the project). To this end, the IASB is expected to undertake targeted consultation with the IFRS Interpretations Committee (November 2024), and the Accounting Standards Advisory Forum (December 2024), with a view to seeking input on:

1. whether the issues identified adequately reflect the findings on the PIRs of IFRS 9;
2. which of the issues the IASB should prioritise and why; and
3. their understanding of the underlying problems or root causes that give rise to the identified issues. Understanding the root causes is required to clarify the requirements in a principle-based manner.

F15The UKEB Secretariat will bring an update on progress to a future Board meeting.

Appendix G: Power Purchase Agreements

Background

G1The IASB met on 17 September 2024 to discuss the IASB staff recommendations in response to the feedback on the Exposure Draft Contracts for Renewable Electricity. The Exposure Draft proposed amendments to IFRS 9 Financial Instruments and IFRS 7 Financial Instruments: Disclosures to account for electricity contracts with specified characteristics.

G2This paper summarises the tentative decisions taken at the September 2024 IASB meeting.

G3The UKEB Secretariat provided a verbal update on these matters at the September 2024 UKEB meeting.

Scope

G4IASB's Agenda Paper 3A sets out the IASB staff recommendations in respect of the feedback received on the proposed scope of the amendments.

G5There was some discussion at the IASB meeting around whether nature (or natural forces) could be said to control the source of electricity production. Some IASB members disagreed with this in principle and disliked the terminology of 'control'. The IASB staff agreed to refine the wording, with a view to providing further clarification.

G6In addition, some IASB members asked for updated wording to clarify that, for an electricity contract to be included in the scope, cash flows under that contract must vary based on changes in the contracted volume of electricity (as opposed to e.g., changes in price).

G7Thirteen of fourteen IASB members voted to agree the IASB staff recommendations on the scope of the amendments. Therefore, the IASB tentatively decided to finalise the proposed scope of the amendments, subject to clarifying that contracts within scope:

1. "reference nature-dependent electricity generated from sources that depend on natural conditions that cannot be controlled;
2. can be settled net or gross; and
3. expose an entity to cash-flow variability that depends on the contracted amount of nature-dependent electricity."¹

Own-use amendments

G8IASB Agenda Paper 3B sets out the IASB staff recommendations in respect of the feedback received on the proposed ‘own-use’ amendments².

G9At the meeting, the IASB staff explained that these amendments did not alter the existing own-use exemption at paragraphs 2.4 – 2.7 of IFRS 9; instead, they added additional considerations for nature-dependent electricity contracts.

G10The discussion at the meeting highlighted a lack of clarity around how different IASB members characterise the own-use amendments, with a range of views expressed. Some members said they viewed the amendments as application guidance for a specific set of circumstances; others viewed it as an extension or addition to the existing own-use requirements in IFRS 9. Two members considered that the amendments represented a deviation from the existing own-use requirements in IFRS 9.

G11Twelve of fourteen IASB members voted to approve the amendments, although in some cases this was conditional on the adequacy of disclosures regarding the risk and rewards of the contracts in scope. The IASB therefore tentatively decided to finalise the proposed own-use amendments.

G12This finalisation is subject to clarifying the relationship between the proposed amendments and the existing own-use requirements of IFRS 9³, and that an entity:

1. "applies the additional considerations for these electricity contracts only if:
   1. the contractual features expose the entity to the risk of oversupply of electricity in any delivery interval; and
   2. the entity does not have the practical ability to avoid selling any oversupply of electricity at the market-determined time, based on the design and operation of the market in which electricity is bought.
2. assesses whether it will be a net purchaser over a reasonable amount of time when applying the own-use requirements to such a contract. An entity is a net purchaser if it buys enough electricity in the market in which it buys electricity to offset sales of any oversupply in that same market.
3. making the assessment described in (b), considers:
   1. the seasonality of the nature-dependent source of electricity generation and the entity's business cycle to decide what constitutes 'a reasonable amount of time'. The IASB tentatively decided that a 'reasonable amount of time' cannot exceed 12 months.
   2. all reasonable and supportable information, including forward-looking information, at the date of the assessment.
   3. whether it has been a net purchaser over a reasonable amount of time (but not exceeding 12 months)."⁴

Next steps

G13The IASB staff are expected to bring proposals on hedge accounting requirements, disclosure requirements, transition requirements and effective date to the October 2024 IASB meeting.

G14IASB staff also expect to seek IASB's permission to begin the balloting process for the amendments at that meeting, with the final amendments expected to be published in December 2024.

Appendix H: Interpretations Committee Update

Background

H1The 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.

H2The next IFRS Interpretations Committee is on 26 - 27 November 2024.

H3At the time of writing, no new matters have been received but not yet presented to the IFRS Interpretations Committee.

MATTERS RECEIVED BUT NOT YET PRESENTED TO THE INTERPRETATIONS COMMITTEE

Question for the Board

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

TENTATIVE AGENDA DECISIONS OPEN FOR COMMENT

TENTATIVE AGENDA DECISIONS OPEN FOR COMMENT

TENTATIVE AGENDA DECISIONS CLOSED FOR COMMENT

Appendix I: List of active IASB projects

This Appendix provides a list of all active IASB projects¹, 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.

Amortised Cost Measurement

Business Combinations—Disclosures, Goodwill and Impairment

Climate-related and Other Uncertainties in the Financial Statements

Dynamic Risk Management

Equity Method

Financial Instruments with Characteristics of Equity

Intangible Assets

Post-implementation Review of IFRS 16—Leases

Power Purchase Agreements

Provisions—Targeted Improvements

Rate-regulated Activities

Statement of Cash Flows and Related Matters

Translation to a Hyperinflationary Presentation Currency (IAS 21)

Updating IFRS 19 Subsidiaries without Public Accountability: Disclosures