Response 3 - C.Nahlik

Deadline for completion of this Invitation to Comment: Close of business 31 August 2021 Please submit to: [email protected]

UK Endorsement Board

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

Introduction

The objective of this Invitation to Comment is to obtain input from stakeholders on the UKEB's draft comment letter on the IASB's Third Agenda Consultation.

Who should respond to this Invitation to Comment?

Stakeholders with an interest in the IASB's future agenda.

How to respond to this Invitation to Comment

Please download this document, answer any questions on which you would like to provide views, and return to [email protected] by close of business on 31 August 2021.

We welcome responses providing views on individual questions as well as comprehensive responses to all questions.

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https://www.endorsement-board.uk/third-agenda-consultation

Questions

A Strategic direction and allocation of resources – Q1

Paragraphs 14–18 and Table 1 of the IASB's Request for Information provide an overview of the IASB's main activities and the current level of focus for each activity.

Paragraphs A1 and A2 of the UKEB draft comment letter set out the UKEB's views on the IASB's strategic direction and balance of activities.

1Do you agree with the UKEB's recommendations in those paragraphs? Please explain why or why not.

Yes, agree. Also:

The general strategy in revision of any Standard/s should be a cross-Standard thematic approach because inter-Standards' inconsistency leads to confusion and consequently ineffectual Standards which can lead to misperceptions and misinterpretation by users and give scope for too much judgement and potential obfuscation by preparers.

In addition to Standards, the Conceptual Framework could benefit from being included in the thematic review to maintain consistency with Standards under review.

B Criteria for assessing the priority of financial reporting issues that could be added to the Board's work plan – Q2

Paragraph 21 of the Request for Information discusses the criteria the IASB proposes to continue using when assessing the priority of financial reporting issues that could be added to its work plan.

Paragraphs A3-A5 of the UKEB draft comment letter set out the UKEB's views on the IASB's criteria used to assess the priority of financial reporting issues to be added to the workplan.

2Do you agree with the UKEB's recommendations in those paragraphs? Please explain why or why not.

Agree, in part.

However; the IASB's Paragraph 21, criterion 2, retain as is, worded more broadly, allowing for inclusion of the Conceptual Framework, inter alia, in a thematic review; whereas UKEB's A3,a) recommendations refer to 'a deficiency in the Standards for reporting' which would be too limiting. Possibly, to combine both might be '....a deficiency in the Standards and Conceptual Framework for reporting....'

See C & D, below: IASB, Request for Information, Qs 3 & 4, ‘financial reporting issues that could be addressed'.

C Priority projects - Q3

Paragraphs 24–28 of the Request for Information provide an overview of financial reporting issues that could be added to the IASB's work plan as well as the IASB's capacity for new projects. The scope of each financial reporting issue is set out in Appendix B of the Request for Information with the IASB expecting to be able to start either:

• two to three large projects; or
• four to five medium-sized projects; or
• seven to eight small projects; or
• an equivalent combination of large, medium and small projects

Paragraphs A6-A10 of the UKEB draft comment letter set out the UKEB's draft views on priority financial reporting issues.

3Do you agree that the three highest priority projects for IASB are: climate-related risk, intangibles, and statement of cash flows? Please explain why or why not.

Agree, two (or three if cash flows are included) large projects.

Preferably two, because the intangibles, coupled with all the related matters in the important cross-standard thematic approach will be very demanding on the IASB's capacity. A7 & A8,b) Intangibles has been on/off the agenda as an (increasingly urgent) emerging issue for decades - off mainly because it is such a demanding complex daunting challenge, and so perceived as beyond 'current capacity' of the period.

IASB, Request for Information, Q3, 25, ‘financial reporting issues that could be addressed', could include within the stated priority projects:

Intangibles, particularly in relation to in-company value creation through science/technology/engineering/etc innovation, etc: UKEB, A8,b),(ii) [and A10]; IAS 38, should be addressed to include improving the clarity in emphasising the differences between Research (expenditure to be expensed), and Development (expenditure to be capitalised); this greatly affects entities' stated profit/earnings and value, particularly for companies in tech/science/etc sectors; their expenditures' conflation into 'R&D' in financial statements is unhelpful to users, and should not be allowed.

Conceptual Framework: Assets; their values, recognition and derecognition/impairement, and measurement.

4Do you agree that the remaining projects identified in IASB's Request for Information are low priority? Please explain why or why not.

Not completely agreed.

A10. Lower priority, rather than low- towards the outer diameters of your very interesting A6 chart; the link between Government grants and Income taxes, as well as the link between Discount rates and Inflation, could be clarified in some way - though they are shown adjacent. Government grants and tax could be included when examining and defining more clearly Research (discovery of new knowledge) vis a vis Development; Discount rates and inflation are applicable when considering value of assets over several years' economic benefits/income/earnings. See also 3, above.

D. Other comments - Q4

Appendix A in the Request for Information provides a summary of the IASB's current work plan.

Paragraphs A12 to A14 and Appendix 2 in the UKEB's draft comment letter set out UKEB's other comments.

5Do you agree with the UKEB's recommendation that the climate related risk and intangibles projects should be approached thematically, considering their impact across all Standards to support consistency and efficiency? Please explain why or why not.

Yes.

Most projects should be approached thematically because inter-Standards' inconsistency leads to confusion and consequently ineffectual standards, which in turn can lead to misperceptions and misinterpretation by users and give scope for too much judgement and potential obfuscation by preparers. This applies particularly to intangibles which is why it is suggested that the Conceptual Framework should also be included in the theme – possibly shown as an additional column, on the Intangibles' row, in UKEB Appendix 2.

6Do you have any other comments on the thematic approach proposed in the UKEB's DCL?

Yes.

Conceptual Framework should be included in the scope of the thematic approach. See 1, 2, 3 & 5, above.

7Do you have any comments on the projects identified in the UKEB's draft comment letter for pause or rationalisation from the IASB's work plan in order to free up resources?

Yes.

Tax with Government Grants, and Discount rates with Inflation could be medium, rather than low, priority bearing in mind their potential for influence on intangibles' value. See 4, above.

NB. I would be most grateful for a copy of your final letter to the IASB, and your response, either written or hopfully in discussion, to the issues I have raised where they are significantly different to your concluding ideas and propossals.

Thank you for completing this Invitation to Comment

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