Project Initiation Plan - Annual Improvements to IFRS Accounting Standards - Volume 11

Purpose

1This paper sets out the plan to assess whether to adopt for use in the UK¹ the narrow-scope amendments Annual Improvements to IFRS Accounting Standards—Volume 11 (the Amendments) issued by the IASB in July 2024. The Amendments either clarify the wording in IFRS Standards or correct relatively minor unintended consequences, oversights or conflicts between existing requirements of the Standards².

2The Amendments have an effective date of 1 January 2026, with earlier application permitted (subject to the UKEB endorsement in the UK).

3The Board actively influenced the development of these Amendments by submitting a comment letter in December 2023 in response to the IASB's Exposure Draft (ED) IASB/AI/ED/2023/1—Annual Improvements to IFRS Accounting Standards—Volume 11³.

4The UKEB's statutory functions mean that it must consider the Amendments against the statutory adoption criteria⁴ before their formal adoption for use in the UK. The Board's aim would be to ensure adoption is completed in good time to permit UK entities to use the amendments on the IASB mandated effective date of 1 January 2026.

Background

5The IASB issues amendments to international accounting standards as part of its continuous effort to maintain and improve IFRS Accounting Standards and to support consistent application.

6The Amendments came from questions submitted by external stakeholders to the IFRS Interpretations Committee. A summary of the Amendments is provided below, Section 2 in DECA provides additional detail.

a) Hedge accounting by a first-time adopter (IFRS 1 First-time Adoption of International Financial Reporting Standards)

i. To add cross-references to paragraph 6.4.1 of IFRS 9 in paragraphs B5-B6 of IFRS 1; and ii. To replace the word 'conditions' with 'qualifying criteria' in paragraph B6 of IFRS 9.

b) Gain or loss on derecognition (IFRS 7 Financial Instruments: Disclosures)

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

c) Transaction price (IFRS 9 Financial Instruments)

i. To revise the wording in paragraph 5.1.3 of IFRS 9; and ii. To delete the reference to ‘transaction price' and the associated references to IFRS 15 from Appendix A.

d) Derecognition of lease liabilities (IFRS 9)

i. To add a cross-reference to paragraph 3.3.3 of IFRS 9 in paragraph 2.1(b)(ii) of IFRS 9.

e) Determination of a 'de facto agent' (IFRS 10 Consolidated Financial Statements)

i. To clarify the requirements in paragraph B74 of IFRS 10.

f) Cost method (IAS 7 Statement of Cash Flows)

i. To replace the term 'cost method', which is no longer defined in IFRS Accounting Standards, with 'at cost'.

7The Amendments also include two amendments to the illustrative examples and implementation guidance to IFRS 7. These are not included in the mandatory sections of UK-adopted international accounting standards⁵ and therefore do not form part of this endorsement and adoption.

UKEB project scope

8The UKEB project scope is limited to endorsement and adoption of six Annual Improvements that relate to mandatory sections of UK-adopted international accounting standards.

Description of the Amendments

9A brief description of the Amendments is shown in the table below.

Project Plan

10The following factors have been considered in developing the project plan.

The Amendments do not introduce new principles or change existing principles

11The Amendments are limited to clarification of the wording in specific IFRS Accounting Standards or corrections of relatively minor unintended consequences, oversights or conflicts between existing requirements. Therefore, the Amendments are not expected to introduce any new principles or change existing principles in the IFRS Accounting Standards.

Change in practice or a material effect on entities' financial statements is not expected

12Given the Amendments are narrow scope in nature and merely clarify wording or correct minor oversights, no significant change in practice or material effect on entities' financial statements is expected.

The Amendments have been subject to public consultation

13The Amendments were issued by the IASB for public comment as an Exposure Draft in September 2023. They were considered by the UKEB, and the Board

14issued a comment letter to the IASB¹⁰. The UK stakeholder feedback to the UKEB during the influencing stage was supportive of the Amendments.

15In May 2024 the IASB staff circulated to International Forum of Accounting Standard Setters members a draft of the final Amendments¹¹. The UKEB Secretariat reviewed it on a confidential basis and submitted comments to the IASB staff.

16The final amendments were published by the IASB in July 2024 and are consistent with those in the ED except for minor rewording to some amendments. A summary of the main changes is included in Annex B of this paper.

Proportionality

17The UKEB Due Process Handbook, paragraph 3.7¹² notes that “the activities undertaken to achieve the milestones for each project should be proportionate to the significance, urgency, complexity (i.e., nature or scope), size, expected timeline and expected interest or controversy attached to the project".

Significance/size

18The Amendments are minor in nature but would lead to changes to five different IFRS Accounting Standards. Therefore they are expected to be relevant to many entities using IFRS Accounting Standards.

Complexity

19The Amendments are not technically complex. The focus of these amendments is to clarify the wording in an IFRS Accounting Standard or correct relatively minor unintended consequences, oversights or conflicts between existing requirements of the Standards.

Expected timeline/urgency

20The effective date of the Amendments is annual reporting periods beginning on or after 1 January 2026, with earlier application permitted. The Amendments are minor in nature and can easily be accommodated by preparers as part of their annual consolidation packages. Therefore, no particular urgency for the endorsement is indicated.

Expected interest/sensitivity

21During the UKEB influencing stage UK stakeholder feedback was supportive of the proposals and no significant concerns were identified.

Implication for project plan

22Based on the considerations described in paragraphs A11-A21, a ‘limited' project scope is proposed. The plan proposes public consultation on a Draft Endorsement Criteria Assessment (DECA) and limited outreach to the Accounting Firms and Institutes Advisory Group (AFIAG), Investor Advisory Group (IAG) and Preparer Advisory Group (PAG). No additional outreach is planned.

Research and plan for outreach

23Desk-based research from the influencing stage and the analysis of the comment letters received by the IASB were used to inform the development of the PIP.

24Considering the factors outlined above, the Secretariat plans to conduct limited outreach for the development of DECA, in line with the UKEB Due Process Handbook.

Paragraph 6.21 of the UKEB Due Process Handbook:

"As a minimum, Regulation 8 of SI 2019/685 requires the UKEB to consult with a representative range of stakeholders before adopting an international accounting standard. Publication of the DECA on the UKEB website and notifying UK stakeholders is expected to be sufficient in the following situations:

1. When amendments to international accounting standards are minor and meet the criteria for annual improvements or for narrow-scope amendments."

25In view of the assessment in paragraphs A11-A22, the Secretariat propose the following outreach after DECA publication:

a) announcement of DECA consultation through the usual channels; and b) include information on the DECA as an item for noting with the UKEB PAG, IAG and AFIAG.

Project milestones

26In line with the proposed proportionate approach, the table below provides a brief description of the work focused on the mandatory milestones listed in paragraph 6.11 of the UKEB Due Process Handbook.

Resources allocated

27On the basis of this project plan, the project team consists of one Project Manager with oversight from a Project Director to ensure the project timelines are achievable. The required resources are allowed for in the 2024/25 UKEB plan and budget.

28In addition, some input from the economics team has been used in developing the contents of the economic impact assessment.

Setting-up an ad-hoc advisory group is not necessary

29Given the narrow-scope nature of the Amendments and stakeholder feedback received during the influencing stage, it is not considered necessary to set up a separate, ad-hoc advisory group specific for this project.

Project timeline

Endorsement and adoption stage

30The proposed high-level project timeline is as follows:

*To be confirmed

Annex A: Proposed timeline

Annex B: Illustration of changes post ED publication

The below table illustrates the changes to the mandatory amendments subsequent to the publication of the ED. This has been prepared based on the IASB's final amendments issued on 18 July 2024.