Cost of Capital
Project Type:
Research
Status:
Completed
Milestone:
Final Documents
Completed Date: 3 September 2025
The UKEB has developed a quantitative approach to assessing cost of capital reductions, associated with the adoption of a new accounting standard in the UK, that would allow preparers to recover implementation costs in the long run. The approach also sets out a framework to assess whether the results are plausible, by looking at published studies on previously observed cost-of-capital effects and other contextual factors.
Background
Work on the approach commenced in February 2024. The approach represents the outcome of UKEB’s proactive research work, which was presented to internal and external stakeholders, including UK regulators, for feedback throughout its development.
The application of the approach was piloted as part of the UEKB’s work on the development of its [Draft] Endorsement Criteria Assessment (DECA) for IFRS 18. The Board discussed the analysis at its meetings in March, May and June 2025. The final results of the application of the approach form part of the evidence provided in the DECA for IFRS 18 Presentation and Disclosure in Financial Statements, under the heading “First-order indirect effects - capital market effects”.
Publishing the approach enhances transparency to UKEB stakeholders and provides more clarity on the evidence supporting the endorsement of International Accounting Standards in the UK.
Outreach
The UKEB outreach with stakeholders and public consultation on the UKEB’s Draft Endorsement Assessment Criteria (DECA) of IFRS 18 included an assessment based on the approach proposed.
UKEB Meetings
UKEB Meetings
- 15 July 2025: Endorsement: Cost of capital methodology
The Board considered the application of the cost of capital approach to the endorsement of IFRS 18
Timeline
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Final Documents
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The UKEB published a report on 3 September 2025: An Approach to Estimating Capital Market Effects.