IASB Update July 2023

Research and standard-setting

Dynamic Risk Management (Agenda Paper 4)

The IASB met on 25 July 2023 to continue its discussion on the Dynamic Risk Management (DRM) model. The IASB was also provided with a summary of its tentative decisions and a list of defined terms related to the project.

Designation of hedged exposures in the current net open risk position (Agenda Paper 4B) 

The IASB discussed the qualifying criteria for determining an entity’s current net open risk position and whether financial assets and financial liabilities denominated in more than one currency could be designated in the same DRM model. The IASB tentatively decided that: 

1. the requirement for underlying financial assets and financial liabilities denominated in different currencies to be allocated to separate DRM models continues to be necessary. 
2. an entity is permitted to include hedged exposures in a current net open risk position if doing so is consistent with the entity’s risk management strategy. In the DRM model, ‘hedged exposures’ refers to the combination of the hedged items and the hedging instruments that are designated in a hedge accounting relationship when applying IFRS 9 Financial Instruments. 

Twelve of 14 IASB members agreed with these decisions.   

Designated derivatives (Agenda Paper 4C)

The IASB discussed whether non-linear derivatives (such as interest rate options) and ‘off-market’ derivatives (derivatives that have a non-zero fair value on initial designation) would be eligible to be designated derivatives in the DRM model.  

The IASB tentatively decided that non-linear derivatives, except for net written options, would be eligible to be designated derivatives when their use is consistent with an entity’s risk management strategy.

Thirteen of 14 IASB members agreed with this decision.   

The IASB also tentatively decided that off-market derivatives would be eligible to be designated derivatives when their use is consistent with an entity’s risk management strategy. However, only the fair value changes that arise after the date of initial designation are considered when measuring the DRM adjustment.

All 14 IASB members agreed with this decision.

Next step

The IASB will continue its discussion on the topics identified in the project plan.

Equity Method (Agenda Paper 13)

The IASB met on 26 July 2023 to continue its discussions on application questions within the scope of the Equity Method project.

Towards an exposure draft—Impairment of investments in associates (Agenda Paper 13A)

The IASB tentatively decided to propose amendments to IAS 28 Investments in Associates and Joint Ventures:

1. to change the term ‘cost’ to ‘carrying amount’ in paragraph 41C of IAS 28.
   All 14 IASB members agreed with this decision.
2. to add as objective evidence of impairment a purchase price an investor pays for an additional interest in an associate, or a selling price for part of the interest, that is lower than the carrying amount of the investment in the associate at the date of the purchase or sale of that interest.
   All 14 IASB members agreed with this decision.
3. to remove the term ‘significant or prolonged’.
   Twelve of 14 IASB members agreed with this decision.

Towards an exposure draft—Implications of applying the IASB’s tentative decisions to application questions that were not selected (Agenda Paper 13B)

The IASB decided to expand the project’s scope by adding five application questions that are considered resolved by its tentative decisions made to date.

All 14 IASB members agreed with this decision.

Next steps

The IASB will continue its discussions on the project, including on possible improvements to disclosure requirements; and on the implications of applying its tentative decisions to investments other than those in associates accounted for using the equity method.

Business Combinations—Disclosures, Goodwill and Impairment (Agenda Paper 18)

The IASB met on 25 July 2023 to discuss its project on Business Combinations—Disclosures, Goodwill and Impairment. In particular, the IASB discussed:

• changes to IAS 36 Impairment of Assets relating to the impairment test of cash-generating units containing goodwill (impairment test); and
• aspects of its package of proposed disclosure requirements for IFRS 3 Business Combinations.

Effectiveness of the impairment test (Agenda Papers 18A–18B)

The IASB tentatively decided:

1. to replace ‘goodwill is monitored for internal management purposes’ in paragraph 80(a) of IAS 36 with ‘business associated with the goodwill is monitored for internal management purposes’;
2. to clarify the meaning of the proposed new wording for paragraph 80(a) by providing limited clarifications of what is meant by ‘monitoring’ a business associated with goodwill;
3. to clarify that ‘operating segment’ in paragraph 80(b) of IAS 36 is intended to show the highest level that can be used by an entity in the impairment test when applying paragraph 80(a);
4. to clarify why IAS 36 requires an entity to allocate goodwill to a cash-generating unit or a group of cash-generating units; and
5. to take no further action on any of the other suggestions from respondents to the Discussion Paper Business Combinations—Disclosures, Goodwill and Impairment for improving the effectiveness of the impairment test.

All 14 IASB members agreed with these decisions.

The IASB tentatively decided to require an entity to disclose the reportable segments in which cash-generating units containing goodwill are included.

Thirteen of 14 IASB members agreed with this decision.

The IASB also tentatively decided to explain the difference between management monitoring ‘strategically important’ business combinations for the purpose of subsequent performance disclosure and management monitoring a business associated with the goodwill for the purpose of impairment testing.

Eleven of 14 IASB members agreed with this decision.

Disclosure requirements for specific types of entities (Agenda Paper 18C)

The IASB tentatively decided to propose the prospective IFRS Accounting Standard Subsidiaries without Public Accountability: Disclosures be amended after its issue to require an eligible subsidiary to disclose quantitative information about expected synergies, subject to the same exemption proposed for an entity applying IFRS 3 in the project on Business Combinations—Disclosures, Goodwill and Impairment.

Thirteen of 14 IASB members agreed with this decision.

The IASB also tentatively decided to provide unlisted entities that apply full IFRS Accounting Standards with no exemptions from disclosing information about the subsequent performance of business combinations.

All 14 IASB members agreed with this decision.

Next steps

The IASB will make tentative decisions on:

1. other aspects of the project’s intersection with the prospective IFRS Accounting Standard Subsidiaries without Public Accountability: Disclosures;
2. what transition requirements to propose;
3. whether the package of proposals meets the project objective; and
4. whether to publish an exposure draft setting out its proposals.

Extractive Activities (Agenda Paper 19)

The IASB met on 27 July 2023 to discuss stakeholder feedback on suggested ways to improve disclosures about an entity’s exploration and evaluation expenditure and activities. These suggestions included making information available that might help users of financial statements:

1. understand how entities account for exploration and evaluation expenditure;
2. compare entities with different accounting policies for exploration and evaluation expenditure; and
3. understand the risks and uncertainties of entities’ exploration and evaluation activities.

The IASB was not asked to make any decisions.

Next step

The IASB will decide whether to propose amendments that would:

1. change the disclosure objectives and requirements in IFRS 6 Exploration for and Evaluation of Mineral Resources relating to an entity’s exploration and evaluation expenditure;
2. remove the temporary status of IFRS 6; and
3. remove paragraphs 13 and 14 of IFRS 6.

Primary Financial Statements (Agenda Paper 21)

The IASB met on 26 July 2023 to discuss in relation to the prospective IFRS Accounting Standard (Standard):

• re-exposure criteria (Agenda Paper 21A);
• transition and effective date (Agenda Paper 21B); and
• due process requirements (Agenda Paper 21C).

The Standard will replace IAS 1 Presentation of Financial Statements.

Consideration of the re-exposure criteria (Agenda Paper 21A)

The IASB considered the re-exposure criteria in the Due Process Handbook. The IASB decided to issue the Standard without re-exposing the proposals.

All 14 IASB members agreed with this decision.

Transition and effective date (Agenda Paper 21B)

The IASB tentatively decided:

1. to require an entity to apply the Standard for annual periods beginning on or after 1 January 2027.
   Twelve of 14 IASB members agreed with this decision.
2. to confirm the proposal in the Exposure Draft to require an entity to apply the Standard retrospectively in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.
   All 14 IASB members agreed with this decision.
3. to confirm the proposal in the Exposure Draft to require an entity to present each of the required headings and subtotals in the Standard in its condensed interim financial statements in the first year of applying the Standard. This requirement would also apply to a first-time adopter of IFRS Accounting Standards.
   All 14 IASB members agreed with this decision.
4. to require an entity in the first year of applying the Standard to disclose a reconciliation between each line item in the statement of profit or loss presented by applying IAS 1 and each line item presented by applying the Standard. This disclosure would replace the disclosure required in paragraph 28(f) of IAS 8 and would be:
   1. required for the comparative period immediately preceding the period in which the Standard is first applied;
   2. permitted but not required for the reporting period in which the Standard is first applied; and
   3. permitted but not required for comparative periods presented other than the comparative period specified in subparagraph (i).
      All 14 IASB members agreed with this decision.
5. subject to drafting, to require an entity to disclose the reconciliation described in (d)(i) for line items in the statement of profit or loss presented in interim financial statements for interim periods in the first year of applying the Stadard.
   Eleven of 14 IASB members agreed with this decision.

The IASB also decided to consider whether to provide transitional relief from restating amounts presented for additional comparative periods.

Due process requirements (Agenda Paper 21C)

All 14 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 Standard. No members indicated that they intend to dissent from issuing the Standard.

Next steps

The IASB will begin the balloting process for the Standard. The IASB will discuss in a future meeting any sweep issues that arise in the drafting process.

Disclosure Initiative—Subsidiaries without Public Accountability: Disclosures (Agenda Paper 31)

The IASB met on 26 July 2023 to discuss the prospective IFRS Accounting Standard Subsidiaries without Public Accountability: Disclosures.

Effective date and transition (Agenda Paper 31A)

The IASB discussed the effective date of, and transition to, the Accounting Standard.

The IASB tentatively decided:

1. to permit an eligible subsidiary to apply the Standard on 1 January 2027;
2. to permit an eligible subsidiary to apply the Standard early and to require a subsidiary that elects to do so to disclose that fact; and
3. to confirm the proposals (as set out in paragraphs 10–11 of the Exposure Draft Subsidiaries without Public Accountability: Disclosures) about the comparative information that an eligible subsidiary would be required to provide when either electing to apply the Standard for the first time or electing not to apply the Standard in the current period.

Twelve of 14 IASB members agreed with the decision in (a). All 14 IASB members agreed with the decisions in (b) and (c).

The IASB also:

1. confirmed that disclosure requirements issued in other IFRS Accounting Standards since the Exposure Draft was developed remain applicable; and
2. decided to specify the disclosures an eligible subsidiary is required to make if it applies the Standard early but does not apply the IFRS Accounting Standard General Presentation and Disclosures early.

All 14 IASB members agreed with these decisions.

Due process (Agenda Paper 31B)

All 14 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 Standard.

No IASB member indicated an intent to dissent from issuing the Standard.

The IASB decided re-exposure of the proposals in the Exposure Draft as revised by its tentative decisions is not required.

All 14 IASB members agreed with this decision.

Next step

The IASB expects to issue the Standard in the first half of 2024.

Maintenance and consistent application

Maintenance and consistent application (Agenda Paper 12)

The IASB met on 25 July 2023:

• to receive an update on the June 2023 meeting of the IFRS Interpretations Committee (Committee) (Agenda Paper 12B); and
• to discuss a potential narrow-scope standard-setting project on how entities apply the own-use exception in IFRS 9 Financial Instruments to physical power purchase agreements (PPAs) (Agenda Paper 12A). 

IFRIC Update June 2023 (Agenda Paper 12B)

The IASB received an update on the Committee’s June 2023 meeting. Details of this meeting were published in IFRIC Update June 2023.

The IASB was not asked to make any decisions.

Application of the Own-use Exception to Some Physical Power Purchase Agreements—Exploring possible narrow-scope amendments to IFRS 9 (Agenda Paper 12A)

At its June 2023 meeting the Committee recommended that the IASB undertake a narrow-scope standard-setting project to clarify how entities apply the own-use exception in IFRS 9 to physical PPAs for the delivery of renewable energy. The IASB discussed whether to add such a project to its work plan and, if so, what the scope and priority of that project could be. The IASB also considered stakeholders’ concerns about the accounting for virtual PPAs.

The IASB tentatively decided to add a project to the work plan to research whether narrow-scope amendments could be made to IFRS 9 to better reflect how financial statements are affected by PPAs in which the underlying non-financial item:

1. cannot be stored economically; and 
2. is required to either be consumed or sold within a short time as determined by the market structure in which the item is bought and sold.   

The IASB’s research will focus on:

1. applying the own-use exception in IFRS 9 to physical PPAs; and
2. applying the hedge accounting requirements in IFRS 9 using a virtual PPA as the hedging instrument.

Thirteen of 14 IASB members agreed with these decisions. 

Provisions—Targeted Improvements (Agenda Paper 22) 

The IASB met on 26 July 2023 to discuss possible amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets. These amendments relate to:

• discount rates for provisions (Agenda Paper 22A); and
• costs to include in measuring a provision (Agenda Paper 22B).

Discount rates—Stakeholder feedback (Agenda Paper 22A) 

The IASB discussed stakeholder feedback on discount rates for provisions within the scope of IAS 37—specifically, on whether to include non-performance risk in the risks reflected in the rates.

IASB members provided views on which of four possible approaches to amending IAS 37 they would like to pursue further in response to the stakeholder feedback.

The IASB was not asked to make any decisions.

Costs to include in measuring a provision (Agenda Paper 22B)

The IASB tentatively decided to specify that:

1. the expenditure required to settle an obligation comprises the costs that relate directly to settling the obligation; and
2. the costs that relate directly to settling an obligation consist of both:
   1. the incremental costs of settling the obligation; and
   2. an allocation of other costs that relate directly to settling obligations of that type.

All 14 IASB members agreed with this decision.

Next step

The IASB will continue discussing possible amendments to IAS 37.