IASB Update July 2020

This IASB Update highlights preliminary decisions of the International Accounting Standards Board (Board). The Board's final decisions on IFRS® Standards, Amendments and IFRIC® Interpretations are formally balloted as set out in the Due Process Handbook of the IFRS Foundation and the IFRS Interpretation Committee. 

The Board met remotely on 22–23 July 2020.

The topics, in order of discussion, were as follows:

IBOR Reform and its Effects on Financial Reporting—Phase 2 (Agenda Paper 14)

The Board met on 22 July 2020 to continue a discussion, begun at its June 2020 meeting, of the feedback on its Exposure Draft Interest Rate Benchmark Reform—Phase 2 (Exposure Draft). The Exposure Draft proposed amendments to IFRS 9 Financial Instruments, IAS 39 Financial Instruments: Recognition and Measurement, IFRS 7 Financial Instruments: Disclosures, IFRS 4 Insurance Contracts and IFRS 16 Leases in respect of issues that affect financial reporting during the reform of an interest rate benchmark.

The agenda papers for this meeting provide the feedback as well as analysis and recommendations on Question 3 of the Exposure Draft, which related to proposals on accounting for qualifying hedging relationships and groups of items. The Board also discussed due process steps, including permission for balloting amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16.

Feedback analysis—Accounting for qualifying hedges (Agenda Paper 14A)

The Board tentatively decided to:

  • permit, rather than require, an entity to reset cumulative fair values to zero for the purpose of performing the retrospective effectiveness assessment, as proposed in paragraph 102S of the Exposure Draft; and
  • confirm the remaining proposals in the Exposure Draft related to the accounting for qualifying hedging relationships.

All 12 Board members agreed with this decision.

Due process steps and permission for balloting (Agenda Paper 14B)

The Board agreed that the amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 should not be re-exposed. All 12 Board members agreed with this decision.

All 12 Board members confirmed they were satisfied that the Board has complied with applicable due process steps and that it has undertaken sufficient consultation and analysis to begin the balloting process for the amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16.

No Board members indicated an intention to dissent from the issuance of amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16.

Next step

The Board plans to issue final amendments in August 2020.

Disclosure Initiative—Accounting Policies (Agenda Paper 20)

The Board met on 22 July 2020 to discuss:

  • the transition requirements and effective date of the amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2 Making Materiality Judgements—Agenda Paper 20A;
  • the effective date of the amendments to IAS 8 Accounting Policies, Changes to Accounting Estimates and Errors resulting from the Accounting Policies and Accounting Estimates (Amendments to IAS 8) project; and
  • due process steps and permission to begin the balloting process for the amendments to IAS 1 and IFRS Practice Statement 2—Agenda Paper 20B.

Transition and effective date (Agenda Paper 20A)

The Board tentatively decided to require an entity to disclose in the period of first application of the amendments material accounting policy information for that period. The Board noted that paragraph 38 of IAS 1 specifies that comparative information would be required only if it is relevant to understanding the current period’s financial statements.

All 12 Board members agreed with this decision.

The Board tentatively decided to require an entity to apply the amendments to IAS 1 to annual reporting periods beginning on or after 1 January 2023 and permit early application.

All 12 Board members agreed with this decision.

The Board tentatively decided to change the effective date of the amendments to IAS 8 resulting from the Accounting Policies and Accounting Estimates project to annual reporting periods beginning on or after 1 January 2023 and permit early application.

Seven of 12 Board members agreed with this decision.

Due process steps and permission to begin the balloting process (Agenda Paper 20B)

All 12 Board members confirmed that they were satisfied that the Board has complied with the applicable due process requirements.

One Board member indicated that they may dissent from the issuance of the amendments to IAS 1 and IFRS Practice Statement 2.

Next step

The Board plans to issue the amendments to IAS 1 and IFRS Practice Statement 2 in the fourth quarter of 2020.

IFRS Taxonomy (oral update)

The Board met on 22 July 2020 to receive an oral update on:

  • due process steps taken to develop the IFRS Taxonomy Update for Covid-19-Related Rent Concessions, which amends IFRS 16 Leases;
  • feedback on the Proposed IFRS Taxonomy Update; and
  • next steps in finalising the Update.

The Board was not asked to make any decisions.

Next step

The Board now expects to publish the IFRS Taxonomy 2020 Taxonomy Update 1 Covid-19-Related Rent Concessions in August 2020.

Maintenance and consistent application (Agenda Papers 12–12B)

The Board met on 22 July 2020 to discuss two topics concerning the maintenance and consistent application of IFRS Standards.

Lack of Exchangeability (Agenda Paper 12A)

The Board discussed requirements for the transition to and early application of the proposed amendment to IAS 21 The Effects of Changes in Foreign Exchange Rates. The Board also discussed due process, including permission to begin the balloting process.

The proposed amendment to IAS 21 would (a) define exchangeability and thus a lack of exchangeability; and (b) specify how an entity determines the spot exchange rate when a currency lacks exchangeability.

Transition

Entities already applying IFRS Standards

The Board tentatively decided to propose that, if applicable, an entity would apply the amendment prospectively from the beginning of the annual reporting period in which it first applies the amendment (date of initial application) and not restate comparative information. An entity that:

  • reports foreign currency transactions in its functional currency would:
    1. translate foreign currency monetary items, and non-monetary items measured at fair value in a foreign currency, at the date of initial application using the estimated spot exchange rate at that date; and
    2. recognise any effect of initially applying the amendment in opening retained earnings.
  • uses a presentation currency other than its functional currency (or translates a foreign operation) would:
    1. translate all assets and liabilities at the date of initial application using the estimated spot exchange rate at that date;
    2. translate equity items at the date of initial application using the estimated spot exchange rate at that date if the entity’s functional currency is hyperinflationary; and
    3. recognise any effect of initially applying the amendment as an adjustment to the cumulative amount of translation differences in equity.

First-time adopters

The Board tentatively decided to:

  • provide no specific exemption for a first-time adopter from the proposed amendment to IAS 21; and
  • align the wording in paragraph D27(b) of IFRS 1 First-time Adoption of International Financial Reporting Standards with the definition and description of a lack of exchangeability in the proposed amendment.

Early application

The Board tentatively decided to permit an entity to apply the proposed amendment earlier than the effective date.

All 12 Board members agreed with these decisions.

Due process

The Board tentatively decided to allow a comment period of no less than 120 days for the exposure draft of its proposed amendment to IAS 21. All 12 Board members agreed with this decision.

All 12 Board members confirmed they were satisfied the Board has complied with the applicable due process steps and that it has undertaken sufficient consultation and analysis to begin the balloting process for the exposure draft.

No Board member indicated an intention to dissent from the proposals in the exposure draft.

Next step

The Board plans to publish its exposure draft in due course.

IFRIC Update (Agenda Paper 12B)

The Board received an update on the June 2020 meeting of the IFRS Interpretations Committee. Details of this meeting were published in the IFRIC Update for June 2020.

The Board was not asked to make any decisions.

Extractive Activities (Agenda Paper 19)

The Board met on 22 July 2020 to discuss research findings to help the Board decide, at a future meeting, whether to replace or amend IFRS 6 Exploration for and Evaluation of Mineral Resources.

Applying IAS 16 or IAS 38 to exploration and evaluation expenditures (Agenda Paper 19A)

The Board considered research findings on how an entity would account for activities within the scope of IFRS 6 in the absence of that Standard, by applying IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets.

The Board was not asked to make any decisions.

Academic literature review (Agenda Paper 19B)

The Board considered academic evidence on extractive activities, after a review of literature relevant to IFRS 6.

The Board was not asked to make any decisions.

Next step

The Board will continue to discuss research findings on extractive activities and it will hold educational sessions to develop its understanding further.

Management Commentary (Agenda Paper 15)

The Board met on 23 July 2020 to discuss reporting financial resources (Agenda Paper 15A) and performance, position and progress (Agenda Papers 15B–15D) in management commentary.

Financial resources (Agenda Paper 15A)

The Board discussed supporting guidance to be included in the revised IFRS Practice Statement 1 Management Commentary (Practice Statement) on providing in management commentary information about obtaining and allocating financial resources. The Board was not asked to make any decisions.

Progress (Agenda Paper 15B)

The Board tentatively decided that the disclosure objectives for the entity’s business model, strategy, resources and relationships, risks and external environment should require management to provide information about progress in managing key matters identified in those areas of content. All 12 Board members agreed with this decision.

Performance and position (Agenda Paper 15C)

The Board tentatively decided to specify in the disclosure objective for performance and position that:

  • management commentary should provide information to help investors and creditors understand the entity’s performance and position;
  • investors and creditors use information about the entity’s performance and position to assess:
    1. the key drivers of the entity’s performance and position;
    2. the extent to which the entity’s performance and position reported in its financial statements are indicative of the entity’s ability to create value and generate cash flows in the future; and
    3. how the entity’s performance and position reported in its financial statements compare with previous expectations; and
  • information about the entity’s performance and position should focus on the key facets of performance and position and cover:
    1. what the key facets of performance and position are and how management monitors those key facets;
    2. what affected the entity’s performance for the reporting period or could affect performance in the future, including over the long term;
    3. what affected the entity’s position at the end of the reporting period or could affect the position in the future, including over the long term; and
    4. how the entity’s performance and position reported in its financial statements compare with previous expectations.

Nine of 12 Board members agreed with this decision. In addition, the Board emphasised that the disclosure objective for performance and position, or guidance supporting it, should explain that the starting point for discussing an entity’s performance and position should be the amounts included in the entity’s financial statements.

The Board also tentatively decided to specify that the key facets of performance and position are those that reflect the entity’s ability to create value and generate cash flows and that the entity’s management monitors. All 12 Board members agreed with this decision.

The Board also discussed possible guidance to support the disclosure objective for performance and position. The Board was not asked to make any decisions.

Management measures and indicators (Agenda Paper 15D)

The Board discussed supporting guidance that could be included in the revised Practice Statement on:

  • management measures and indicators that need to be discussed in management commentary; and
  • information that needs to be provided in management commentary about those measures and indicators.

The Board was not asked to make any decisions.

Next steps

The Board noted that the project time line has been revised and that the planned publication date of the forthcoming exposure draft of the revised Practice Statement is February 2021.

At a future meeting, the Board expects to:

  • discuss the status of the Practice Statement and authorisation of management commentary;
  • consider whether the supporting guidance discussed sufficiently and appropriately covers topics of particular interest to the Board’s stakeholders—for example, environmental, social and governance matters, and intangible resources and relationships; and
  • decide whether to begin the balloting process for the exposure draft.

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