IASB Update June 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 23–25 June 2020.

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

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

The Board met on 23 June 2020 to discuss two topics concerning the maintenance and consistent application of IFRS Standards.

Sale of a Subsidiary to a Customer (Agenda Paper 12A)

The Board discussed a possible narrow-scope amendment to IFRS Standards to require an entity to apply IFRS 15 Revenue from Contracts with Customers, instead of IFRS 10 Consolidated Financial Statements, to disposals of some types of subsidiary to a customer.

The Board decided not to add this project to its work plan.

Eight of 14 Board members agreed with this decision.

Accounting Policy Changes (Agenda Papers 12B–12D)

The Board discussed feedback on its Exposure Draft Accounting Policy Changes—Proposed Amendments to IAS 8. The proposed amendments aimed to simplify the application of accounting policy changes that result from an agenda decision.

The Board decided not to proceed with the project.

Twelve of 14 Board members agreed with this decision.

Disclosure Initiative—Accounting Policies (Agenda Paper 20)

The Board met on 24 June 2020 to discuss the feedback on its Exposure Draft Disclosure of Accounting Policies, which proposed amendments to IAS 1 Presentation of Financial Statements, and IFRS Practice Statement 2 Making Materiality Judgements.

The Board tentatively decided that all types of accounting policy information should be subject to materiality judgements. The concept of materiality would therefore apply when deciding whether to disclose accounting policy information that is standardised, or that duplicates or summarises the requirements in IFRS Standards.

Eleven of 14 Board members agreed with this decision.

The Board tentatively decided that, at times, accounting policy information that is standardised, or that duplicates or summarises the requirements in IFRS Standards, can be material and should be disclosed.

Twelve of 14 Board members agreed with this decision.

The Board tentatively decided to add an example of a circumstance to proposed paragraph 117B of IAS 1. This example would clarify that material accounting policy information could include standardised information or information that duplicates or summarises the requirements in IFRS Standards when the accounting required for a material transaction, other event or condition is complex and may not otherwise be understood by users of financial statements.

Eleven of 14 Board members agreed with this decision.

To clarify how the concept of materiality applies to all types of accounting policy information, the Board tentatively decided to add:

  • an explanatory paragraph to the proposed amendments to IAS 1. This paragraph would:
    1. clarify that entities are permitted to provide immaterial accounting policy information as long as it does not obscure material accounting policy information; and
    2. prompt entities to consider whether they are obscuring material accounting policy information with immaterial accounting policy information.
  • further guidance to the proposed amendments to IFRS Practice Statement 2 relating to paragraph 117B of IAS 1 and the changes to the amendments to IAS 1 described in (a).

Ten of 14 Board members agreed with this decision.

Next step

The Board will consider whether to begin the balloting process for the amendments at a future meeting.

Disclosure Initiative—Targeted Standards-level Review of Disclosures (Agenda Paper 11)

The Board tentatively decided to allow 180 days for comment on an exposure draft of its proposed amendments to the disclosure sections of IAS 19 Employee Benefits and IFRS 13 Fair Value Measurement. All 14 Board members agreed with this decision.

All 14 Board members confirmed that they were satisfied that the Board has complied with the applicable due process requirements and has, in particular, undertaken sufficient consultation and analysis to begin the process for balloting the exposure draft.

No Board member indicated that he or she intends to dissent from the proposals in the exposure draft, but two Board members indicated that they might do so depending on the drafting of the proposals.

Next step

The Board plans to publish its exposure draft in March 2021.

Classification of Liabilities as Current or Non-current (Amendments to IAS 1) (Agenda Paper 29)

The Board met on 24 June 2020 to discuss feedback on the May 2020 Exposure Draft Classification of Liabilities as Current or Non-current—Deferral of Effective Date, which amends IAS 1 Presentation of Financial Statements. The Exposure Draft proposed deferring for one year the effective date of Classification of Liabilities as Current or Non-current issued in January 2020. The amended effective date would be 1 January 2023.

Comment letter analysis and recommendation to finalise the amendment (Agenda Paper 29A)

The Board tentatively decided to finalise the proposed amendment in the Exposure Draft with no changes.

All 14 Board members agreed with this decision.

Due process and permission to ballot (Agenda Paper 29B)

The Board decided to begin the balloting process for the amendment to IAS 1 without re-exposing it. All 14 Board members agreed with this decision.

All 14 Board members confirmed they were satisfied the Board has complied with the applicable due process requirements to begin the process for balloting the amendment to IAS 1. No Board member indicated that he or she intends to dissent from the amendment to IAS 1.

Next step

The Board plans to issue the amendment in July 2020.

Extractive Activities (Agenda Paper 19)

The Board met on 24 June 2020 to discuss findings from research activities to help the Board decide, at a future meeting, whether to replace or amend IFRS 6 Exploration for and Evaluation of Mineral Resources.

Feedback summary (Agenda Paper 19A)

The Board discussed feedback on its request for information from jurisdictions and stakeholder groups as well as from national standard-setters who helped to develop its 2010 Discussion Paper Extractive Activities which the Board discussed in March 2019.

The Board was not asked to make any decisions.

Next steps

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

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

The Board met on 25 June 2020 to discuss the feedback on its Exposure Draft Interest Rate Benchmark Reform—Phase 2 (Exposure Draft), which 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 with respect to 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 the Exposure Draft, except for the feedback on Question 3 which related to proposals on accounting for qualifying hedging relationships and groups of items. That feedback will be presented at the next Board meeting.

Feedback analysis—Modifications of financial assets and financial liabilities (Agenda Paper 14A)

The Board tentatively decided to finalise without substantial changes the proposals set out in the draft amendments to IFRS 9, IFRS 4 and IFRS 16 with respect to modifications of financial assets and financial liabilities.

All 14 Board members agreed with this decision.

Feedback analysis—Amendments to hedging relationships (Agenda Paper 14B)

The Board tentatively decided to finalise the proposals in the Exposure Draft related to the changes required to hedging relationships, subject to clarifications including:

  • a reference to the examples of modifications required by the reform would be incorporated as part of the changes required to hedging relationships; and
  • a specific reference to the designated hedged portion would be included as part of the required changes to the hedged item.

Additionally, the Board tentatively decided to clarify that the changes to the hedging relationships have to be made by the end of the reporting period during which uncertainty with respect to a specific element of the relationship has been resolved.

All 14 Board members agreed with this decision.

Feedback analysis—Designation of risk components (Agenda Paper 14D)

The Board tentatively decided to finalise the proposals in the Exposure Draft, subject to clarifying that the 24-month period applies to the individual alternative benchmark rate and hence begins from the date that an entity designates a particular alternative benchmark rate as the hedged risk for the first time.

Twelve of 14 Board members agreed with this decision.

Feedback analysis—Effective date and transition (Agenda Paper 14E)

The Board tentatively decided to:

  • finalise the effective date proposed in the Exposure Draft—that is, entities would be required to apply the amendments for annual periods beginning on or after 1 January 2021, with earlier application permitted.
  • finalise the transition requirements proposed in the Exposure Draft with one change to the requirement for reinstating particular discontinued hedging relationships. An entity would be required to reinstate a discontinued hedging relationship if and only if:
    1. the entity had discontinued that relationship solely because of changes required by interest rate benchmark reform; and
    2. at the date of initial application of the amendments, that discontinued relationship still met the risk management objective on the basis of which it qualified for hedge accounting (that is the entity still pursued the risk management objective for that hedging relationship) and still met all other qualifying criteria (after taking into account the amendments).

For discontinued hedging relationships that are required to be reinstated, the 24-month period discussed in Agenda Paper 14D begins from the date of initial application of the amendments.

All 14 Board members agreed with this decision.

Feedback analysis—Disclosures (Agenda Paper 14F)

The Board tentatively decided to finalise the proposed amendments in paragraphs 24I–24J of the Exposure Draft, subject to:

  • changing the amendment proposed in paragraph 24J(b) of the Exposure Draft to require disclosure of quantitative information about non-derivative financial assets, non-derivative financial liabilities and derivatives (each shown separately) that, at the end of the reporting period, remain referenced to interest rate benchmarks subject to interest rate benchmark reform. This information would be disaggregated by significant interest rate benchmark. For the purposes of this disclosure, an entity would choose the representative basis for disclosing the quantitative information and explain the basis applied in the financial statements.
  • deleting the disclosure requirement proposed in paragraph 24J(c) of the Exposure Draft.

All 14 Board members agreed with this decision.

Feedback analysis—Modification/replacement of derivatives (Agenda Paper 14G)

The Board tentatively decided to clarify that, for the purpose of the changes required to a hedging instrument (as contemplated by proposed paragraphs 6.9.7(c) and 102O(c) in the Exposure Draft), modifications required by the interest rate benchmark reform could be made in ways other than by modifying the contractual terms of the hedging instrument, as long as the hedging instrument is not derecognised and the outcome is economically equivalent to modifying the hedging instrument to refer to an alternative benchmark rate.

All 14 Board members agreed with this decision.

Feedback analysis—Other comments (Agenda Paper 14H)

The Board tentatively decided to make no substantial changes to the proposals in the Exposure Draft in response to issues related to:

  • classification of financial assets—solely payments of principal and interest on the principal amount outstanding; and
  • embedded derivatives.

All 14 Board members agreed with this decision.

Next steps

At the July 2020 Board meeting, the Board plans to discuss feedback on proposals on accounting for qualifying hedging relationships and groups of items, as well as any sweep issues that may arise. The Board will also discuss beginning the balloting process for the amendments.

 

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