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 17 and 19 March 2020.
The topics, in order of discussion, were as follows:
The Board met on 17 March 2020 to discuss:
- the feedback on its Exposure Draft Amendments to IFRS 17 about the effective date of IFRS 17 Insurance Contracts and the fixed expiry date of the temporary exemption in IFRS 4 Insurance Contracts from applying IFRS 9 Financial Instruments—Agenda Paper 2A;
- due process steps and permission for balloting the amendments to IFRS 17—Agenda Paper 2B; and
- an overview of the amendments to IFRS 17—Agenda Paper 2C.
Effective date of IFRS 17 and IFRS 9 temporary exemption in IFRS 4 (Agenda Paper 2A)
The Board tentatively decided to defer the effective date of IFRS 17 incorporating the amendments to annual reporting periods beginning on or after 1 January 2023.
Twelve of 14 Board members agreed with this decision. One Board member was absent.
The Board tentatively decided to extend the fixed expiry date of the temporary exemption in IFRS 4 from applying IFRS 9 to annual reporting periods beginning on or after 1 January 2023.
Twelve of 14 Board members agreed with this decision.
Due process steps, permission for balloting and overview of the amendments to IFRS 17 (Agenda Papers 2B─2C)
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 amendments to IFRS 17 and the amendment to IFRS 4.
No Board members indicated they intend to dissent from the issuance of the amendments to IFRS 17 and the amendment to IFRS 4.
The Board expects to issue the amendments to IFRS 17 in the second quarter of 2020.
The Board met on 19 March 2020 to discuss the treatment of ‘target profit’ in the accounting model it is developing for regulatory assets and regulatory liabilities. Target profit is the profit that an entity is entitled to include in the regulated rate. Principles that the Board had already discussed establish when the following elements of target profit are part of total allowed compensation:
- regulatory interest—over the period in which the related regulatory asset or regulatory liability is outstanding; and
- profit margins that vary with the amount of an expense, for example, a fixed percentage mark-up on the expense—when the related expense is recognised in accordance with IFRS Standards.
The Board discussed how an entity should determine when other elements of target profit are part of total allowed compensation. The Board tentatively decided that:
- regulatory returns on a construction work-in-progress base included in the regulated rates charged to customers during the construction period form part of total allowed compensation only during the period when the asset is in operation and is being used to supply goods or services. All 14 Board members agreed with this decision.
- performance incentives (whether construction-related or non-construction-related) form part of total allowed compensation for goods or services supplied in the period over which the relevant performance criteria are monitored and evaluated. Twelve of 14 Board members agreed with this decision.
- all other elements of target profit that a regulatory agreement entitles an entity to charge customers in a period, including regulatory returns on a regulatory capital base, form part of total allowed compensation for goods or services supplied in that period. Thirteen of 14 Board members agreed with this decision.
The Board expects to publish an exposure draft in the second half of 2020.
The Board met on 19 March 2020 to discuss:
- the objective of management commentary to be included in the revised IFRS Practice Statement 1 Management Commentary (Practice Statement), building on the Board’s initial discussion of the objective in November 2018—Agenda Paper 15A; and
- disclosure objectives for some types of content in management commentary—Agenda Paper 15B.
The Board also considered plans for the order of topics in future meetings and for developing guidance on those topics (Agenda Paper 15). The Board was not asked to make decisions on those plans.
The objective of management commentary (Agenda Paper 15A)
The Board tentatively decided that the revised Practice Statement should:
- retain the statement that management commentary is prepared for existing and potential investors, lenders and other creditors and refer to them as ‘primary users’; and
- explain that primary users are expected to have a reasonable knowledge of business and economic activities and to review and analyse the information diligently; but such users are not expected to have knowledge of the entity to which the management commentary relates.
All 13 Board members present agreed with this decision. One Board member was absent.
The Board also tentatively decided that the revised Practice Statement should describe the objective of management commentary as supporting primary users in assessing an entity’s prospects for future cash flows and management’s stewardship of the entity’s economic resources by providing useful information and analysis that:
- enhance the primary users’ understanding of the entity’s performance and position as depicted in the related financial statements; and
- give insight into factors that could affect the entity’s prospects.
Thirteen of 14 Board members present agreed with this decision.
The Board also discussed a working draft of guidance on the objective of management commentary to be included in the revised Practice Statement, including guidance on:
- the notion of ‘management’s view’;
- types of information in management commentary; and
- the link between the notions of ‘an entity’s prospects for future cash flows’ and ‘value creation’.
Disclosure objectives (Agenda Paper 15B)
The Board discussed initial ideas on developing disclosure objectives for the types of content expected to be included in management commentary.
The Board was not asked to make any decisions.
The Board’s next discussion is expected to cover business model, resources and relationships, strategy and opportunities.