IASB Update November 2019

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 Interpretations Committee. 

The Board met on Tuesday 19 until Wednesday 20 November 2019 at the IFRS Foundation's offices in London.

The topics, in order of discussion, were:

Primary Financial Statements (Agenda Paper 21)

The Board met on 19 November 2019 to discuss how an entity should be required to classify, in the statement of profit or loss, income and expenses from investments in integral associates and joint ventures other than the share of profit or loss from such investments.

The Board tentatively decided to:

  1. require an entity to classify income and expenses from integral associates and joint ventures in the integral associates and joint ventures category of the statement of profit or loss; and
  2. specify that income and expenses from integral associates and joint ventures include, in addition to the share of profit or loss of integral associates and joint ventures:
    1. impairment losses and reversals of impairment losses on integral associates and joint ventures; and
    2. gains or losses on the disposal of integral associates and joint ventures.

Thirteen of 14 Board members agreed with this decision and one Board member disagreed.

Next step

The staff will continue to prepare the exposure draft.

 

Subsidiaries that are SMEs (Agenda Paper 31)

The Board met on 19 November 2019 to discuss two matters that arose at its September 2019 meeting:

  1. the potential benefits for preparers from the project on Subsidiaries that are SMEs; and
  2. the scope of the project.

The Board was not asked to make any decisions on how the project can benefit preparers.

The Board decided to consider the scope of the project only after it has compared most IFRS Standards with their corresponding sections in the IFRS for SMEs Standard. All 14 Board members agreed with this decision.

Next step

At its December 2019 meeting the Board will receive a report from the Australian Accounting Standards Board (AASB) on the AASB’s project on reduced disclosure requirements.

 

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

The Board met on 19 November 2019 to discuss items of information that could be used to meet the disclosure objectives the Board has tentatively decided on for IAS 19 Employee Benefits and IFRS 13 Fair Value Measurement.

Use of language considerations (Agenda Paper 11A)

The Board tentatively decided to:

  1. use prescriptive ‘shall’ language when an item of information is always essential to meet a specific disclosure objective; and
  2. use the less prescriptive language ‘while not mandatory, the following may enable an entity to meet this objective’ to introduce the remaining items of information.

Eleven of 14 Board members agreed and three disagreed with this decision.

IAS 19 items of information for disclosure (Agenda Paper 11B)

The Board has previously discussed detailed and specific disclosure objectives for IAS 19 that an entity would be required to comply (see July 2019 IASB Update).

Specific disclosure objectives
The Board’s tentative decisions on items of information for entities to meet the specific disclosure objectives
An entity shall disclose information that enables users of financial statements to understand the amounts and the components of those amounts in the statements of financial performance, financial position and cash flows arising from its defined benefit plans during the reporting period.

An entity shall disclose:

  1. a breakdown of the total income or expense in profit or loss, identifying its components, including current service cost, past service cost, gain or loss on settlement and net interest on the net defined benefit liability.
  2. a breakdown of the total income or expense in other comprehensive income, identifying its components, including actuarial gains and losses and return on plan assets.
  3. a breakdown of the asset or liability in the statement of financial position, identifying its components including fair value of plan assets, present value of the defined benefit obligation and the effect of the asset ceiling.
  4. the deferred tax asset or liability arising from the plan.
  5. a breakdown of the amounts in the statement of cash flows, identifying its components, including contributions by the employer into the plan during the period.
Thirteen of 14 Board members agreed and one disagreed with this decision.

An entity shall disclose information that enables users of financial statements to understand the:

  1. nature of the benefits provided by its defined benefit plans;
  2. nature and extent of risks, in particular the investment risks to which the plans expose the entity; and
  3. strategies that the entity has in place to manage the plans and the associated risks.
While not mandatory, the following items of information may enable an entity to meet this objective:
  1. a description of the nature of the benefits provided by the plans.
  2. the status of the plans, such as whether the plans are open or closed to new members and whether the plans are unfunded, partly funded or funded.
  3. a description of how the plans are governed and managed, including any regulatory framework that affects how the plan operates.
  4. a description of plan-specific investment risks, including any significant concentrations of risks. For example, if plan assets are primarily invested in one class of investments, an explanation of the risks to which such concentration exposes the entity.
  5. a description of the policies and processes employed by the entity or plan trustees or managers to manage the risks in item 4.
  6. a description of the investment strategies for the plans.
  7. a breakdown of the fair value of plan assets by classes of assets that distinguish the risks and characteristics of those assets.
  8. the expected returns on the plan assets.

Thirteen of 14 Board members agreed and one disagreed with this decision.

Additional items of information that may enable an entity to meet all parts of this  objective for defined benefit multi-employer and group plans include:

  1. the level of participation of the entity in the plans compared to other participating entities.
  2. a description of any stated policy to determine the contribution to be paid by the entity into the plans.
  3. a description of the extent to which the entity can be liable to the plans for other entities’ obligations under the terms and conditions of the plans.
Thirteen of  14 Board members agreed and one disagreed with this decision.

An entity shall disclose information that enables users of financial statements to understand the expected future cash flows resulting from the defined benefit obligation and the nature of those cash flows.

The Board instructed the staff to bring further analysis on the items of information to meet this specific disclosure objective to a future Board meeting.

An entity shall disclose information that enables users of financial statements to understand the time period over which payments will continue to be made to members of plans that are closed to new members and for which the entity still has an obligation.

While not mandatory, the following items of information may enable an entity to meet this objective:

  1. the weighted average duration of the defined benefit obligation.
  2. the number of years that the benefits payable by the plans are expected to be paid.
Thirteen of 14 Board members agreed and one disagreed with this decision.

An entity shall disclose information that enables users of financial statements to understand the significant assumptions used in determining the defined benefit obligation.

While not mandatory, the following items of information may enable an entity to meet this objective:

  1. the demographic and financial assumptions used;
  2. the approach adopted in determining the assumptions used, such as how the Consumer Price Index was assessed or the model to determine longevity assumptions;
  3. the reasons why any actuarial assumptions significantly changed during the period.
  4. any alternative actuarial assumptions reasonably possible at the reporting date that could have significantly changed the defined benefit obligation.
  5. a description of the level of measurement uncertainty involved in measuring the defined benefit obligation.
Thirteen of 14 Board members agreed and one disagreed with this decision.
An entity shall disclose information that enables users of financial statements to understand the drivers of changes in the net defined benefit liability or asset from the beginning of a reporting period to the end of that period.

While not mandatory, the following may enable an entity to meet this objective:

  1. a narrative explanation of the drivers of change (see below); or
  2. a tabular reconciliation of the drivers of change (see below).

All 14 Board members agreed with this decision.

Examples of drivers of change include but are not limited to:

  1. current and past service costs.
  2. contributions by the employer.
  3. contributions by employees.
  4. benefits paid out to plan participants.
  5. effect of foreign exchange rate differences.
  6. return on plan assets.
  7. actuarial gains or losses from changes in assumptions.
  8. actuarial gains or losses from experience adjustments.
  9. effect of business acquisitions, combinations and disposals.

IFRS 13 items of information for disclosure (Agenda Paper 11C)

The Board has previously discussed detailed and specific disclosure objectives for IFRS 13 that an entity would be required to comply with (see September 2019 IASB Update).

For assets, liabilities and own equity instruments measured at fair value in the statement of financial position

Specific disclosure objectives
The Board’s tentative decisions on items of information for entities to meet the specific disclosure objectives
An entity shall disclose information that enables users of financial statements to understand the amount, nature and other characteristics of the classes of assets, liabilities and an entity’s own equity instruments within each level of the fair value hierarchy
  1. An entity shall disclose the fair value measurements at the end of the reporting period for recurring and non-recurring measurements by the level of the fair value hierarchy within which those measurements are categorised in their entirety.
  2. While not mandatory, the following may enable an entity to meet the objective for recurring and non-recurring fair value measurements:
  1. a description of the nature, characteristics and risks of the assets, liabilities and own equity instruments in each level of the fair value hierarchy (or a cross-reference to where that information is disclosed).
  2. a description of any inseparable third-party credit enhancement and whether such enhancement is reflected in the fair value measurement.

Thirteen of 14 Board members agreed and one disagreed with these decisions.

The Board also tentatively decided to link the information included in the disclosure requirement in paragraph 94 of IFRS 13 to this objective.

Thirteen of 14 Board members agreed and one disagreed with this decision.
An entity shall disclose information that enables users of financial statements to understand the significant techniques and inputs used in deriving its fair value measurements
  1. An entity shall disclose the fact if it makes an accounting policy decision to use the valuation exception in paragraph 48 of IFRS 13 for financial assets and financial liabilities.
  2. While not mandatory, the following may enable an entity to meet the objective for recurring and non-recurring fair value measurements:
  1. a description of the significant valuation techniques used in the fair value measurement.
  2. a description of any change in valuation technique and the reason(s) for making it.
  3. a description of the significant inputs used in the fair value measurement, for example, quantitative information or narrative information.
  4. a description of the fact that and reasons why the highest and best use of a non-financial asset differs from its current use.
Twelve of 14 Board members agreed and two disagreed with these decisions.
An entity shall disclose information that enables users of financial statements to understand the drivers of change in the fair value measurements from the beginning of a reporting period to the end of that period

While not mandatory, the following may enable an entity to meet the objective for recurring fair value measurements:

  1. information about the significant drivers of change during the period (see below), for example by:
    1. narrative explanation; or
    2. tabular reconciliation.

    Twelve of 14 Board members agreed and two disagreed with this decision.

  2. the reasons for any transfers between levels of the fair value hierarchy during the period and the entity’s policy for determining when transfers are deemed to have occurred. Thirteen of 14 Board members agreed and one disagreed with this decision.

Examples of drivers of changes include but are not limited to:

  1. the amounts of any transfers between levels of the fair value hierarchy.
  2. total gains or losses for the period recognised in profit or loss, and the line item(s) in profit or loss in which those gains or losses are recognised.
  3. total gains or losses for the period in (b) above included in profit or loss that is attributable to the change in unrealised gains or losses, and the line item(s) in profit or loss in which those unrealised gains or losses are recognised.
  4. total gains or losses for the period recognised in other comprehensive income, and the line item(s) in profit or loss in which those gains or losses are recognised.
  5. purchases, sales, issues and settlements.
  6. effect of foreign exchange rate differences.
The Board also tentatively decided to link the information included in the disclosure requirement in paragraph 95 of IFRS 13 to this objective. Thirteen of 14 Board members agreed and one disagreed with this decision.
An entity shall disclose information that enables users of financial statements to understand the reasonably possible fair values at the reporting date for the assets, liabilities and an entity’s own equity instruments measured at fair value

While not mandatory, the following may enable an entity to meet the objective for recurring fair value measurements:

  1. a description of the uncertainty caused by the use of significant inputs if those inputs could have reasonably been different at the reporting date and resulted in a significantly higher or lower fair value measurement.
  2. the range of possible fair values reflecting the higher and lower fair value measurement using the reasonably possible alternative inputs at the reporting date.
  3. a description of interrelationships between inputs used in fair value measurement and how they magnify or mitigate the effect of changes in inputs on fair value measurement.
  4. how the effect of a change to reflect reasonably possible alternative inputs was calculated.
Thirteen of 14 Board members agreed and one disagreed with this decision.

The Board instructed the staff to bring analysis to a future Board meeting on whether a separate disclosure objective, and items of information, should be included in IFRS 13 about understanding the effect of fair value measurements on the statements of financial performance.

Furthermore, the Board tentatively decided:

  1. to retain the information captured by the disclosure requirement in paragraph 92 of IFRS 13 as part of the high-level, catch-all disclosure objective. Twelve of 14 Board members agreed and one disagreed with this decision. One member was absent.
  2. to remove the disclosure requirement in paragraph 93(g) of IFRS 13. Eleven of 14 Board members agreed and three disagreed with this decision.
  3. to retain the information captured by the disclosure requirement in paragraph 99 of IFRS 13. All 14 Board members agreed with this decision.

For assets and liabilities not measured at fair value but for which fair value is disclosed

Specific disclosure objectives
The Board’s tentative decisions on items of information for entities to meet the specific disclosure objectives
An entity shall disclose information that enables users of financial statements to understand the amount, nature and other characteristics of the classes of assets and liabilities within each level of the fair value hierarchy
  1. An entity shall disclose the fair value measurements at the end of the reporting period by level of the fair value hierarchy within which those measurements are categorised in their entirety.
  2. While not mandatory, a description of the nature, characteristics and risks of the assets, liabilities and own equity instruments (or a cross-reference to where that information is disclosed) may enable an entity to meet the objective.
All 14 Board members agreed with this decision.

Next steps

At a future meeting, the Board will:

  1. further discuss items of information to meet the specific disclosure objective about understanding the expected future cash flows resulting from the defined benefit obligation and the nature of those cash flows.
  2. consider whether a separate disclosure objective, and items of information, should be included in IFRS 13 about understanding the effect of fair value measurements on the statement of financial performance.
  3. discuss a comparison of the Board’s tentative decisions about IAS 19 disclosure to the disclosure requirements in the Standard.
  4. discuss lessons learned through the targeted standards-level review of disclosures testing process and resulting potential amendments to the Board’s draft guidance for developing and drafting disclosure objectives and requirements in future.

 

Reference to the Conceptual Framework (Amendments to IFRS 3) (Agenda Paper 10)

The Board met on 20 November 2019 to discuss a summary of feedback on the Exposure Draft Reference to the Conceptual Framework.

The Board was not asked to make any decisions.

Next step

At a future Board meeting, the Board will redeliberate aspects of the Exposure Draft proposals in the light of matters raised by respondents.

 

Management Commentary (Agenda Paper 15)

The Board met on 20 November 2019 to discuss how the revised IFRS Practice Statement 1 Management Commentary (Practice Statement) should explain what an entity’s business model is.

What an entity’s business model is (Agenda Paper 15A)

The Board tentatively decided that the Practice Statement should, in explaining ‘business model’, refer to:

  1. value the entity creates for itself. The Practice Statement should also make clear that the notion of value created for an entity is related to the entity’s ability to generate cash flows. Thirteen of 14 Board members agreed and one disagreed with this decision.
  2. the link between an entity’s business model and the entity’s stated purpose. Twelve of 14 Board members agreed and two disagreed with this decision.
  3. the elements of the business model—that is, its inputs, processes and outputs. Twelve of 14 Board members agreed and two disagreed with this decision.
  4. a business model being a matter of fact and observable through an entity’s actions. All 14 Board members agreed with this decision.

The Board also tentatively decided that the Practice Statement should require an entity’s management to discuss indirect wider consequences or impacts of the operation of the entity’s business model if those impacts could affect the entity’s ability to generate cash flows in the future.

Thirteen of 14 Board members agreed and one disagreed with this decision.

Next step

The Board will discuss the objective of describing an entity’s business model in management commentary and possible guidance on the types of information about the entity’s business model that should be included in management commentary.

 

Amendments to IFRS 17 (Agenda Paper 2)

The Board met on 20 November 2019 to discuss the feedback on its Exposure Draft Amendments to IFRS 17 and to decide on its plan for redeliberating some of the matters raised by respondents to the Exposure Draft.

Comment letter summary (Agenda Papers 2A–2C)

The Board received a summary of comment letters on the Exposure Draft, but was not asked to make any decisions.

Re-deliberation plan (Agenda Paper 2D)

The Board tentatively decided that it will confirm at a future meeting the proposed amendments on the following topics without substantive redeliberation:

  1. the scope exclusion for loans;
  2. the contractual service margin attributable to investment services—coverage units for insurance contracts with direct participation features;
  3. presentation in the statement of financial position—portfolio instead of group level;
  4. the applicability of the risk mitigation option—reinsurance contracts held;
  5. transition relief for business combinations; and
  6. transition reliefs for the risk mitigation option—application from the transition date and the option to apply the fair value approach.

All 14 Board members agreed with this decision.

The Board also tentatively decided that it will consider further the feedback on the following topics:

  1. the proposed scope exclusion for credit cards;
  2. the proposed amendment for expected recovery of insurance acquisition cash flows;
  3. the proposed amendment for contractual service margin attributable to investment services—coverage units for insurance contracts without direct participation features, disclosures and terminology;
  4. the proposed amendment for reinsurance contracts held—recovery of losses;
  5. the applicability of the risk mitigation option—non-derivative financial instruments at fair value through profit or loss;
  6. the proposed effective date of IFRS 17;
  7. the proposed extension of the IFRS 9 Financial Instruments temporary exemption in IFRS 4 Insurance Contracts;
  8. transition—the prohibition from applying the risk mitigation option retrospectively;
  9. proposed minor amendments;
  10. the level of aggregation—annual cohorts for some specific insurance contracts;
  11. business combinations—contracts acquired in their settlement period;
  12. interim financial statements; and
  13. additional specific transition modifications and reliefs.

All 14 Board members agreed with this decision.

The Board also tentatively decided that it will not consider further the feedback on the following topics:

  1. presentation in the statement of financial position—premiums receivable and claims payable;
  2. the risk mitigation option for insurance contracts without direct participation features;
  3. the effective date—comparative information on initial application of IFRS 17;
  4. the level of aggregation—annual cohorts for all insurance contracts other than some specific contracts;
  5. cash flows in the boundary of a reinsurance contract held;
  6. subjectivity in determining discount rates and the risk adjustment for non-financial risk;
  7. the risk adjustment for non-financial risk in a consolidated group of entities;
  8. the discount rate used to determine adjustments to the contractual service margin;
  9. the other comprehensive income option for insurance finance income or expenses;
  10. business combinations—classification of contracts acquired;
  11. the scope of the variable fee approach—reinsurance contracts held and reinsurance contracts issued;
  12. mutual entities issuing insurance contracts;
  13. transition—general optionality and flexibility in the modified retrospective approach; and
  14. transition—reliefs in the full retrospective approach.

Thirteen of 14 Board members agreed and one disagreed with this decision.

Next steps

At its future meetings, the Board will redeliberate some of the matters raised by respondents on the Exposure Draft Amendments to IFRS 17.

 

Implementation matters (Agenda Paper 12)

The Board met on 20 November 2019 to discuss implementation matters. 

Lack of Exchangeability (IAS 21) (Agenda Papers 12A–12D)

The Board discussed a recommendation from the IFRS Interpretations Committee (Committee) to undertake narrow-scope standard-setting on the spot exchange rate an entity uses when exchangeability between two currencies is lacking.

The Board agreed with the Committee’s recommendation and tentatively decided to undertake narrow-scope standard-setting on this matter.

All 14 Board members agreed with this decision.

The Board also discussed the Committee’s recommendations regarding how to amend IAS 21 in this respect.  In particular, the Board discussed the Committee’s analysis and recommendations on how to:

  1. define exchangeability and, thus, a lack of exchangeability; and
  2. determine the spot exchange rate when exchangeability is lacking.

The Board was not asked to make any decisions.

Next step

The Board will continue its discussion at a future meeting.

Annual Improvements to IFRS Standards 2018–2020 (Agenda Papers 12E–12I)

The Board discussed feedback on the Exposure Draft Annual Improvements to IFRS Standards 2018–2020.

Subsidiary as a first-time adopter (Amendment to IFRS 1) (Agenda Paper 12F)

The Board tentatively decided to amend IFRS 1 First-time Adoption of International Financial Reporting Standards to permit a subsidiary that elects to apply paragraph D16(a) of IFRS 1 to measure—using the amount reported by the parent—cumulative translation differences (CTD) for all foreign operations.  This measurement is based on the parent’s date of transition to IFRSs. The amendment would also apply to associates and joint ventures that elect to apply paragraph D16(a) of IFRS 1.

All 14 Board members agreed with this decision.

Fees in the ‘10 per cent’ Test for Derecognition of Financial Liabilities (Amendment to IFRS 9) (Agenda Paper 12G)

The Exposure Draft proposed:

  1. clarifying that, in the ‘10 per cent test’ for derecognising financial liabilities in paragraph B3.3.6 of IFRS 9 Financial Instruments, ‘fees’ refers only to fees paid or received between the borrower and the lender, including fees paid or received by either the borrower or lender on the other’s behalf; and
  2. requiring an entity to apply the amendment to financial liabilities that are modified or exchanged on or after the date it first applies the amendment.

The Board tentatively decided to finalise the proposed amendment to IFRS 9 with no changes.

All 14 Board members agreed with this decision.

Lease Incentives (Amendment to Illustrative Examples accompanying IFRS 16) (Agenda Paper 12H)

The Exposure Draft proposed to amend Illustrative Example 13 accompanying IFRS 16 Leases by removing the illustration of the reimbursement of leasehold improvements.

The Board tentatively decided to finalise the proposed amendment to Illustrative Examples accompanying IFRS 16 with no changes.

Thirteen of 14 Board members agreed and one disagreed with this decision.

Taxation in Fair Value Measurements (Amendment to IAS 41) (Agenda Paper 12I)

The Exposure Draft proposed:

  1. removing the requirement in paragraph 22 of IAS 41 Agriculture for entities to exclude cash flows for taxation when measuring the fair value of biological assets; and
  2. requiring an entity to apply the amendment to fair value measurements on or after the date it first applies the amendment.

The Board tentatively decided to finalise the proposed amendment to IAS 41 with no changes.  

All 14 Board members agreed with this decision.

Next step

The Board will consider the effective date and due process steps in relation to this project at a future meeting.

Cryptoassets (Agenda Paper 12J)

The Board received an update on monitoring undertaken on cryptoassets since the Board last discussed the topic in November 2018.

The Board was not asked to make any decisions.

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