IASB Update May 2020

Research and standard-setting

Management Commentary (Agenda Paper 15)

The Board met on 20 May 2020 to discuss the disclosure objectives and supporting guidance to be included in the revised IFRS Practice Statement 1 Management Commentary (Practice Statement). The Board considered risks (Agenda Paper 15A) and the entity’s external environment (Agenda Paper 15B).

The Board tentatively decided to specify in the disclosure objectives that management commentary should provide information and analysis to help investors and creditors understand:

1. the risks that could disrupt the entity’s:
   1. business model;
   2. management’s strategy for sustaining and developing that model; or
   3. resources and relationships; and
2. how the environment in which an entity operates affects its:
   1. business model;
   2. management’s strategy for sustaining and developing that model;
   3. resources and relationships; or
   4. risks.

The Board tentatively decided to specify in the disclosure objectives that investors and creditors use the information and analysis in management commentary to assess:

1. in relation to risks:
   1. the magnitude and likelihood of future disruption to the entity’s ability to create value and generate cash flows; and
   2. how effectively the entity’s management identifies and manages risks; and
2. in relation to the entity’s external environment:
   1. how factors and trends in the external environment affect the entity; and
   2. how effectively management monitors and responds to such factors and trends.

The Board tentatively decided to specify in the disclosure objectives that the information and analysis included in management commentary should focus on:

1. the key risks, and cover:
   1. a description of the risks and of the entity’s exposure to those risks; and
   2. how the entity’s management monitors and manages the risks, and would mitigate disruption if it were to occur; and
2. the key factors and trends in the external environment, and cover:
   1. a description of the factors and trends;
   2. how those factors and trends affect the entity; and
   3. how its management responds to those factors and trends.

Thirteen of 14 Board members agreed with the decision on the disclosure objective for risks and all 14 Board members agreed with the decision on the disclosure objective for the external environment.

The Board also tentatively decided to specify that:

1. the key risks are risks that could disrupt the entity’s ability to create value and generate cash flows. Twelve of 14 Board members agreed with this decision.
2. the key factors and trends in the external environment are factors and trends that affect the entity’s ability to create value and generate cash flows. All 14 Board members agreed with this decision.

The Board wishes to highlight in the revised Practice Statement that key risks and key factors and trends in the external environment are risks, trends and factors that the entity’s management monitors and manages.

The Board also discussed possible supporting guidance on risks and the external environment. The Board was not asked to make any decisions.

The Board did not discuss opportunities. The Board discussed guidance on reporting opportunities in April 2020 as part of guidance on the entity’s strategy.

Next step

The Board’s next discussions are expected to cover what information management commentary should provide on an entity’s performance, position and progress, aggregation of information in management commentary and the status of the Practice Statement.

Research programme update (Agenda Paper 8)

The Board met on 21 May 2020 to receive an update on its research programme. Information on the Board’s work plan, including its research programme, is available here. 

The Board was not asked to make any decisions.

Next step

The Board expects to receive the next update on its research programme in three or four months.

Maintenance and consistent application

Amendments to IFRS 17 Insurance Contracts (Agenda Papers 2 and 2A)

The Board met on 20 May 2020 to discuss the sweep issues identified during the balloting process of the amendments to IFRS 17 Insurance Contracts.

The Board tentatively decided to:

1. require an entity to include in the initial measurement of the contractual service margin of a group of insurance contracts the effect of the derecognition of any asset or liability for cash flows related to that group that was recognised before the group is recognised;
2. require an entity, when another IFRS Standard requires it to recognise a liability for future insurance acquisition cash flows before it recognises the related group of insurance contracts, to also recognise an asset for those cash flows;
3. require an entity to use a systematic and rational method of allocation to apply the requirements in IFRS 17 relating to the recovery of losses from reinsurance contracts held when the entity groups together underlying onerous insurance contracts that are covered by a reinsurance contract held and other onerous insurance contracts the entity issues;
4. require an entity to recognise insurance revenue when the entity recognises in profit or loss amounts related to income tax that are specifically chargeable to the policyholder under the terms of an insurance contract;
5. include in the definitions of the liability for remaining coverage and the liability for incurred claims all obligations arising from insurance contracts issued by an entity; and
6. amend paragraph B96(c) of IFRS 17 to clarify the treatment of insurance finance income or expenses relating to investment components that are paid in a period when they were not expected to be paid, or not paid in a period when they were expected to be paid.

All 14 Board members agreed with the decisions described in (a)–(b) and (d)–(e). Twelve of 14 Board members agreed with the decision described in (c).

The Board also tentatively decided to amend the other comprehensive income option and the risk mitigation option in IFRS 17 to:

1. specify that paragraphs 88 and 89 of IFRS 17 do not apply to the insurance finance income or expenses that arise from the application of the risk mitigation option; and
2. add new requirements to the risk mitigation option that specify how to present insurance finance income or expenses that arise from the application of the risk mitigation option.

All 14 Board members agreed with these decisions.

Next step

The Board expects to issue Amendments to IFRS 17 around the end of June 2020

Lease Liability in a Sale and Leaseback (Agenda Paper 12A)

The Board discussed requirements for the transition to and early application of the proposed amendment to IFRS 16 Leases. The Board also discussed due process, including permission to begin the balloting process. 

The proposed amendment to IFRS 16 will specify how a seller-lessee would apply the subsequent measurement requirements in IFRS 16 to the lease liability that arises in a sale and leaseback transaction. 

Transition 

The Board tentatively decided to require a seller-lessee to apply the proposed amendment to IFRS 16 retrospectively in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, except when such application to lease modifications and changes in the lease term is possible only with the use of hindsight. The Board tentatively decided to require a seller-lessee in such circumstances to determine the expected payments for the lease at the date on which it first applies the proposed amendment. 

Thirteen of 14 Board members agreed with these decisions. One Board member was absent. 

Early application 

The Board tentatively decided to permit a seller-lessee to apply the proposed amendment earlier than the effective date. 

Thirteen of 14 Board members agreed with this decision. One Board member was absent. 

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 IFRS 16. 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 steps and that it should begin the balloting process for the exposure draft. 

No Board member indicated that he or she intends to dissent from the proposals in the exposure draft.

Next step

The Board plans to publish the exposure draft in the third quarter of 2020.

IFRIC Update (Agenda Paper 12B)

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

The Board was not asked to make any decisions.

IBOR Reform and its Effects on Financial Reporting—Phase 2

The Board met on 21 May 2020 to receive an oral update about feedback so far on the Exposure Draft Interest Rate Benchmark Reform—Phase 2 (Exposure Draft). The comment period ends on 25 May 2020.

The Board was not asked to make any decisions.

Next step

At a future meeting, the Board will discuss an analysis of feedback on the Exposure Draft.

Disclosure Initiative—Accounting Policies (Agenda Paper 20)

The Board met on 21 May 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.

Characteristics of primary users (Agenda Paper 20B)

The Board discussed whether to amend proposed paragraph 117B of IAS 1 to clarify that material accounting policy information can sometimes include standardised descriptions or duplicate requirements of IFRS Standards.

However, the Board did not reach a tentative decision and intends to discuss this topic further at a future meeting.

Examples of circumstances in which an entity is likely to consider information about an accounting policy material (Agenda Paper 20C)

The Board tentatively decided not to add those circumstances described in paragraphs 28–31 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors to proposed paragraph 117B of IAS 1.

All 14 Board members agreed with this decision.

The Board tentatively decided to combine the guidance about entity-specific accounting policy information in proposed paragraph 117B(e) with proposed paragraph 117C of IAS 1.

Twelve of 14 Board members agreed with this decision.

The Board tentatively decided to amend proposed paragraph 117B of IAS 1 to include a reference to information being material by size, nature, or a combination of both.

Twelve of 14 Board members agreed with this decision.

Examples for IFRS Practice Statement 2 Making Materiality Judgements (Agenda Paper 20D)

The Board tentatively decided not to amend proposed Example S to detail all entity-specific accounting policy information that could be judged as material to an entity’s financial statements and which should be disclosed. Instead, the Board tentatively decided to amend Example S by:

1. aligning the content of proposed Example S to those changes recommended in Agenda Paper 20C;
2. clarifying in the example that the timing of revenue recognition is considered to be a significant judgement; and
3. concluding that information about how the transaction price has been allocated to performance obligations could also be material accounting policy information.

All 14 Board members agreed with this decision.

The Board tentatively decided to clarify proposed Example T. In particular, the Board tentatively decided to better support the example’s conclusion by linking explicitly the proposed Example T to:

1. the proposed amendments to IAS 1 (including those changes recommended in Agenda Paper 20C); and
2. guidance in the Conceptual Framework of Financial Reporting, the definition of material (paragraph 7 of IAS 1), and guidance in IFRS Practice Statement 2 about an entity’s primary users and how to identify their common information needs.

Eleven of 14 Board members agreed with this decision.

The Board tentatively decided not to develop additional examples for IFRS Practice Statement 2.

All 14 Board members agreed with this decision.

Next step

The Board will continue to redeliberate the proposals set out in its Exposure Draft at a future meeting.