IASB Update December 2022

Work plan overview

IASB work plan update (Agenda Paper 8)

The IASB met on 14 December 2022 to receive an update on its work plan.

As part of the update, the IASB noted that:

1. the staff have started analysing similarities and differences between the Integrated Reporting Framework and the Exposure Draft Management Commentary;
2. in December 2022, the ISSB is discussing whether to include in a request for information on its Consultation on Agenda Priorities a joint project with the IASB on connectivity in reporting, building on the IASB’s Management Commentary project and the Integrated Reporting Framework; and
3. the staff are monitoring developments in the ISSB’s Consultation on Agenda Priorities and will present to the IASB at a future meeting alternatives for the way forward on the Management Commentary project. 

The IASB was not asked to make any decisions.

Next step

The IASB expects to receive the next update on its work plan by March 2023.

Research and standard-setting

Financial Instruments with Characteristics of Equity (Agenda Paper 5)

The IASB met on 14 December 2022 to discuss whether and how to clarify the requirements in IAS 32 Financial Instruments: Presentation for the presentation of an entity’s issued financial instruments.

Presentation of equity instruments (Agenda Paper 5A) 

The IASB discussed concerns raised by stakeholders that the information an entity provides in its financial statements about the equity instruments it has issued is too limited. The IASB also discussed the interaction between the FICE project and the IASB’s project on Primary Financial Statements.

The IASB did not make any decisions on this matter but asked the staff to further explore potential presentation requirements.  

Presentation of financial liabilities (Agenda Paper 5B)

The IASB discussed concerns raised by stakeholders relating to an entity’s treatment of a subset of financial liabilities if the financial liabilities are measured at fair value through profit or loss in accordance with the requirements in IFRS 9 Financial Instruments. Some stakeholders have questioned whether it is appropriate for an entity to recognise changes in the carrying amount of the financial liability in profit or loss when the financial liability contains a contractual obligation to pay the holder an amount based on: 

1. the entity’s performance; or
2. changes in the entity’s net assets. 

The IASB tentatively decided against adding to the presentation requirements in IAS 32 for financial liabilities. 

All 12 IASB members agreed with this decision. 

However, the IASB tentatively decided to require an entity with these types of financial liabilities measured at fair value through profit or loss to disclose in each reporting period the total gains or losses that arise from remeasuring such financial liabilities. These disclosures, together with the proposed disclosures of terms and conditions tentatively agreed to by the IASB in April 2021, will help to meet the information needs of users of financial statements.

Eleven of 12 IASB members agreed with this decision. 

Next step

The IASB will continue to discuss the presentation of equity instruments in addition to other topics set out in the project plan.

Rate-regulated Activities (Agenda Paper 9)

The IASB met on 14 December 2022 to redeliberate the proposals in its Exposure Draft Regulatory Assets and Regulatory Liabilities relating to:

• the inflation adjustments to an entity’s regulatory capital base (Agenda Paper 9A); and
• the accounting for allowable expenses or performance incentives included in an entity’s regulatory capital base (Agenda Paper 9C).

The IASB also discussed:

• the advice from the Consultative Group for Rate Regulation on the topic of Agenda Paper 9A (Agenda Paper 9B); and
• the use of the direct (no direct) relationship concept in the IASB’s redeliberations of the proposed model (Agenda Paper 9D).

The IASB was not asked to make any decisions on Agenda Paper 9B or Agenda Paper 9D.

Inflation adjustment to the regulatory capital base (Agenda Paper 9A)

The IASB tentatively decided that the Standard specify that an entity is neither required nor permitted to recognise as a regulatory asset inflation adjustments to the regulatory capital base.

All 12 IASB members agreed with this decision.

Other items included in the regulatory capital base (Agenda Paper 9C)

The IASB tentatively decided that the Standard specify that:

1. an entity is required to recognise a regulatory asset or a regulatory liability relating to an allowable expense or performance incentive included in its regulatory capital base when:
   1. the entity’s regulatory capital base and its property, plant and equipment have a direct relationship; and
   2. the entity has an enforceable present right (obligation) to add (deduct) the allowable expense or performance incentive to (from) future regulated rates.
2. an entity is neither required nor permitted to recognise a regulatory asset or a regulatory liability relating to an allowable expense or performance incentive included in its regulatory capital base when the entity’s regulatory capital base and its property, plant and equipment have no direct relationship.

All 12 IASB members agreed with this decision.

Next step

The IASB will continue to redeliberate the project proposals.

Equity Method (Agenda Paper 13)

The IASB met on 14 December 2022 to continue its discussions of application questions on the equity method as set out in IAS 28 Investments in Associates and Joint Ventures. 

Applying the preferred approach after the purchase of an additional interest in an associate (Agenda Paper 13A)

The IASB tentatively decided that an investor applying the equity method is measuring a single investment in an associate when applying the IASB’s preferred approach. Accordingly, when applying the preferred approach in a partial disposal an investor would be required to measure the portion of the investment in the associate to be derecognised as a proportion of the carrying amount of the investment at the date of the disposal. 

This tentative decision amends the IASB’s tentative decision in June 2022.

All 12 IASB members agreed with this decision.

Purchase of additional interest in an associate and share of unrecognised losses (Agenda Paper 13B)

The IASB tentatively decided that an investor applying the equity method that has reduced the carrying amount of its investment in an associate to zero and has therefore stopped recognising its share of an associate’s losses would not recognise any unrecognised losses on purchasing an additional interest in the associate.

Eleven of 12 IASB members agreed with this decision.

Recognition of losses and components of comprehensive income (Agenda Paper 13C)

The IASB tentatively decided to clarify that an investor would recognise its share of an associate’s comprehensive income until its interest in the associate is reduced to zero. 

All 12 IASB members agreed with this decision. 

The IASB tentatively decided that when an investor has reduced the carrying amount of its investment in an associate to zero the investor would recognise separately its share of each component of the associate’s comprehensive income.

Eleven of 12 IASB members agreed with this decision. 

The IASB tentatively decided that if an investor’s share of an associate’s comprehensive income is a loss that is larger than that carrying amount of its investment in the associate, an investor would recognise, in order: 

1. its share of the associate’s profit and loss; and 
2. its share of the associate’s other comprehensive income. 

All 12 IASB members agreed with this decision. 

Next step

The IASB will continue its discussions on application questions within the scope of the project.

Goodwill and Impairment (Agenda Paper 18)

The IASB met on 13 December 2022 to discuss its project on Goodwill and Impairment. The IASB set out preliminary views on this topic in the Discussion Paper Business Combinations—Disclosures, Goodwill and Impairment.

The IASB discussed moving the project to the standard-setting work plan. It also discussed:

• the identifiable intangible assets acquired in a business combination;
• the presentation of total equity excluding goodwill; and
• the exploration of topics suggested by respondents that were not included in the project’s Discussion Paper.

Moving to the standard-setting agenda (Agenda Paper 18A)

The IASB decided:

1. to add the project to the standard-setting work plan;
2. to continue to use the expertise of advisory bodies instead of creating a consultative group for this project; and
3. to change the project title to Business Combinations—Disclosures, Goodwill and Impairment.

All 11 IASB members present agreed with these decisions. One member was absent.

Identifiable intangible assets acquired in a business combination (Agenda Paper 18B)

The IASB tentatively decided to maintain its preliminary view and therefore to make no changes to the recognition criteria in IFRS 3 Business Combinations for identifiable intangible assets acquired in a business combination.

All 11 IASB members present agreed with this decision. One member was absent.

Total equity excluding goodwill (Agenda Paper 18C)

The IASB tentatively decided against proceeding with its preliminary view and therefore tentatively decided not to require an entity to present the amount of total equity excluding goodwill as a separate line item on its statement of financial position.

All 11 IASB members present agreed with this decision. One member was absent.

Other topics (Agenda Paper 18D)

The IASB decided not to consider additional topics suggested by respondents in this project, except for two topics related to possible improvements to the effectiveness of the impairment test of cash-generating units containing goodwill. 

Ten of the 11 IASB members present agreed with this decision. One member was absent. 

Next steps

At future meetings the IASB will make decisions on:

1. the details of the disclosure requirements related to business combinations; and
2. its preliminary views on improving the effectiveness and simplifying the application of the impairment test in IAS 36 Impairment of Assets for cash-generating units containing goodwill.

Once the IASB has made tentative decisions on all aspects of the project, it will consider whether the package as a whole meets the project objective and whether to publish an exposure draft setting out its proposals.

Digital Financial Reporting (Agenda Paper 25)

The IASB met on 14 December 2022 to discuss the digital financial reporting activities it should prioritise—to help improve the usefulness, quality, accessibility and comparability of digital financial reports.

In particular, the IASB discussed:

• a strategic framework to help guide its digital financial reporting activities (Agenda Paper 25A); and
• priority digital financial reporting activities (beyond the activities needed to update the IFRS Accounting Taxonomy for changes to IFRS Accounting Standards (Agenda Paper 25B)).

The IASB was not asked to make any decisions.

Next step

The IASB will periodically discuss updates on its digital financial reporting activities.

Disclosure Initiative—Subsidiaries without Public Accountability: Disclosures (Agenda Paper 31)

The IASB met on 15 December 2022 to continue redeliberating its Exposure Draft Subsidiaries without Public Accountability: Disclosures.

IFRS Accounting Standards without reduced disclosure requirements (Agenda Paper 31A)

The IASB tentatively decided to confirm that the disclosure requirements in IFRS 8 Operating Segments, IFRS 17 Insurance Contracts and IAS 33 Earnings per Share remain applicable for a subsidiary applying the new IFRS Accounting Standard.

All 12 IASB members agreed with this decision. 

Proposed reduced disclosure requirements in IAS 34 (Agenda Paper 31B)

The IASB tentatively decided to retain its proposal to include in the new IFRS Accounting Standard reduced disclosure requirements for IAS 34 Interim Financial Reporting.

All 12 IASB members agreed with this decision. 

Proposed statement of compliance (Agenda Paper 31C)

The IASB tentatively decided to retain its proposal that a subsidiary applying the new IFRS Accounting Standard be required to disclose that it has applied the Standard in the same note as its explicit and unreserved statement of compliance with IFRS Accounting Standards.

All 12 IASB members agreed with this decision. 

Next step

The IASB will continue discussing the feedback on the Exposure Draft.

Maintenance and consistent application

Lack of Exchangeability (Agenda Paper 12)

The IASB considered comments on its Exposure Draft Lack of Exchangeability (Exposure Draft) at a previous meeting, and in this meeting discussed how the project should proceed.

Assessing exchangeability between two currencies (Agenda Paper 12A)

The IASB discussed its proposals on how an entity would assess whether a currency is exchangeable into another currency. The IASB tentatively decided to proceed with its proposed approach:

1. to set out the factors an entity would evaluate to assess exchangeability; and
2. to specify how those factors affect the assessment of exchangeability.

In particular, the IASB tentatively decided:

1. on time frame—to make no change to this factor and, in particular, to retain the notion of a ‘normal administrative delay’;
2. on ability to obtain the other currency—to make no change to this factor;
3. on markets or exchange mechanisms—
   1. to clarify that an entity would not consider ‘unofficial markets’ in assessing exchangeability; but, when exchangeability is lacking, the entity may use exchange rates from such markets to estimate the spot exchange rate;
   2. to refer to ‘rates from exchange transactions that do not create enforceable rights and obligations’ rather than ‘unofficial rates’ or ‘black market rates’;
   3. to make no change to further define or describe ‘enforceability of rights and obligations’;
4. on purpose of obtaining the other currency—to make no change to this factor;
5. on ability to obtain only limited amounts of the other currency—to develop an example of the ‘aggregate method’ either as application guidance or an illustrative example; and
6. to clarify that an entity is required to consider all factors when assessing exchangeability, and that the absence of one factor would indicate a lack of exchangeability.

All 11 IASB members present agreed with these decisions. One member was absent.

Determining the spot exchange rate when exchangeability is lacking (Agenda Paper 12B)

The IASB discussed its proposals on how an entity would determine the spot exchange rate when exchangeability is lacking. The IASB tentatively decided:

1. to amend proposed paragraph 19A to state that ‘an entity’s objective in estimating the spot exchange rate is to reflect at the measurement date the rate at which an orderly exchange transaction would take place between market participants under prevailing economic conditions’;
2. to continue to permit, but not require, the use of observable exchange rates in estimating the spot exchange rate; and
3. to make no change to add detailed estimation requirements or to specify the techniques or reference rates to be used by an entity in estimating the spot exchange rate.

All 11 IASB members present agreed with these decisions. One member was absent.

Disclosure and transition (Agenda Paper 12C)

The IASB discussed its proposals on disclosure and transition. The IASB tentatively decided:

1. to proceed with its proposal that, when an entity estimates the spot exchange rate because a currency is not exchangeable into another currency, the entity is required to disclose the information in proposed paragraphs 57A and A16–A18 of the Exposure Draft; and
2. to proceed with the transition requirements proposed in paragraphs 60L–60M of the Exposure Draft.

All 11 IASB members present agreed with these decisions. One member was absent.

Next step

The IASB will discuss effective date and due process steps.