IASB Update November 2022

Research and standard-setting

Post-implementation Review of IFRS 9—Classification and Measurement (Agenda Paper 3)

The IASB met on 23 November 2022 to discuss feedback from its Post-implementation Review of IFRS 9 Financial Instruments. In particular, the IASB discussed:

• whether to take further action to respond to matters arising from the feedback on financial liabilities and own credit (Agenda Paper 3A); and
• whether it had completed adequate work to conclude the Post-implementation Review (Agenda Paper 3B).

Financial liabilities and own credit (Agenda Paper 3A)

The IASB decided to take no further action on the matters identified in the feedback on IFRS 9 relating to:

1. the requirements for classification and measurement of financial liabilities; and
2. the presentation of changes in own credit risk.

All 11 IASB members agreed with this decision.

Responding to the feedback and next step (Agenda Paper 3B)

The IASB discussed a summary of its response to feedback from the Post-implementation Review of the classification and measurement requirements in IFRS 9 in order to decide whether to conclude the review. The IASB decided that adequate work had been completed:

1. to conclude the Post-implementation Review; and
2. for the staff to prepare the report and feedback statement on the Post-implementation Review.

All 11 IASB members agreed with this decision.

Next step

The IASB will publish a Report and Feedback Statement on the Post-implementation Review of IFRS 9—Classification and Measurement. 

Dynamic Risk Management (Agenda Paper 4)

The IASB met on 23 November 2022 to begin discussions on the next phase in the development of the Dynamic Risk Management (DRM) model. The IASB discussed:

• whether equity is eligible for inclusion in determining an entity’s current net open risk position (Agenda Paper 4A); and
• whether a previous tentative decision to require notional alignment between the asset profile and the target profile in the DRM core model is still necessary following the recent refinements to the DRM model (Agenda Paper 4B).

Managing equity (Agenda Paper 4A)

The IASB tentatively decided that in determining an entity’s current net open risk position, the inclusion of equity is not necessary, and therefore, equity is not an eligible item for the purpose of the DRM model.

All 11 IASB members agreed with this decision.

Notional alignment of designated assets and liabilities (Agenda Paper 4B)

The IASB tentatively decided that in determining an entity’s current net open risk position, notional alignment is not required between the designated assets and liabilities.

All 11 IASB members agreed with this decision.

Next step

The IASB will continue its discussions on the topics identified in the project plan.

Rate-regulated Activities (Agenda Paper 9)

The IASB met on 23 November 2022 to discuss the accounting for regulatory returns on an asset not yet available for use when an entity capitalises borrowing costs to construct that asset (Agenda Papers 9A and 9C). In particular, the IASB discussed the implications of applying its previous tentative decision on such regulatory returns in this situation.

The IASB also discussed advice from the Consultative Group for Rate Regulation on this topic (Agenda Paper 9B). The IASB was not asked to make any decisions on Agenda Paper 9B.

Capitalised borrowing costs (Agenda Paper 9A) and Capitalised borrowing costs (Addendum) (Agenda Paper 9C)

The IASB tentatively decided that when an entity’s regulatory capital base and its property, plant and equipment have a direct relationship and the entity capitalises its borrowing costs:

1. if the regulatory agreement provides the entity with both a debt and an equity return on an asset not yet available for use—to require the entity to reflect only those returns in excess of the entity’s capitalised borrowing costs in the statement of financial performance during the construction period; and
2. if the regulatory agreement provides the entity with only a debt return on such an asset—to prohibit the entity from reflecting the return in the statement of financial performance during the construction period.

All 11 IASB members agreed with these decisions.

Next step

The IASB will continue to redeliberate the project proposals.

Amendments to the Classification and Measurement of Financial Instruments (Agenda Paper 16)

The IASB met on 23 November 2022 to discuss proposed amendments to IFRS 9 Financial Instruments and IFRS 7 Financial Instruments: Disclosures.

Contractually linked instruments—Sweep issue (Agenda Paper 16A)

The IASB considered a sweep issue on the scope of transactions to which the requirements in IFRS 9 for contractually linked instruments apply. The IASB tentatively decided to clarify that when an entity determines whether a transaction contains contractually linked instruments as described in IFRS 9, any financial instruments held by the transferor of the underlying assets in the transaction are excluded.

All 11 IASB members agreed with this decision.

Accounting policy choice for derecognition of financial liabilities (Agenda Paper 16B)

The IASB further considered criteria that would allow an entity to derecognise a financial liability before it delivers cash on the settlement date.

The IASB tentatively decided that an entity has an accounting policy choice to derecognise a financial liability before the settlement date when:

1. the entity does not have the ability to withdraw, stop or cancel an electronic payment instruction;
2. the entity has lost the practical ability to access the cash as a result of the electronic payment instruction; and
3. the settlement risk associated with the electronic payment instruction is insignificant.

Settlement risk is considered insignificant if the payment system used has these characteristics:

1. the period between the payment initiation date and the settlement date is relatively short and is standardised for the particular payment system concerned; and
2. completion of the payment instruction follows a standard administrative process so that the debtor has reasonable assurance that the transfer will be completed and the cash will be delivered to the creditor.

The IASB tentatively decided to limit the scope of this accounting policy choice to electronic payment systems.

All 11 IASB members agreed with these decisions.

Due process steps (Agenda Paper 16C)

The IASB tentatively decided to set a comment period of 120 days for the exposure draft being developed for the project.

All 11 IASB members agreed with this decision.

No IASB members indicated an intention to dissent from the proposals in the exposure draft.

The IASB discussed the due process steps—including permission to begin the balloting process—for the exposure draft.

All 11 IASB members confirmed they were satisfied the IASB has complied with the applicable due process requirements and has undertaken sufficient consultation and analysis to begin the process for balloting the exposure draft.

Next step

The staff will prepare the exposure draft for balloting. 

Goodwill and Impairment (Agenda Paper 18)

The IASB met on 24 November 2022 to discuss its preliminary view on the subsequent accounting for goodwill, as set out in the Discussion Paper Business Combinations—Disclosures, Goodwill and Impairment. In particular, the IASB discussed whether to retain the impairment-only model or to explore reintroducing amortisation of goodwill.

The IASB tentatively decided to maintain its preliminary view to retain the impairment-only model for the subsequent accounting for goodwill.

Ten of 11 IASB members agreed with this decision.

Next step

The IASB will be asked in its December 2022 meeting to decide whether to move the project from the research phase to the standard-setting phase.

At future meetings the IASB will also be asked to make decisions about:

1. further aspects of the disclosures about business combinations; and
2. other topics within the scope of the project.

Business Combinations under Common Control (Agenda Paper 23)

The IASB met on 22 November 2022 to discuss selecting the measurement method(s) that receiving entities would apply to business combinations under common control.

Continuing deliberations started at its June 2022 meeting, the IASB discussed:

1. the principle for selecting which measurement method a receiving entity would apply to a business combination under common control; and
2. whether in some circumstances—including those described in the Discussion Paper Business Combinations under Common Control—a receiving entity would be permitted or required to deviate from the principle and apply a different measurement method.

The IASB was not asked to make any decisions.

Next step

The IASB will continue its discussions on selecting the measurement method(s) at a future meeting.

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

The IASB met on 24 November 2022 to continue redeliberating the scope of the IFRS Accounting Standard proposed in the Exposure Draft Subsidiaries without Public Accountability: Disclosures.

In May 2022 the IASB tentatively decided to confirm that the scope of the new IFRS Accounting Standard would be subsidiaries without public accountability.

Scope of the draft Standard (Agenda Paper 31A)

The IASB tentatively decided to confirm that an entity will be permitted to apply the new IFRS Accounting Standard if:

1. it is a subsidiary at the end of the reporting period. Ten of 11 IASB members agreed with this decision.
2. it has an ultimate or intermediate parent that produces consolidated financial statements that:
   1. comply with IFRS Accounting Standards. All 11 IASB members agreed with this decision.
   2. are available for public use. Six of 11 IASB members agreed with this decision.

Next step

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

Maintenance and consistent application

Maintenance and consistent application (Agenda Paper 12)

The IASB met on 22 and 24 November 2022 to discuss:

• a potential standard-setting project in response to the Pillar Two model rules published by the Organisation for Economic Co-operation and Development (OECD); and
• the IASB’s project on Supplier Finance Arrangements.

International Tax Reform—Pillar Two Model Rules: Potential standard-setting project (Agenda Paper 12A)

The IASB discussed the potential effects of the OECD’s Pillar Two model rules on the accounting for income taxes by an entity applying IAS 12 Income Taxes. In particular, the IASB considered whether to undertake a standard-setting project in response to the imminent implementation of the rules.

The IASB tentatively decided to amend IAS 12 to introduce a temporary exception from the requirement to account for deferred taxes arising from the implementation of the OECD’s Pillar Two model rules (including any qualified domestic minimum top-up tax). The exception would apply until the IASB either removes the exception or makes it permanent.

All 11 IASB members agreed with this decision.

The IASB tentatively decided to amend IAS 12 to require an entity to disclose, in periods before the Pillar Two model rules are in effect, and for the current period only:

1. information about legislation enacted—or substantively enacted—to implement the Pillar Two model rules in jurisdictions in which the entity operates. All 11 IASB members agreed with this decision.
2. either:
   1. whether the entity operates in jurisdictions in which it reasonably expects to be taxed below the minimum rate in accordance with the specific requirements of the Pillar Two model rules; or
   2. whether the entity operates in jurisdictions in which its effective tax rate—calculated based on IAS 12 requirements—is below 15% for the current period.
      Nine of 11 IASB members agreed with this decision.
3. the jurisdictions in which the entity’s effective tax rate—calculated based on IAS 12 requirements—for the current period is below 15%.
   Eight of 11 IASB members agreed with this decision. The entity would also disclose, for these jurisdictions in aggregate:
   1. the accounting profit before tax;
   2. the income tax expense; and
   3. the resulting weighted-average effective tax rate.
      The entity would prepare this information by disaggregating information disclosed in the reconciliation required by paragraph 81(c) of IAS 12.
      Nine of 11 IASB members agreed with this decision.
4. whether the work it has already done in preparing to comply with the Pillar Two model rules indicates that there are jurisdictions in relation to which the entity:
   1. might be exposed to paying top-up tax and that are not included in the jurisdictions identified in (c); or
   2. might not be exposed to paying top-up tax and that are included in the jurisdictions identified in (c).
      Ten of 11 IASB members agreed with this decision.

The IASB also tentatively decided to amend IAS 12 to require an entity to disclose:

1. that it has applied the temporary exception; and
2. its current tax expense related to Pillar Two top-up tax.

All 11 IASB members agreed with this decision.

The IASB tentatively decided to require an entity to apply:

1. the proposed amendments to introduce the temporary exception, and to require an entity to disclose the fact that it has applied that exception, immediately upon the issue of the amendments; and
2. the remaining proposed disclosure requirements for annual reporting periods beginning on 1 January 2023.

Eight of 11 IASB members agreed with these decisions.

The IASB tentatively decided to allow a comment period of 60 days for the exposure draft on its proposed amendments to IAS 12 (subject to approval by the Due Process Oversight Committee).

All 11 IASB members agreed with this decision.

All 11 IASB members confirmed they were satisfied the IASB has complied with the applicable due process requirements and has undertaken sufficient consultation and analysis to begin the process for balloting an exposure draft.

No IASB member indicated an intention to dissent from publishing an exposure draft.

Next step

The IASB plans to publish an exposure draft in January 2023.

Supplier Finance Arrangements (Agenda Papers 12B–12F)

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

Feedback Analysis—Project approach (Agenda Paper 12C)

The IASB tentatively decided:

1. to retain its current approach to this narrow-scope, disclosure-only project; and
2. to proceed with the proposal to add disclosure requirements about supplier finance arrangements to IFRS Accounting Standards.

All 11 IASB members agreed with these decisions.

Feedback Analysis—Scope (Agenda Paper 12D)

The IASB discussed the scope of the proposals in the Exposure Draft. The IASB tentatively decided:

1. to make no change to add characteristics to the description of supplier finance arrangements, or to further define or describe ‘finance providers’;
2. to make no change to the scope to include suppliers’ receivables financing arrangements, or to introduce scope restrictions or exclusions—but, when drafting, to consider whether to add examples to illustrate payment arrangements or instruments excluded from the scope; and
3. to specify that a supplier finance arrangement is characterised as an entity ‘agreeing to pay according to the terms and conditions of the arrangement’ rather than ‘agreeing to pay the finance providers’.

All 11 IASB members agreed with these decisions.

Feedback Analysis—Disclosure objective and requirements (Agenda Paper 12E)

The IASB discussed the proposed disclosure objective and requirements to meet the information needs of users of financial statements about an entity’s supplier finance arrangements. The IASB tentatively decided:

1. for the disclosure objective:
   1. to add a reference to liquidity risk;
   2. to make no change to add a reference to ‘materiality’ or to the effects of supplier finance arrangements on an entity’s financial performance; and
   3. to proceed with requiring an entity to disclose information investors can use to calculate effects, rather than requiring the entity to disclose the effects;
2. for the level of aggregation—to require an entity to aggregate information provided about its supplier finance arrangements and to disaggregate information—if required—to avoid omitting or obscuring material information;
3. for disclosure of the terms and conditions—to make no change to the proposal to require an entity to disclose the terms and conditions, and, in particular, to make no change to add the word ‘key’ to the proposal;
4. for disclosure of the carrying amount and presentation of financial liabilities that are part of supplier finance arrangements—
   1. for the statement of financial position—to clarify that if the carrying amount of financial liabilities that are part of supplier finance arrangements is presented in more than one line item, an entity would be required to disclose each line item and the associated carrying amount presented in that line item; and
   2. for the statement of cash flows—to add no requirement for an entity to disclose the line item(s) in which changes in financial liabilities that are part of supplier finance arrangements are presented;
5. for disclosure of the range of payment due dates—to clarify that when an entity discloses the range of payment due dates of financial liabilities that are part of a supplier finance arrangement and trade payables that are not part of such an arrangement, the financial liabilities and trade payables should be on a comparable basis; and
6. for comparative information—to proceed with the proposal to require an entity to disclose quantitative information at the beginning and end of each reporting period.

All 11 IASB members agreed with these decisions.

The IASB tentatively decided to proceed with requiring an entity to disclose the carrying amount of financial liabilities that are part of supplier finance arrangements for which suppliers have already received payment from the finance providers.

Nine of 11 IASB members agreed with this decision.

Feedback Analysis—Examples and other comments (Agenda Paper 12F)

The IASB discussed the proposals to add supplier finance arrangements as examples within the disclosure requirements about:

1. changes in liabilities arising from financing activities in paragraph 44B of IAS 7 Statement of Cash Flows; and
2. liquidity risk in paragraphs B11F(a), B11F(j) and IG18 of IFRS 7 Financial Instruments: Disclosures.

The IASB also discussed other comments on the Exposure Draft.

The IASB tentatively decided against proceeding with the proposed amendments to paragraph 44B of IAS 7.

Six of 11 IASB members agreed with this decision.

The IASB also tentatively decided to proceed with the proposed amendments to paragraphs B11F(j) and IG18 of IFRS 7—without making those proposed amendments more prescriptive—and decided against proceeding with the proposed amendments to paragraph B11F(a) of that Standard.

All 11 IASB members agreed with these decisions.