IASB Update January 2023

Research and standard-setting

Equity Method (Agenda Paper 13)

The IASB met on 24 January 2023 to continue discussing four alternatives to answering the application question on the Equity Method project: 'how should an investor recognise gains and losses that arise from the sale of a subsidiary to its associate, applying the requirements in IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures?'

The IASB was not asked to make any decisions.

Next step

The IASB asked the staff to continue exploring two of the alternatives discussed in the agenda paper to answering the application question and prepare a decision-making paper for consideration.

Business Combinations—Disclosures, Goodwill and Impairment (Agenda Paper 18)

The IASB met on 24 January 2023 to discuss its project on Business Combinations—Disclosures, Goodwill and Impairment. In particular, the IASB discussed:

• an exemption from disclosure requirements; and
• disclosures related to synergies expected from a business combination.

Exemption from disclosure requirements (Agenda Paper 18A)

The IASB tentatively decided in September 2022 to propose an exemption from disclosing some information about business combinations in specific circumstances.

At the January 2023 meeting, the IASB tentatively decided to propose a principle for an entity to apply when using this proposed exemption. An entity applying the principle would be allowed to use the exemption from disclosing a particular item of information if disclosing that information can be expected to prejudice seriously any of the entity’s objectives for the business combination.

All 12 IASB members agreed with this decision.

To help entities apply this exemption, the IASB tentatively decided to propose application guidance. This application guidance would require an entity:

1. to consider factors including the effect of disclosing the information and the availability of the information in determining whether the exemption is applicable.
2. to consider whether it is possible to disclose information at a sufficiently aggregated level to resolve concerns while still meeting the objectives of the disclosure requirements.
3. to disclose, for each item of information to which an entity has applied the exemption, that it has applied the exemption and the reason for applying the exemption to that item of information.
4. to reassess in each reporting period whether the application of the exemption to an item of information is still appropriate. If it is no longer appropriate to apply the exemption, the entity would be required to disclose the item of information previously exempted. An entity would be required to perform that reassessment for as long as the entity would otherwise be required to disclose information about the subsequent performance of the business combination.

Eleven of 12 IASB members agreed with this decision.

The IASB tentatively decided:

1. to require an entity to disclose a qualitative statement of whether actual performance of a business combination in subsequent periods met the entity’s target for the business combination; and
2. to permit an entity to apply the exemption agreed in this meeting to that qualitative statement.

Nine of 12 IASB members agreed with this decision.

Expected synergies (Agenda Paper 18B)

The IASB tentatively decided in September 2022 to propose adding to IFRS 3 Business Combinations a requirement for an entity to disclose quantitative information about synergies expected from a business combination in the reporting period in which the business combination occurs. 

At the January 2023 meeting, the IASB tentatively decided to require an entity:

1. to disclose quantitative information about expected synergies by category (for example, total revenue synergies, total cost synergies and the total for each other type of synergy).
2. to consider, for any case in which a disclosure of totals by category would qualify for an exemption, whether disclosure as a total for all categories could remove the reason for applying the exemption to the total by category and, if so, to disclose the total of all categories.
3. to describe the synergies by specifying each category of expected synergy.
4. to disclose when the benefits expected from the synergies are expected to start and how long they will last. This disclosure would require an entity to identify whether the synergies are expected to be finite or indefinite. 

All 12 IASB members agreed with this decision.

Next steps

The IASB will make tentative decisions on matters including:

1. clarifying other aspects of the package of disclosure requirements for business combinations;
2. simplifying the application of the impairment test in IAS 36 Impairment of Assets; and
3. improving the effectiveness of the impairment test of cash-generating units containing goodwill.

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

Primary Financial Statements (Agenda Paper 21) 

The IASB met on 25 and 26 January 2023 to discuss feedback from targeted outreach and next steps (Agenda Paper 21A). The IASB also redeliberated the proposals in its Exposure Draft General Presentation and Disclosures relating to:

• the general requirements on disaggregation (Agenda Papers 21B–21D);
• other comprehensive income (Agenda Paper 21E); and
• the statement of cash flows—interest received and classification for entities with specified main business activities (Agenda Paper 21F).

Targeted outreach feedback and next steps (Agenda Paper 21A)

The IASB discussed feedback from recent targeted outreach on its tentative decisions during redeliberations of the Exposure Draft General Presentation and Disclosures.

As a result of the feedback, the IASB decided to add four topics to its redeliberation plan:

1. whether it should reconfirm its decision on classification of income and expense from associates and joint ventures accounted for using the equity method;
2. whether it should develop application guidance for classifying income and expense from off-balance-sheet items;
3. whether it should develop guidance for including interest expense on lease liabilities in operating profit if subleasing is a main business activity; and
4. whether it should develop further application guidance for the proposed rebuttable presumption in the definition of management performance measures.

All 12 IASB members agreed with these decisions.

General disaggregation requirements—Relationship with specific presentation and disclosure requirements (Agenda Paper 21B) 

The IASB discussed how it will balance the use of specific and general requirements to help it apply a consistent approach to future decisions on projects.

The IASB was not asked to make any decisions.

General requirement to disaggregate material information—Implications of the IASB’s tentative decisions on specific disclosure requirements (Agenda Paper 21C) 

The IASB tentatively decided to add an exemption to the general requirement to disaggregate material information. The exemption would apply to information about the nature of operating expenses included in a function line item in the statement of profit or loss. Specific disclosure requirements in IFRS Accounting Standards relating to operating expenses would still apply. The IASB will consider in a future paper whether it should extend the exemption to cover the disaggregation of these required specific nature expenses into the function line items in which they are included.

Eleven of 12 IASB members agreed with this decision.

The IASB also tentatively decided not to include a cost threshold in the exemption.

Eleven of 12 IASB members agreed with this decision.

General disaggregation requirements—Further issues (Agenda Paper 21D) 

The IASB tentatively decided:

1. to clarify that an entity is required to:
   1. describe disaggregated amounts in a clear and understandable way that would not mislead users of financial statements; and
   2. be transparent about the meaning of the terms it has used and the methods it has applied to the disaggregation.
      Eleven of 12 IASB members agreed with this decision.
2. to add a requirement that any line items an entity presents in its statement(s) of financial performance and statement of financial position are recognised and measured in accordance with IFRS Accounting Standards. All 12 IASB members agreed with this decision.
3. not to prohibit an entity from disaggregating income and expenses in the notes to the financial statements into components not recognised or measured in accordance with IFRS Accounting Standards. Eleven of 12 IASB members agreed with this decision.
4. to extend the proposals in the Exposure Draft relating to the label ‘other’ to require an entity to use this label only if it is unable to find a more informative label. If an entity is unable to find a more informative label:
   1. for an aggregation of varied material items—the IASB would require it to use a label that is as precise as possible about the type of item the ‘other’ amount is, for example, ‘other operating expenses’ or ‘other finance expenses’.
   2. for an aggregation of varied immaterial items—the IASB would require an entity to consider whether the aggregated amount is large enough that users of financial statements might question what it includes. If so, further information about that amount is material and accordingly would be provided by the entity. All 12 IASB members agreed with this decision.
5. to include as examples of material information about the amount described in (d)(ii):
   1. an explanation that no material items are included in the amount. Nine of 12 IASB members agreed with this decision.
   2. an explanation that the amount consists of several unrelated immaterial items with an indication of the nature and amount of the largest item. All 12 IASB members agreed with this decision.

Other comprehensive income (Agenda Paper 21E)

The IASB tentatively decided to withdraw the proposal to relabel the two categories of other comprehensive income as:

1. remeasurements permanently reported outside profit or loss; and
2. income and expenses to be included in profit or loss in the future when specific conditions are met. 

All 12 IASB members agreed with this decision.

Statement of cash flows—Interest received and classification for entities with specified main business activities (Agenda Paper 21F)

The IASB tentatively decided:

1. to confirm the proposal in the Exposure Draft to require an entity without a specified main business activity to classify in the statement of cash flows interest received as ‘cash flows arising from investing activities’.
2. to confirm the proposals in the Exposure Draft to require an entity with a specified main business activity to classify some cash flows within a single category of the statement of cash flows (that is, as cash flows from either operating, investing or financing activities). These cash flows are:
   1. dividends received (other than dividends received from associates and joint ventures accounted for using the equity method);
   2. interest paid; and
   3. interest received.

Seven of 12 IASB members agreed with this decision.

Next step

The IASB will continue to redeliberate the project proposals. 

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

The IASB met on 24 January 2023 to continue redeliberating the proposals in its Exposure Draft Subsidiaries without Public Accountability: Disclosures to develop a new IFRS Accounting Standard (new Standard).

Transition matters—Interaction between IFRS 1 and the Standard (Agenda Paper 31A)

The IASB tentatively decided to proceed with its proposals to include in the new Standard:

1. reduced disclosure requirements for IFRS 1 First-time Adoption of International Financial Reporting Standards; and 
2. an explanation of the relationship between IFRS 1 and the new Standard, as set out in paragraphs 12–14 of the Exposure Draft.

All 12 IASB members agreed with this decision. 

Transition matters—Changes in accounting policies (Agenda Paper 31B)

The IASB tentatively decided to clarify in the new Standard that an eligible subsidiary that (i) elects to apply the new Standard, (ii) revokes an election to apply the new Standard or (iii) is no longer eligible to apply the new Standard:

1. does not apply the requirements in IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors on changes in accounting policies; and
2. is not required to present a third statement of financial position (that is, a second comparative statement of financial position) as at the beginning of the earliest period presented.

All 12 IASB members agreed with this decision. 

Maintenance of the Standard (Agenda Paper 31C)

The IASB confirmed its proposal to consider amendments to the new Standard at the same time it publishes an exposure draft for a new or amended Accounting Standard.  

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

Maintenance and consistent application (Agenda Paper 12)

The IASB met on 25 January 2023 to discuss the project on Supplier Finance Arrangements and to receive an update on the November 2022 meeting of the IFRS Interpretations Committee (Committee).

Supplier Finance Arrangements: Transition, effective date and due process (Agenda Paper 12A)

The IASB discussed the effective date and transition requirements of its proposed amendments to IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments: Disclosures, which would add disclosure requirements for an entity’s supplier finance arrangements.

The IASB deferred a decision about the effective date and transition requirements of the amendments. The IASB will make that decision after it has considered further analysis of feedback on this topic.

Next step

The IASB expects to discuss this topic at its next meeting.

IFRIC Update November 2022 (Agenda Paper 12B)

The IASB received an update on the Committee’s November 2022 meeting. Details of this meeting were published in IFRIC Update November 2022.

The IASB was not asked to make any decisions.

Taxonomy

IFRS Accounting Taxonomy Update—Amendments to IFRS 16 and IAS 1 (Agenda Paper 25)

The IASB met on 25 January 2023 and considered: 

• feedback on the Proposed IFRS Taxonomy Update for
  • Lease Liability in a Sale and Leaseback, which amended IFRS 16 Leases; and 
  • Non-current Liabilities with Covenants, which amended IAS 1 Presentation of Financial Statements.
• the next steps to finalise the IFRS Taxonomy Update. 

The IASB was not asked to make any decisions.

Next steps

The IASB will begin the balloting process and expects to issue IFRS Accounting Taxonomy 2022—Update 2 Lease Liability in a Sale and Leaseback and Non-current Liabilities with Covenants in the first quarter of 2023.