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The Board began to redeliberate proposals in the Exposure Draft General Presentation and Disclosures in March 2021. The Exposure Draft, published in December 2019, proposes to improve how information is communicated in the financial statements, with a focus on information in the statement of profit or loss. The Board discussed feedback on the Exposure Draft in December 2020 and January 2021.

IASB® Update July 2021

The Board met on 21 July 2021 to redeliberate some of the proposals in the Exposure Draft General Presentation and Disclosures relating to classification in categories in the statement of profit or loss. 

Classification of income and expenses in the financing category of the statement of profit or loss (Agenda Paper 21A) 

Classification in the statement of profit and loss 

The Board tentatively decided to require an entity to classify in the financing category of the statement of profit or loss: 

  1. all income and expenses from liabilities that arise from transactions that involve only the raising of finance; and 
  2. specified income and expenses from other liabilities (see ‘Liabilities arising from transactions that do not involve only the raising of finance’).  

All 12 Board members agreed with this decision. 

Transactions that involve only the raising of finance 

The Board tentatively decided to require an entity to describe a transaction that involves only the raising of finance as a transaction that involves: 

  1. the receipt by the entity of cash, an entity’s own equity instruments or a reduction in a financial liability; and 
  2. the return by the entity of cash or an entity’s own equity instruments. 

Eleven of 12 Board members agreed with this decision. 

Hybrid contracts with host liabilities and embedded derivatives 

In relation to hybrid contracts with host liabilities and embedded derivatives, the Board tentatively decided: 

  1. to require an entity to classify income and expenses related to separated host liabilities in the same way as income and expenses related to other liabilities; 
  2. to require an entity to classify income and expenses related to separated embedded derivatives in the same way as income and expenses related to stand-alone derivatives; and  
  3. to require an entity to classify income and expenses related to contracts that are not separated, in the same way as income and expenses related to other liabilities.  

In addition, the Board tentatively decided to develop disclosure requirements for the situation in which an entity designates an entire hybrid contract as at fair value through profit or loss and as a result does not separate from the host financial liability an embedded derivative that is otherwise required to be separated by IFRS 9 Financial Instruments. The objective of these disclosure requirements would be to give users of financial statements information about when the use of the fair value option changes the classification of income and expenses. 

All 12 Board members agreed with these decisions. 

Liabilities arising from transactions that do not involve only the raising of finance 

For liabilities that arise from transactions that do not involve only the raising of finance, except some such liabilities specified by the Board, the Board tentatively decided to require an entity to classify in the financing category of the statement of profit or loss interest expense and the effect of changes in interest rates, when such amounts are identified applying the requirements of IFRS Standards.  

The Board specified that this tentative decision does not apply to liabilities that arise from transactions that do not involve only the raising of finance and that: 

  1. are hybrid contracts in the scope of IFRS 9 measured at amortised cost; and 
  2. include an embedded derivative the economic characteristics and risks of which are closely related to the economic characteristics and risks of the host contract.

In relation to these specified liabilities, the Board decided to explore an approach that would classify all income and expenses in the financing category of the statement of profit or loss. 

All 12 Board members agreed with these decisions. 

Classification of fair value gains or losses on derivatives and hedging instruments (Agenda Paper 21B) 

The Board tentatively decided to require an entity to: 

  1. classify fair value gains or losses on financial instruments designated as hedging instruments applying IFRS 9 or IAS 39 Financial Instruments: Recognition and Measurement in the category of the statement of profit or loss affected by the risk the entity manages, except when doing so would involve the grossing up of fair value gains or losses. In such a case, an entity classifies all fair value gains or losses on the hedging instrument in the operating category. Eleven of 12 Board members agreed with this decision. 
  2. classify fair value gains or losses applying the requirements in (a) to derivatives used for risk management if those derivatives are not designated as hedging instruments applying IFRS 9 or IAS 39, except when doing so would involve undue cost or effort. In cases that involve undue cost or effort, an entity classifies all fair value gains or losses on the derivative in the operating category. Eleven of 12 Board members agreed with this decision. 
  3. classify fair value gains or losses on derivatives not used for risk management in the operating category of the statement of profit or loss, unless a derivative relates to financing activities and is not used in the course of the entity’s main business activities. When the derivative relates to financing activities and is not used in the course of the entity’s main business activities, an entity classifies all fair value gains or losses on the derivative in the financing category. Ten of 12 Board members agreed with this decision. 

Classification of foreign exchange differences (Agenda Paper 21C) 

The Board tentatively decided to require an entity to classify foreign exchange differences included in the statement of profit or loss applying paragraphs 28 and 30 of IAS 21 The Effects of Changes in Foreign Exchange Rates in the same category of the statement of profit or loss as the income and expenses from the items that gave rise to the foreign exchange differences, except when doing so would involve undue cost or effort. In cases that involve undue cost or effort, an entity classifies the foreign exchange differences on the item in the operating category.  

Eleven of 12 Board members agreed with this decision. 

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