IASB and ISSB Updates
Meeting Summaries
Summaries of recently held meetings
2023
Sources of guidance to identify sustainability-related risks and opportunities and disclosures
The ISSB decided to amend the references to ‘other standard-setting bodies whose requirements are designed to meet the needs of users of general purpose financial reporting’ and ‘entities that operate in the same industries or geographies’ to state that preparers may consider such sources, both in the identification of sustainability-related risks and opportunities and in the identification of disclosures about those risks and opportunities, but that such consideration is not a requirement. The ISSB also decided to amend the sources of guidance to explicitly state that preparers may consider the GRI Standards and ESRS to identify disclosures about sustainability-related risks and opportunities that meet the objectives of [draft] S1. However, this reference will be made in an appendix to IFRS S1.
Effective date
The ISSB decided to require that both IFRS S1 and IFRS S2 are effective for annual reporting periods beginning on or after 1 January 2024. The ISSB also confirmed that early application of IFRS S1 and IFRS S2 is permitted, but only if an entity applies both IFRS S1 and IFRS S2 at the same time. An entity will be required to disclose that it applies IFRS S1 and IFRS S2 early. ISSB members also voted in favour of the staff recommendation related to the applicable timing of the transitional relief from the requirement for an entity to report their sustainability-related financial disclosures at the same time as their financial statements; from the requirement for an entity to measure Scope 1, Scope 2, and Scope 3 emission in accordance with the GHG Protocol Corporate Standard, when they are doing so for the first time by applying IFRS S2; and from the requirement for an entity to disclosure its Scope 3 GHG emissions.
Due process and permission to ballot
The staff summarised the due process steps undertaken throughout the General Sustainability-related Disclosures and the Climate-related Disclosures projects and the ISSB confirmed that it is satisfied that the mandatory due process steps have been met in finalising redeliberations of [draft] S1 and [draft] S2. The ISSB also granted permission for the staff to begin the balloting process for IFRS S1 and IFRS S2 and none of the ISSB members indicated that they intend to dissent from the publication of IFRS S1 or IFRS S2.
Full summaries of the agenda papers and discussions are attached.
This is a compilation of the summary available on IAS Plus at: https://www.iasplus.com/en/ meeting-notes/issb/2023/ february/february
The meeting agenda and all of the staff papers are available on the ISSB website: https://www.ifrs.org/news- and-events/calendar/2023/ february/international- sustainability-standards- board/
Maintenance and consistent application
The IASB deferred the final decisions on its project on Supplier Finance Arrangements to the February meeting. The staff recommended that entities be required to apply the amendments for annual reporting periods beginning on or after 1 January 2025, with earlier application permitted. However, some IASB members preferred an earlier effective date.
Equity Method
IFRS 10 requires that when a parent loses control of a subsidiary it recognises a gain or loss. However, if the subsidiary is sold to an associate or joint venture of the parent, IAS 28 requires that the gain be limited to the extent of the unrelated investors’ interests. This is perceived as a conflict. The IASB discussed four ways of addressing the issue and decided to continue exploring two of the alternatives in a future decision-making session.
Business Combinations—Disclosures, Goodwill and Impairment
In September 2022, the IASB tentatively decided to exempt entities from some disclosure requirements but did not establish the conditions for that exemption. The IASB decided that the exemption be based on whether disclosing the information could be expected to prejudice seriously any of the entity’s objectives for a business combination. Application guidance would set out the factors that would need to be considered when assessing if the exemption applies and entities would need to disclose the reason for applying the exemption.
The IASB also decided that, subject to the proposed exemption, an entity be required to disclose quantitative information about total expected synergies disaggregated by nature (e.g. total revenue, total cost synergies), when the synergistic benefits are expected to start, and how long they are expected to last.
Primary Financial Statements
The IASB decided:
- Disaggregation: not requiring disaggregation of material information in relation to information about the nature of operating expenses that are included in a function line item in the statement of profit or loss; clarify the requirements for how disaggregated amounts are labelled (described); add a requirement that any line items presented in the statement(s) of financial performance and the statement of financial position must be recognised and measured in accordance with IFRS Accounting Standards but not prohibit the disaggregation of income and expenses in the notes to the financial statements into components not recognised and measured in accordance with IFRS Accounting Standards; and extend the proposals in the ED for the label ‘other’ to be used only if no more informative label can be found
- Comprehensive income: withdraw the proposal to relabel the two categories of other comprehensive income as remeasurements permanently reported outside profit or loss and income and expenses to be included in profit or loss in the future
- Statement of cash flows: confirm that entities other than entities with specified main business activities classify interest received as cash flows arising from investing; and confirm that entities with specified main business activities classify dividends received (other than dividends received investments accounted for using the equity method), interest paid and interest received in a single category of the statement of cash flows (either as cash flows from operating, investing or financing activities)
IFRS Accounting Taxonomy
In November 2022, the IASB published the Proposed IFRS Taxonomy Update—Lease Liability in a Sale and Leaseback and Non-current Liabilities with Covenants. The purpose of this meeting was to summarise the feedback received on the PTU and set out the next steps in the publication of the Update. As a next step, the IASB will begin the balloting process for these updates.
Disclosure Initiative—Subsidiaries without Public Accountability: Disclosures
The IASB decided to proceed with the proposal to include reduced disclosure requirements for IFRS 1. The IASB also decided that when an eligible subsidiary that elects, revokes an election or is no longer eligible to apply the Standard, it does not apply the requirements in IAS 8 on changes in accounting policies. Neither is it required to present a third statement of financial position. Finally, the IASB confirmed its proposal to consider amendments to the Standard when it publishes an exposure draft of a new or amended IFRS Accounting Standard.
This is a compilation of the summary available on IAS Plus at: https://www.iasplus.com/en/ meeting-notes/iasb/2023/ january/
The meeting agenda and all of the staff papers are available on the IASB website: https://www.ifrs.org/news-and- events/calendar/2023/january/ international-accounting- standards-board/
Metrics and Targets
The ISSB agreed minor drafting changes to clarify that the objective of disclosures on metrics and targets in the proposals is to enable users to understand performance on sustainability-related risks and opportunities, including (but not limited to) how an entity measures, monitors and manages such risks and opportunities.
Disclosure of judgements, assumptions and estimates
The ISSB decided to require, in addition to requiring disclosure of the sources of estimation uncertainty, the judgements that the entity has made in the process of preparing and disclosing its sustainability-related financial information. They also decided requiring disclosure of the sources that have been applied in preparing the entity’s sustainability-related financial disclosures, including the industry or industries specified in IFRS Sustainability Disclosure Standards, SASB Standards or other industry-based sources of guidance.
In addition, the ISSB decided to clarify that the words ‘to the extent possible’ mean ‘to the extent possible taking into consideration the requirements of IFRS Accounting Standards (or other relevant GAAP)’ and to require an entity to explain significant differences in the financial data and assumptions that the entity has used in preparing its sustainability-related financial disclosures, in comparison to those that the entity has used in preparing its financial statements.
Furthermore, the ISSB decided to clarify that the disclosure requirements on estimation uncertainty relating to metrics also apply to current and anticipated effects of sustainability-related risks and opportunities on the entity’s financial position, financial performance and cash flows. The ISSB also decided to provide guidance on the disclosure of judgements, assumptions and estimates that an entity is required to make in applying IFRS Sustainability Disclosure Standards.
Commercially sensitive information about opportunities
The ISSB decided to introduce an exemption in [draft] S1 that would permit entities, in limited circumstances, to exclude information about a sustainability-related opportunity when the information is commercially sensitive. It would specify that this would not be applicable to information which is already publicly available, nor would it able to be used to justify broad non-disclosure, using commercial sensitivity as a justification, or to avoid disclosing information about risks.
Reasonable and supportable information that is available at the reporting date without undue cost or effort
The ISSB decided to introduce the concept of ‘reasonable and supportable information that is available at the reporting date without undue cost or effort’ into IFRS S1 and IFRS S2, to help an entity to apply specific requirements in the Standards.
Current and anticipated financial effects and connected information
The ISSB decided to make minor drafting changes to clarify that when sustainability-related risks and opportunities have affected or are expected to affect the information in an entity’s financial statements, the entity is required to explain the connections between those current and anticipated financial effects and the sustainability-related risks and opportunities. They also decided to clarify the relationship between resilience assessment requirements and the requirements to disclose current and anticipated financial effects by emphasising those requirements can be applied independently, but the resilience assessment can inform the disclosures of current and anticipated financial effects. Furthermore, the ISSB decided to clarify that there is no requirement for an entity to perform a resilience assessment to determine current and anticipated financial effects of sustainability-related risks and opportunities.
Using scenario analysis to assess climate resilience
The ISSB decided to require an entity to use an approach to climate-related scenario analysis that enables the entity to consider all reasonable and supportable information that is available without undue cost or effort, at the reporting date, including information about past events, current conditions and forecasts of future economic conditions, taking into consideration the degree of the entity’s exposure to climate-related risks and opportunities and the skills, capabilities and resources available to the entity to conduct climate-related scenario analysis.
Greenhouse gas emissions—reporting period relief
The ISSB decided to provide relief that allows an entity to measure its GHG emissions using information for reporting periods that are different from the entity’s reporting period when that information arises from entities in its value chain with reporting periods that are different from that of the entity, on condition that the entity uses the most recent data available without undue cost or effort to measure and disclose its GHG emissions, the length of the reporting periods is the same and the entity discloses the effects of significant events and changes in circumstances (relevant to its GHG emissions information) that occur between the reporting dates of the entities in its value chain and the date of the entity’s general purpose financial reporting.
Climate-related targets—Latest international agreement on climate change
The ISSB decided to amend the proposal in paragraph 23(e) of [draft] S2 to require an entity to disclose how the latest international agreement on climate change has informed any climate-related targets it has set.
This is a compilation of the summary available on IAS Plus at: https://www.iasplus.com/en/ meeting-notes/issb/2023/ january/january
The meeting agenda and all of the staff papers are available on the ISSB website: https://www.ifrs.org/news-and- events/calendar/2023/january/ international-sustainability- standards-board/
2022
Financial Instruments with Characteristics of Equity (FICE)
The IASB decided that no changes are made to the presentation requirements in IAS 32 for equity instruments or to specifically address financial liabilities containing contractual obligations to pay amounts based on the entity’s performance or changes in the entity’s net assets. However, the IASB decided that entities with these types of financial liabilities measured at fair value through profit or loss be required to disclose the total gains or losses recognised in profit or loss in each reporting period that arise from remeasuring such financial liabilities.
Work Plan
In the meeting, the staff set out its expectations that the IASB will conclude its post-implementation review (PIR) of the classification and measurement requirements in IFRS 9 with the publication of its Feedback Statement in December 2022. The staff also expects that the IASB will conclude its Disclosure Initiative—Targeted-Standards Level Review of Disclosures with the publication of its Project Summary in Q1 2023. In addition, the staff expects that the IASB will issue final amendments for International Tax Reform—Pillar Two Model Rules and Supplier Finance Arrangements in Q2 2023. No decisions were made.
Rate-regulated Activities
The IASB decided that an entity does not recognise inflation adjustments to the regulatory capital base as a regulatory asset. The IASB also decided that an entity recognises a regulatory asset (regulatory liability) relating to an allowable expense or performance incentive included in its regulatory capital base when the entity has an enforceable present right (obligation) to add (deduct) the allowable expense or performance incentive to (from) future regulated rates and there is a direct relationship between the entity’s regulatory capital base and its property, plant and equipment. An entity does not recognise a regulatory asset (regulatory liability) relating to an allowable expense or performance incentive included in its regulatory capital base when there is no direct relationship between the entity’s regulatory capital base and its property, plant and equipment.
Maintenance and consistent application
The IASB discussed matters raised in the feedback on the Exposure Draft (ED) Lack of Exchangeability. The IASB decided to proceed with its proposals in the ED with some changes. In particular, the IASB agreed to clarify for factors to consider when assessing exchangeability that an entity does not consider ‘unofficial markets’ in assessing exchangeability but, when exchangeability is lacking, it can use exchange rates from these markets to estimate the spot exchange rate and that all factors are to be considered holistically. For determining the spot exchange rate—the IASB decided 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.
Equity Method
In this session, the IASB discussed applying the preferred approach after purchase of an additional interest in an associate and two application questions. The IASB decided to proceed with the view that an investor is measuring a single investment in the associate rather than layers of the investment in the associate. The IASB also decided that an investor that has reduced its interest in an associate to zero does not recognise the unrecognised losses from the cost of the additional interest in the associate. Lastly, the IASB decided that an investor recognises its share of comprehensive income until its interest in the associate is reduced to zero.
Goodwill and Impairment
The IASB agreed to move the project from the research programme to the standard-setting work plan. The IASB decided to maintain its preliminary view and therefore to make no changes to the recognition criteria in IFRS 3 for identifiable intangible assets acquired in a business combination. The IASB decided against proceeding with its preliminary view to require an entity to present the amount of total equity excluding goodwill as a separate line item on its statement of financial position. 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.
Digital Financial Reporting Strategy
The IASB discussed the strategic framework that is intended to provide strategic direction and boundaries to help identify possible digital financial reporting activities that the IASB could undertake and provide consistent language for communicating the digital financial reporting strategy. The IASB did not make any decisions.
Disclosure Initiative—Subsidiaries without Public Accountability: Disclosures
The IASB confirmed its proposals in the draft Standard that the application of the disclosure requirements in IFRS 8, IFRS 17 and IAS 33 remain applicable for a subsidiary applying the Standard, and that an entity is permitted to apply reduced disclosure requirements for IAS 34 in the Standard. The IASB also decided to retain its proposal that a subsidiary applying the new 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.
This is a compilation of the summary available on IAS Plus at: https://www.iasplus.com/en/ meeting-notes/iasb/2022/ december/
The meeting agenda and all of the staff papers are available on the IASB website: https://www.ifrs.org/news- and-events/calendar/2022/ december/international- accounting-standards-board/
ISSB Consultation on Agenda Priorities
The ISSB has begun work on a Request for Information (RFI) as part of its consultation for developing its work plan. The RFI will include two main components: foundational work and potential projects. ISSB staff have conducted outreach and research activities to put together a short-list of potential projects to be considered for inclusion within the RFI. The four potential projects identified are biodiversity, including ecosystems, ecosystem services and other nature-related issues; human capital, with a focus on diversity, equity and inclusion (DEI); human rights, particularly in the context of the value chain, with a focus on worker, labour and community rights; and connectivity in reporting, management commentary and integrated reporting. The ISSB voted in favour of including these four projects, with the caveat that they are further built out to include an expanded description as well as explicit examples of subtopics within each potential project.
General Sustainability-related Disclosures
The ISSB decided to provide some clarifications to the proposals: the framing and objective of [draft] S1 in with respect to the relationship between value and sustainability; and identifying sustainability-related risks and opportunities and assessment of material information.
Climate-related Disclosures
The ISSB decided to address specific feedback received during the comment period in relation to the disclosure requirements for Scope 1 and 2 GHG Emissions. For Scope 3 GHG emissions the the ISSB decided to provide some disclosure relief, introduce a framework for measuring Scope 3 GHG emissions, provide relief related to an entity’s value chain, require an entity to reassess the ‘scope’ of its sustainability-related risks and opportunities in its value chain only upon the occurrence of either a significant event or a significant change in circumstances, and confirm that no additional relief will be provided regarding the proposal that an entity is required to include information about which of the 15 Scope 3 GHG emissions categories described in the GHG Protocol Value Chain Standard are included within the entity’s measure of Scope 3 GHG emissions. In relation to financed emissions, the ISSB decided to confirm the proposed disclosure requirements for financed emissions for three industries—Asset Management & Custody Activities, Commercial Banks and Insurance but not for the Investment Banking & Brokerage industry. The ISSB decided to make other more detailed changes recommended by the staff.
This is a compilation of the summary available on IAS Plus at: https://www.iasplus.com/en/ meeting-notes/issb/2022/ december/december
The meeting agenda and all of the staff papers are available on the ISSB website: https://www.ifrs.org/news- and-events/calendar/2022/ december/international- sustainability-standards- board/
New item: IFRS 16 Leases—Definition of a Lease: Substitution Rights
The IFRS IC received a submission about how to assess whether a contract contains a lease applying IFRS 16 when the supplier has particular substitution rights and at what level an entity evaluates whether that right is substantive. The contract in the fact pattern is for the use of 100 similar assets. The supplier has the practical ability to substitute alternative assets throughout the period of use but is expected to benefit economically from the exercise of its right to substitute only after some time into the period of the lease. The IFRS IC members generally agreed with the staff conclusion that there is an identified asset because the supplier’s substitution right is not substantive but had various comments on how the tentative agenda decision analyses it and reaches that conclusion. Most of the IFRS IC members agreed that the level to evaluate whether the substitution right is substantive is on each asset. The IFRS IC voted in favour of not adding a standard-setting project to the work plan and instead to publish a tentative agenda decision, with the drafting amended to take comments into consideration that have been raised by IFRS IC members during the meeting.
Potential annual improvements to IFRS Accounting Standards
The IFRS IC members shared their views on the staff’s preliminary views on the following six proposed amendments to IFRS Accounting Standards and to include them in the next annual improvements cycle:
- IFRS 1 First-time Adoption of International Financial Reporting Standards—terminology update
- IFRS 10 Consolidated Financial Statements—'De facto agent’ assessment
- IFRS 9 Financial Instruments—terminology update
- IAS 7 Statement of Cash Flows—terminology update
- IFRS 7 Financial Instruments: Disclosures—reference update
- IFRS 7 Financial Instruments: Disclosures—implementation guidance
Input on IASB project: Post-implementation Review (PIR) of IFRS 15 Revenue from Contracts with Customers
The IASB has started the PIR of IFRS 15 which aims at assessing whether the effects of applying new requirements on users of financial statements, preparers, auditors and regulators are as intended when the IASB developed those requirements. The IFRS IC members shared their views on the implementation and ongoing application of IFRS 15, including the matters that the IFRS IC members think the IASB should consider in the PIR of the Standard.
Work in progress
There are two new matters that have not been presented to the IFRS IC.
This is a compilation of the notes available on IAS Plus at: https://www.iasplus.com/en/ meeting-notes/ifrs-ic/2022/ november/ The meeting agenda and all of the staff papers are available on the IASB website:
https://www.ifrs.org/news-and- events/calendar/2022/november/ ifrs-interpretations-IFRS IC/
Post-implementation Review (PIR) of IFRS 9—Classification and Measurement
The IASB discussed financial liabilities and own credit. The IASB concluded that it is satisfied that the project can be concluded. The next step will be the publication of a Report and Feedback Statement.
Dynamic Risk Management
The IASB discussed managing equity and notional alignment of designated assets and liabilities. The IASB decided that equity not be an eligible item in the DRM model. The IASB also agreed to amend its original tentative decision to not require the notionals of eligible assets, liabilities and future transaction for designation in the current net open risk position to be the same.
Rate-regulated Activities
At this meeting, the IASB continued redeliberating the proposals in the Exposure Draft Regulatory Assets and Regulatory Liabilities. The IASB decided that when there is a direct relationship between an entity’s regulatory capital base and its property, plant and equipment and the regulatory agreement provides the entity with (a) both a debt and equity return on an asset not yet available for use, the entity must reflect in the statement of financial performance during the construction period only those returns in excess of the entity’s capitalised borrowing costs; or (b) only a debt return on an asset not yet available for use, the entity must not reflect the return in the statement of financial performance during the construction period if the entity capitalises its borrowing costs.
Maintenance and consistent application
International Tax Reform (Pillar Two Model Rules)—the IASB decided to amend IAS 12 to introduce a temporary exception from accounting for deferred taxes arising from legislation enacted to implement the OECD’s Pillar Two model rules (including any qualified domestic minimum top-up tax). The exception would apply until such time that the IASB decides to either remove it or make it permanent. Supplier Finance Arrangements—the IASB decided to proceed with its proposals in the ED with some changes.
Amendments to the Classification and Measurement of Financial Instruments
The IASB discussed a sweep issue related to contractually linked instruments and the derecognition requirements in IFRS 9 for the settlement of a financial asset or a financial liability via electronic cash transfers. The IASB decided to clarify that when determining whether a transaction is in the scope of the CLI requirements, an entity excludes any instruments held by the sponsor that has transferred the underlying assets to the issuer. For electronic transfers, the IASB also decided to clarify that an entity applies settlement date accounting when recognising and derecognising financial assets (except for regular way transactions) and financial liabilities. In relation to the accounting alternative for derecognising a financial liability before settlement date, the IASB decided to refine the criteria to require an entity to have no ability to withdraw, stop or cancel an electronic payment instruction; to have lost the practical ability to access the cash as a result of the electronic payment instruction; and the settlement risk associated with the electronic payment instruction to be insignificant.
Goodwill and Impairment
The IASB decided to retain the impairment-only model for goodwill.
Business Combinations under Common Control (BCUCC)
The IASB continued discussing the selection of the measurement method to apply to a BCUCC. The staff set out their initial views, but did not making any recommendations. The IASB agreed with the general direction set out in its preliminary views to, in principle, apply the acquisition method to a BCUCC that affects non-controlling shareholders but that the IASB should consider some potential exceptions. If the BCUCC does not affect non-controlling shareholders a book-value method would apply, with no exceptions.
Disclosure Initiative—Subsidiaries without Public Accountability: Disclosures
The IASB confirmed that the subsidiaries eligible to apply the Standard are a ‘subsidiary at the end of the reporting period’ that has an ultimate or intermediate parent that produces consolidated financial statements complying with IFRS Accounting Standards. The IASB also decided, by a bare majority, not to proceed with the proposal that the parent’s consolidated financial statements are ‘available for public use’.
This is a compilation of the summary available on IAS Plus at: https://www.iasplus.com/en/ meeting-notes/iasb/2022/ november/ The meeting agenda and all of the staff papers are available on the IASB website:
https://www.ifrs.org/news-and- events/calendar/2022/november/ international-accounting- standards-board/
General Sustainability-related Disclosures
The ISSB decided to clarify that the requirement to revise comparative information to reflect updated estimates applies to current period estimates that were disclosed in prior periods (historic estimates), and does not apply to forward-looking estimates. The ISSB also confirmed the proposed requirement for an entity to report its sustainability-related financial disclosures at the same time as its related financial statements but intends to introduce transitional relief for a limited period of time to permit an entity to report sustainability-related financial disclosures potentially up to half a year after the publication of its annual financial statements. The ISSB has not decided how long the transitional relief should last.
Climate-related Disclosures
The ISSB considered the proposed requirements for an entity to disclose information on strategy and decision-making (including transition planning) and climate-related targets. The ISSB confirmed that an entity would be required to disclose information about its strategy and decision-making and information about its climate-related targets. The ISSB also decided to introduce additional disclosure requirements about the assumptions made, and dependencies identified, by the entity in developing its transition plan and the implications for the entity’s transition plan if the assumptions are not met. Furthermore, they also decided to include requirements to disclose information about the scope of the target to enable users to understand whether the target applies to the entity in its entirety or to only a part of the entity (for example, specific business units or specific geographic regions).
General Sustainability-related Disclosures and Climate-related Disclosures
The proposed requirements in paragraph 22 of Exposure Draft IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information ([draft] S1) and the equivalent requirements in paragraph 14 of Exposure Draft IFRS S2 Climate-Related Disclosures ([draft] S2) would require entities to disclose the effects of its sustainability-related risks and opportunities on its financial position, financial performance and cash flows for the reporting period and the anticipated effects. The staff presented a summary of the feedback received and asked the ISSB to provide feedback on some illustrative examples they have prepared.
ISSB Taxonomy
In May 2022, the IFRS Foundation published a staff draft of a taxonomy for digital reporting representing the disclosure proposals in the two ISSB exposure drafts. The staff draft was accompanied by a Request for Feedback soliciting public feedback on staff recommendations on fundamental matters that need to be considered early to enable the ISSB to develop a Taxonomy. The purpose of this meeting was to provide a summary of the feedback obtained during the feedback period.
This is a compilation of the summary available on IAS Plus at: https://www.iasplus.com/en/ meeting-notes/issb/2022/ november/november
The meeting agenda and all of the staff papers are available on the ISSB website: https://www.ifrs.org/news- and-events/calendar/2022/ november/international- sustainability-standards- board/
Consultation on Agenda Priorities
The staff previously stated the ISSB’s intention to publish the RFI in Q4 of 2022. Due to the need to strongly emphasise foundational activities—and the importance of IFRS S1 and IFRS S2—the staff now expect to publish an RFI in the first half of 2023. The ISSB supported focusing on the work to build on the foundation established by IFRS S1 and IFRS S2, once finalised, and new research and standard-setting for stakeholder input to inform the IASB’s decisions on the future work plan.
General Sustainability-related Disclosures
This was the first decision-making session of the ISSB in relation to the exposure drafts (EDs). The IASB confirmed that information is provided to meet the information needs of the primary users of general purpose financial reporting who are “existing and potential investors, lenders and other creditors”, in alignment with the IASB’s Conceptual Framework and decided to remove “enterprise value” from the objective and from the definition of materiality which would create alignment with the IASB’s Conceptual Framework but not fundamentally change the focus of the required disclosures. Additional resources and language would clarify the concept of enterprise value and the scope of sustainability-related financial information required. The ISSB also decided to introduce a requirement to disclose the process of identifying and disclosing material information and/or materiality judgments and decided not to use the term “significant”.
Climate-related Disclosures
The ISSB confirmed the requirements for an entity to disclose: its absolute gross Scope 1 and Scope 2 greenhouse gas (GHG) emissions generated during the reporting period, including separate disclosure for the consolidated accounting group and unconsolidated investees; and its Scope 3 GHG emissions, considering the 15 Scope 3 GHG emissions categories described in the Greenhouse Gas Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard. The ISSB will consider ways to help entities meet the Scope 3 disclosure requirements, such as deferring the effective date for this disclosure or developing additional guidance. The ISSB decided to proceed with the proposal that entities use the GHG Protocol Corporate Standard. However, entities that have been using a different measurement method would be permitted to do so during a transition period, or while a jurisdiction requires use of that other method.
General Sustainability-related Disclosures and Climate-related Disclosures
The ISSB decided to make some drafting changes that the staff think would improve the interoperability with proposals published in Europe and the US. The ISSB confirmed the use of the TCFD pillars for structuring the core content in IFRS S1 and IFRS S2 and confirm the meaning of the global baseline. In addition to the recommendations in the other papers, the ISSB decided to confirm that time horizons not be defined for short, medium and long term; that disclosures be required about the effects of climate-related risks and opportunities on the entity’s financial position, financial performance and cash flows for the reporting period (i.e. the current effects); that disclosures are not required to be reported separately for physical risks, transition risks and climate-related opportunities; that separate disclosures be required about assets subject to physical and transition risks and climate-related opportunities, in the form of metrics; the disclosures proposed in relation to climate resilience; to add a requirement to disclose whether and how an entity uses climate-related scenario analysis to inform the identification of climate-related risks and opportunities; and use the term “carbon credit” instead of “carbon offset”.
Industry-based Materials
The ISSB will begin alignment around the strategy for integrating industry-based materials into IFRS Sustainability Disclosure Standards, including the role of the SASB Standards in [draft] IFRS S1, the industry-based requirements in Appendix B of [draft] IFRS S2, improving the international applicability of the SASB Standards, the ISSB’s upcoming consultation on agenda priorities and advancing SASB projects inherited by the ISSB. All ISSB members supported that IFRS S2 should maintain the requirement that entities provide industry-specific disclosures. They also supported that the ISSB classify the content in Appendix B as illustrative examples, while stating the intention to make Appendix B mandatory in the future, subject to further consultation.
Rate-regulated Activities
The IASB decided that the final Accounting Standard retains the definition of allowable expense proposed in the ED, clarifies that a regulatory agreement may determine the amount that compensates for an allowable expense using the same or a different basis from the basis an entity uses for measuring the allowable expense in accordance with IFRS Accounting Standards; and clarifies the treatment of allowable expenses based on benchmarks and includes examples to help entities identify differences in timing in those cases. The IASB also decided that the final Accounting Standard retain the proposals in the ED for entities to account for regulatory assets or regulatory liabilities arising from differences between the regulatory recovery period and assets’ useful lives when there is a direct relationship between an entity’s regulatory capital base and its property, plant and equipment; provides guidance to help entities determine when there is no direct relationship between their regulatory capital base and their property, plant and equipment; and requires entities that have concluded there is no direct relationship between their regulatory capital base and their property, plant and equipment to provide disclosures to enable users of financial statements to understand the reasons for their conclusion.
Contractual Cash Flow Characteristics
The IASB decided that IFRS 7 be amended to require disclosure of, for each class of financial assets and financial liabilities not measured at fair value through profit or loss, a qualitative description of the nature of the contingent events that could change the timing or amount of contractual cash flows; quantitative information about the potential range of changes to contractual cash flows that could result from the contractual terms; and the gross carrying amount of financial assets and amortised cost financial liabilities subject to these contractual terms. The effective date would be set after the proposals have been exposed.
Equity Method
The purpose of this meeting was to review the progress of the equity method research project. The staff acknowledged that developing solutions to the application questions has taken longer than anticipated, but they still think it is possible to develop solutions. The IASB decided to continue the research project with its current objective and approach.
IFRS Taxonomy
The IASB decided to shorten the comment period to 30 days for the Proposed IFRS Accounting Taxonomy Update for Lease Liability in a Sale and Leaseback and Non-current Liabilities with Covenants.
Maintenance and consistent application
The IASB has on its work plan a project to make three targeted improvements to IAS 37, including one in relation to the discount rate an entity applies in measuring a provision. The IASB is considering developing proposals to specify in IAS 37 whether that rate should reflect its own performance risk. The staff are gathering information to help the IASB reach a tentative decision on this question at a future meeting. In addition, no IASB members objected to the publication of three IFRS Interpretations Committee agenda decisions: Multi-currency Groups of Insurance Contracts (IFRS 17 and IAS 21); Special Purpose Acquisition Companies (SPAC)—Accounting for Warrants at Acquisition; and Lessor Forgiveness of Lease Payments (IFRS 9 and IFRS 16).
Disclosure Initiative—Targeted Standards-level Review of Disclosures
The IASB decided to develop a middle ground approach to drafting disclosure requirements with the aim of providing a better framework for entities to use judgement to identify and disclose useful information to users of financial statements. Applying such an approach, disclosure objectives would be accompanied by a prescriptive list of items of information that an entity should disclose to meet the objectives. The IASB decided to publish the Guidance for the Board as a document posted on the IFRS Foundation website. Furthermore, the IASB decided not to proceed with any further work on the disclosure requirements in IFRS 13 and IAS 19.
Post-implementation Review (PIR) of IFRS 9—Classification and Measurement
The staff are not recommending any changes to the requirements in IFRS 9. However, to increase the usefulness and transparency of information provided about the overall performance of equity investments for which the OCI presentation election was made, the staff recommend amending paragraph 11A of IFRS 7 to require disclosure of the aggregated fair value of equity investments for which the OCI presentation option is applied at the end of the reporting period and changes in fair value recognised in OCI during the period. The IASB also decided to continue to consider as part of this review the accounting for BACS transfers and to explore permitting the derecognition of financial liabilities before settlement date if specified criteria are met. The staff plan to bring a paper back in November.
Disclosure Initiative—Subsidiaries without Public Accountability: Disclosures
In this session, the IASB discussed the objective and structure of the new standard and the approach to developing disclosure requirements. The IASB agreed with all of the staff recommendations.
Goodwill and Impairment
The purpose of this meeting is to initiate the IASB’s discussion on the subsequent accounting for goodwill. The IASB will not be asked to make any decisions at this meeting. The staff reminded the IASB of its preliminary decision to retain the impairment-only model for the subsequent accounting of goodwill. The staff also provided an overview of respondents’ feedback on the Discussion Paper (DP) and a summary of additional information and recent developments since the feedback on the DP. No decisions were made, but the IASB indicated that it has sufficient information to be in a position to make a decision at a future meeting.
ISSB Update
The ISSB Chair gave an overview of the first meetings of the ISSB, including this week’s meeting and decisions made to date. The ISSB Chair reiterated the importance of building a global baseline for sustainability reporting and therefore, the ISSB is working closely with the European Financial Reporting Advisory Group (EFRAG) who is currently developing European Sustainability Reporting Standards (ESRS). He also listed the various consultative groups that have been established over the last few months to inform the standard-setting process of the ISSB.
Equity Method
The staff recommended that when measuring the carrying amount to be derecognised in a partial disposal would identify the cost of the specific portion of the investment being disposed of or, if it cannot be identified, apply the last-in, first-out method. They also recommended relief to allow the weighted average method to be used as a practical expedient for equity method investments held prior to the transition date. Several IASB members expressed concerns about the approach and more work will need to be undertaken. The IASB decided that when an equity accounted investee issues equity instruments, and the investor continues to apply the equity method, an ownership interest increase would be treated as a purchase of an additional interest whereas a decrease would be a partial disposal. The IASB also discussed application questions related to transactions between an investor and its associate or joint venture and acknowledged conflicts between the requirements in IFRS 10 and those in IAS 28.
Goodwill and Impairment
The IASB made several changes to its preliminary views in relation to disclosures about the objectives and rationale for the business combinations an entity has made, including an exemption from some of the disclosure requirements when disclosure would be seriously prejudicial to the entity’s objectives for the business combination. The IASB decided that, if some disclosure requirements are required only for a sub-set of business combinations, the focus should be on strategically important business combinations—i.e. those for which failing to meet the objectives would seriously put at risk the entity achieving its overall business strategy.
Post-implementation Review (PIR) of IFRS 9—Classification and Measurement
At this meeting, the IASB discussed questions relating to matters raised by respondents to the RFI that are not covered by other staff papers. The staff recommended that the IASB not consider further issues related to: derecognition and whether ‘substantially all of the risks and rewards’ of a financial asset have been transferred; assessing whether the entity has a practice of settling similar contracts net in cash when considering using the ‘own use exemption’; the disposal of equity instruments classified as FVTOCI; whether interest rates contractually linked to an index that adjusts the time value of money based on a market interest rate and/or inflation rate introduce ‘leverage’ in the context of recent significant rises in inflation rates; and whether rates including a leverage factor imposed by the government should follow IFRS 9 for regulated rates guidance and, if so, how to consider whether the rate provides exposure to risks or variability in the contractual cash flows that are inconsistent with a basic lending arrangement. The staff therefore recommend that questions about purchased or originated credit-impaired financial assets be considered as part of the upcoming PIR of the impairment requirements in IFRS 9. IASB members were generally supportive of the staff suggestions, but no decisions were made.
Financial Instruments with Characteristics of Equity (FICE)
The IASB decided to clarify that: IAS 32:23 would apply to an obligation to redeem own equity instruments settled in a variable number of another type of own equity instruments. It decided that on expiry of a written put option on own equity instruments: the financial liability would be reclassified to the same component of equity as that from which it was reclassified on initial recognition of the put option; and the cumulative amount in retained earnings related to the put option would be permitted to be reclassified to another component of equity but amounts previously recognised in profit or loss on remeasuring the financial liability would not be reversed. Furthermore, written put options or forward purchase contracts on own equity instruments are presented gross rather than net.
Primary Financial Statements
The IASB decided not to proceed with any specific requirements for unusual income and expenses. It also decided that all entities would classify income and expenses from associates and joint ventures accounted for using the equity method in the investing category. It withdrew the proposal that an entity classify incremental expenses in the investing category but confirmed the proposal that the specified subtotals listed (in paragraph 104 of the ED) are not management performance measures and adding ‘operating profit or loss and income and expenses from investments accounted for using the equity method’ to the list of specified subtotals. Lastly, it withdrew the proposed prohibition on a mixed presentation of operating expenses.
Work Plan
The staff provided an update on the IASB’s work plan since its last update in May 2022. The IASB decided to consider in the second half of 2023 when to begin the PIRs of the hedge accounting requirements of IFRS 9 and the requirements of IFRS 16. The IASB also discussed clarifying the purpose of a PIR and managing stakeholder expectations about their objectives.
PIR of IFRS 15 Revenue from Contracts with Customers
The staff anticipate that they will undertake outreach from October 2022 to Q1 2023. The RFI is expected to be published in H1 2023, with a 120-day comment period.
Contractual Cash Flow Characteristics
In 2022, the IASB added a project to clarify particular aspects of the IFRS 9 requirements for assessing a financial asset’s contractual cash flow characteristics (i.e. the ‘solely payments of principal and interest’ (SPPI) requirements). The IASB decided to clarify that for contractual cash flows to be SPPI, a basic lending arrangement does not give rise to variability in cash flows due to risks or factors that are unrelated to the borrower, even if such terms and conditions are common in the specific market in which the entity operates. The IASB also decided to set out the factors when a financial asset that includes contractual terms that change the timing and amount of the contractual cash flows can be consistent with a basic lending arrangement and therefore have SPPI cash flows. The IASB further decided to clarify that the reference to ‘instruments' in paragraph B4.1.23 of IFRS 9 include lease receivables.
Extractive Activities
The staff presented papers summarising their reviews of disclosure-related stakeholder feedback from research carried out between 2018 and 2021, relevant academic literature and relevant jurisdictional requirements and a sample of annual filings. Overall, IASB members expressed support for the proposed direction of the project and for the three suggested areas for further research. It was noted that it was very important to communicate clearly to stakeholders that these are the only topics that will be taken forward in this project, and that other potential areas identified have now been scoped out. The IASB was not asked to make any decisions.
Maintenance and consistent application
At its June 2022 meeting, the IFRS Interpretations Committee voted to finalise the agenda decision Cash Received via Electronic Transfer as Settlement for a Financial Asset (IFRS 9). The staff recommended that, rather than finalising the agenda decision, the IASB explore amending IFRS 9. In relation to the forthcoming amendments to IAS 1 for non-current liabilities with covenants, the staff recommended that the IASB clarify requirements around the early application of the 2020 amendments and the 2022 amendments. IASB members agreed with the staff recommendations. Several IASB members noted that the IASB should move quickly as it affects almost all entities in all industries. The Chair acknowledged this but said that it is important to note that the staff recommendation uses the term ‘explore standard-setting’ which means that it is not certain yet that standard-setting will be undertaken. Only if the issue can be resolved in a timely fashion without significant disruption would the IASB move to standard-setting.
Rate-regulated Activities
The staff recommended that the IASB clarify that an entity would apply IFRIC 12 first and then, apply the requirements of the proposed new Standard to any remaining rights and obligations to determine if the entity has regulatory assets or regulatory liabilities. IASB members generally agreed that IFRIC 12 should be applied before the new Standard, however there were mixed views about how to achieve this.
General Sustainability-related Disclosures—Summary of Comments
The ISSB received over 700 comment letters and/or surveys. Almost all respondents supported the ISSB’s overall aim to develop a comprehensive global baseline of sustainability-related financial disclosures for the capital markets. However, many respondents asked for greater clarity, support, guidance and examples to enable effective application of the ED IFRS S1. Many respondents also suggested that the ISSB should give more consideration to the range of capabilities and preparedness of entities around the world, especially for smaller entities and entities in emerging markets, to apply IFRS S1. Many respondents emphasised the importance of close collaboration with the IASB and the importance of improving understandability, connectivity and consistency by using shared definitions and concepts across IFRS Sustainability Disclosures Standards and IFRS Accounting Standards. In addition, many respondents observed that key differences in concepts, terminologies, and definitions remain between the ISSB’s proposals and jurisdictional initiatives. They emphasised the importance for the ISSB to work together with jurisdictions, including Europe and the United States, in developing a global baseline of sustainability-related financial disclosures.
Climate-related Disclosures—Summary of Comments
The ISSB received comment letters and survey responses from nearly 700 respondents. The proposals in the ED were generally well-received, in particular by users of general purpose financial reporting, who expressed strong agreement with the proposed objective and the specific proposals. While there was broad support for IFRS S2, many respondents also asked for greater support, guidance and examples to enable effective application of the proposals.
Plan for redeliberations
Noting that there has been widespread support for the proposed requirements in the EDs, the staff suggested focusing on a limited number of topics for redeliberations, which are for joint topics relevant to both EDs: scalability, and current and anticipated effects of sustainability-related and climate-related risks and opportunities. For IFRS S1: enterprise value; breadth of reporting required; 'significant’ sustainability-related risk or opportunity; identifying significant sustainability-related risks and opportunities and disclosures; application of the materiality assessment; connected information; and frequency of reporting. For IFRS S2: strategy and decision-making, including transition planning; climate resilience; greenhouse gas emissions; and industry-based requirements, including financed and facilitated emissions.
Scalability
Most respondents to the consultation suggested that the ISSB should give more consideration to the range of capabilities and preparedness of entities around the world to apply the proposals in the EDs. At this meeting, the ISSB members were asked (i) whether they want to explore mechanisms to enable the requirements to be scalable, (ii) for feedback on the proposed mechanisms for addressing scalability and (iii) for feedback on the factors that should be used when evaluating which mechanism could be used for addressing particular scalability challenges.
Climate-related Disclosures—Financed and Facilitated Emissions
The ED IFRS S2 proposed the addition of “transition risks exposure” as a disclosure topic in the industry-based disclosure requirements for four industries–commercial banks, investment banking and brokerage, asset management and custody activities and insurance. The staff thinks the ISSB will need to consider in its future redeliberations the scope of the proposals, data considerations, industry breakdown, complexity and requests for increased flexibility.
IASB Update—developing the IASB’s future work programme
In the presentation, the staff outlined a breakdown of the IASB’s activities, its projects, key messages from the IASB’s agenda consultation and financial reporting issues added to the IASB’s work plan. The staff also provided a closer look at the IASB projects on Intangible Assets, Climate-related Risks in the Financial Statements and Management Commentary.
ISSB discussions
As this was a meeting to discuss feedback the ISSB was not asked to make any decisions. The summary meeting notes capture the main reflections of the ISSB members. Importantly, the ISSB supported the proposed redeliberation plan. The ISSB will start to discuss specific issues in October.
Goodwill and Impairment (IASB) and Identifiable Intangible Assets and Subsequent Accounting for Goodwill (FASB)
The IASB has, and the FASB had, on their respective agendas projects covering the accounting for goodwill and intangible assets acquired in a business combination. The purpose of this meeting was to provide an opportunity for FASB and IASB members to discuss the status of the respective projects; the subsequent accounting for goodwill—including the FASB’s progress with developing an amortisation-with-impairment model and recent decision to deprioritise and remove the project from its technical agenda, and the IASB’s research on this topic; and the redeliberations of the IASB in relation to disclosures about business combinations. FASB members updated the IASB as to why they had removed the project from the agenda. One of the main reasons why the FASB could not agree on a way forward was that they did not have a clear objective as to whether the project was to reduce cost or to increase benefits. The IASB Chair highlighted that the IASB would have to consider the objective of their project before making a decision on amortisation in November. The boards discussed whether the impairment model could be improved and whether some intangibles could not be separated from goodwill. A FASB member asked whether the IASB would be prepared to split the amortisation part of the project from the disclosure part of the project if they ran into similar difficulties as the FASB. The IASB Chair confirmed that they are prepared to do so if necessary. The other main discussion point was the exemption the IASB tentatively decided to provide with regard to disclosures that are commercially sensitive.
Disaggregation-related projects
Both the IASB and the FASB are currently undertaking, or will undertake, projects whose objectives include providing users of financial statements with more disaggregated information. The purpose of this meeting was to provide both boards with an opportunity to share comments and ask questions about these projects. The boards discussed their projects on the statement of cash flows; the FASB has already started whereas the IASB has only just added a research project. They discussed investor calls for more disaggregation and more information about direct cash flows. They also discussed income statement disaggregation, including the difficulty of defining unusual items. A suggestion was made by a FASB member that this was better left for management commentary.
Digital Assets
The boards discussed the results of the FASB’s research and outreach related to digital assets, which led the FASB to add a project to its technical agenda—Accounting for and Disclosure of Crypto Assets. The IASB outlined its work and its decision not to add a project on cryptocurrencies and related transactions to its workplan. The discussion mainly focused on when to start addressing the crypto asset issue, particularly whether the boards should act now while the issue is not pervasive (i.e. leading the market) or wait until it becomes pervasive (i.e. following the market). There were strongly held, but opposite, views within the IASB about whether the IASB should start a project.
2021 Agenda Consultation (FASB) and Third Agenda Consultation (IASB)
Both the IASB and the FASB have recently finalised their agenda consultations. The purpose of this meeting was to provide both boards with an opportunity to share comments and ask questions about these consultations. The FASB’s new project on software costs sparked some interest among IASB members. The IASB Chair noted that both boards will look into issues around intangibles and cash flow statements and that US GAAP and IFRS are not converged for those areas. He said it would be good to exchange information between the boards on these projects, keeping the broader constituency of both boards in mind.
Meeting Previews
Previews of forthcoming meetings
Maintenance and consistent application
The IASB will make its final decisions on supplier finance arrangements and lack of exchangeability, and will discuss potential items for the next annual improvements cycle.
Supplier Finance Arrangements—The staff recommend that the effective date for the amendments should be for annual reporting periods beginning on or after 1 January 2024, with earlier application permitted. The staff also recommend that the IASB does not require disclosure of comparative information for prior periods in the annual reporting period it first applies the amendments. Further, the staff recommend that the IASB does not require the disclosure of certain quantitative information in an entity’s first annual financial statements after the amendments become effective.
Lack of Exchangeability—The staff recommend that the IASB proceed with the amendments to IFRS 1 as proposed in the ED but make no amendments to IFRS 13. The staff also recommend that the IASB should require an entity to apply the amendments for annual reporting periods beginning on or after 1 January 2025, with earlier application permitted.
Annual Improvements to IFRS Accounting Standards—The staff recommend that the IASB propose amendments relating to the following items in its next Annual Improvements cycle: hedge accounting by a first-time adopter (IFRS 1); determination of a ‘de facto agent’ (IFRS 10); transaction price (IFRS 9); cost method (IAS 7); gain or loss on derecognition (IFRS 7); and credit risk disclosures (IFRS 7).
Post-implementation Review of the IFRS 9 Impairment Requirements
The IASB will discuss which items to include in the upcoming Request for Information (RFI) on the post-implementation review of the IFRS 9 impairment requirements. The staff recommend the following topics: general approach to recognition of expected credit losses (ECL); determining significant increase in credit risk; measurement of ECL; purchased or originated credit-impaired financial assets; simplified approach for trade receivables, contract assets and lease receivables; loan commitments and financial guarantee contracts; interaction between ECL and other requirements; transition; and objective-based disclosure requirements. The IASB will be asked to approve the publication of, and set a comment period for, the RFI at a future meeting.
Rate-regulated Activities
The IASB will redeliberate the proposals on recognition and total allowed compensation in the Exposure Draft Regulatory Assets and Regulatory Liabilities. The staff make specific recommendations with regard to the recognition threshold, enforceability and recognition, and performance incentives.
Dynamic Risk Management
The IASB will discuss whether financial assets measured at FVOCI or FVPL are eligible for inclusion in the concept of current net open risk position (CNOP). The staff recommend that financial assets measured at FVOCI are eligible for designation in the CNOP, while financial assets measured at FVPL are not eligible for designation in CNOP. The staff also recommend not requiring the retrospective assessment against an entity’s target profile, and only keep the retrospective assessment to check whether the entity has mitigated interest rate risk during the assessment period when applying the DRM model. In addition, the staff recommend the introduction of another retrospective assessment based on the entity’s capacity to realise the expected benefits.
Financial Instruments with Characteristics of Equity
The IASB will make decisions related to the classification and presentation of issued financial instruments applying IAS 32 and IAS 1. The staff make specific recommendations with regard to the fixed-for-fixed condition, reclassification, the effects of laws on contractual terms, obligations to redeem own equity instruments, and presentation of financial liabilities and equity instruments.
Business Combinations—Disclosure, Goodwill and Impairment
The IASB will decide on certain aspects of the proposed package of new disclosures, focusing on the application of the ‘management approach’, how long information should be required for, changing metrics, use of ranges, and key objectives.
Full summaries of the agenda papers are attached.
This is a compilation of the summary available on IAS Plus at: https://www.iasplus.com/en/ meeting-notes/iasb/2023/ february/
The meeting agenda and all of the staff papers are available on the IASB website: https://www.ifrs.org/news- and-events/calendar/2023/ february/international- accounting-standards-board/
