February 2024 IASB podcast — Transcript

Full transcript

1. 0:05welcome everybody to the February iasb
2. 0:08podcast where we bring you the latest
3. 0:10insights from our board meetings as
4. 0:12always I am joined by our boss my boss
5. 0:16Andrea is Barco the chair of the iasb
6. 0:19and Linda Misan hutter the vice chair of
7. 0:21the iasb so welcome both of you after a
8. 0:24a busy and exhausting board week
9. 0:27absolutely
10. 0:28ha so in this episode we will be
11. 0:31discussing four of our projects these
12. 0:33include two ongoing post implementation
13. 0:36reviews our project on rate regulated
14. 0:38activities and our second comprehensive
15. 0:41review of the IFRS Forme standard but
16. 0:45before we dive into that we did discuss
17. 0:48a few changes to our work plan so
18. 0:50Andreas can I turn it over to you to
19. 0:52share a quick update sure and before
20. 0:55anybody gets freaked out these are minor
21. 0:57changes to be clear so the first is on
22. 1:00power purchase agreements as we've
23. 1:02discussed in previous podcast the board
24. 1:04is moving at PACE and expects to make
25. 1:06decisions on proposed amendments to ifas
26. 1:099 in March we then expect to publish an
27. 1:11exposure draft in May potentially with a
28. 1:13short and common period subject to the
29. 1:15board's decision and approval from our
30. 1:17due process oversight committee so a
31. 1:19slight slippage but nothing major second
32. 1:22we now plan to issue ifis 19 our
33. 1:25standard on subsidiaries without public
34. 1:27accountability disclosures in early May
35. 1:30rather than at the end of April as
36. 1:31originally expected and the reason for
37. 1:33this is to have extra time to perform
38. 1:35our normal quality checks and relatedly
39. 1:39in July 2024 we plan to publish the
40. 1:41exposure draft proposing updates to IFS
41. 1:4419 for new ifs accounting standards that
42. 1:46were added or amended after February
43. 1:492021 which was the cut of date for
44. 1:51disclosures considered in developing
45. 1:53ifess 19 and I may also highlight that
46. 1:56we've finished our deliberations on the
47. 1:59classification and measurement
48. 2:00amendments in ifs 9 we've decided this
49. 2:03week that the effective date will be 1
50. 2:05January 2026 so that's about a good 18
51. 2:09months from the expected publication
52. 2:11date and people need to get ready some
53. 2:14of you may recall a submission to the
54. 2:16interpretations committee about
55. 2:18electronic transfers of cash this item
56. 2:20is also now closed with the finalization
57. 2:23of these amendments and the board will
58. 2:26proceed as
59. 2:28exposed thanks Andreas for the update so
60. 2:32let's move on to our first two topics
61. 2:34we'll take them together on post
62. 2:36implementation reviews as we've spoken
63. 2:39in previous podcasts we have two PS in
64. 2:42process one is on ifs 15 on revenue and
65. 2:46the other is on the impairment
66. 2:48requirements in IFRS 9 and as we've also
67. 2:51mentioned in in previous podcasts just
68. 2:53as a reminder that the post
69. 2:55implementation review is the final phase
70. 2:57of a standard development process it's
71. 3:00not a standard setting project in itself
72. 3:02it's really just assessing whether the
73. 3:05new standard or the major amendments are
74. 3:07operating as intended and as part of the
75. 3:11P process the board will decide whether
76. 3:13any of the feedback gives rise to
77. 3:16sufficiently high priority questions or
78. 3:19concerns about the standard that would
79. 3:20warrant standard setting but the P
80. 3:22itself is not a standard setting project
81. 3:25so with the PS I'll go into some of the
82. 3:28details or I'll ask done under to go
83. 3:30into some of the details in a minute but
84. 3:32when the board finishes deliberations
85. 3:34they will publish a project report and
86. 3:37our expectation is that we will have a
87. 3:39project report on ifs 15 and on the
88. 3:42impairment requirements in Q3 of this
89. 3:46year so let's start with you Linda and
90. 3:50if you can give us an update on what we
91. 3:52talked about with the p of ir first 15
92. 3:54this month sure neie I'm happy to do
93. 3:57that as we noted last month the General
94. 3:59feedback has been very positive so
95. 4:02stakeholders said that if for5 is doing
96. 4:04what it set out to do and happily it
97. 4:07seems to be doing it well at the
98. 4:09February meeting we continued our
99. 4:11deliberations and discussed three topics
100. 4:13those were identifying performance
101. 4:16obligations principal versus Agent
102. 4:18considerations and
103. 4:20Licensing now many respondents concluded
104. 4:23that if fors 15 offers a clear and
105. 4:25sufficient foundation for the accounting
106. 4:27in these areas yet some respondents
107. 4:30Express mixed views on the clarity of
108. 4:32these requirements along with challenges
109. 4:34in application and particularly in
110. 4:37complex contracts and Licensing
111. 4:39Arrangements within the software
112. 4:42technology and telecommunication
113. 4:44Industries the board decided to explore
114. 4:47in the next agenda consultation one
115. 4:49topic relating to the agent or principal
116. 4:52assessment for all other areas the board
117. 4:55tentatively decided that there really
118. 4:56wasn't sufficient evidence to Warrant
119. 4:58standard set setting but we will discuss
120. 5:01later whether to add to the standard
121. 5:03itself some explanations from the basis
122. 5:06for conclusions on if fors 15 regarding
123. 5:09identifying performance obligations and
124. 5:12principal versus Agent considerations so
125. 5:14what's next well we're going to have
126. 5:16further discussions in the next few
127. 5:18months about other application matters
128. 5:20raised by stakeholders and whether or
129. 5:22not to take action on them and
130. 5:24importantly because this standard is
131. 5:26highly converged with us Gap part of our
132. 5:28discussions will incl include a joint
133. 5:30meeting with the fasb in
134. 5:33June thanks Linda some some good stuff
135. 5:35to look forward to so moving on to the p
136. 5:39on the impairment requirements in IFRS 9
137. 5:42as all of you are aware the objective of
138. 5:44these requirements is to achieve a more
139. 5:47timely recognition of credit losses by
140. 5:49introducing a forward-looking impairment
141. 5:51model that is based on expected rather
142. 5:53than incurred credit losses Andreas can
143. 5:56I turn it over to you to give an update
144. 5:58on that discussion of course we started
145. 6:01discussing the feedback we received in
146. 6:02November last year and similar to what
147. 6:04Linda has just said about the p on ifs
148. 6:0715 the general feedback on this P was
149. 6:09largely positive I'm tempted to say
150. 6:12overwhelmingly and unexpectedly positive
151. 6:14no fatal flaws were identified but some
152. 6:16areas for improvement were mentioned so
153. 6:19this month we deliberated two topics the
154. 6:21general approach to recognition of
155. 6:23expected credit losses and determining
156. 6:26significant increases in credit risk
157. 6:28which is a new concept that was brought
158. 6:30in with ifs 9 when it comes to
159. 6:33recognition of expected credit losses
160. 6:34ifs 9 requires entities to measure the
161. 6:37loss allowance for financial instruments
162. 6:39at each reporting date by recognizing at
163. 6:42least 12 months expected credit loss or
164. 6:44lifetime expected credit losses based on
165. 6:47whether the credit risk has increased
166. 6:49significantly since initial recognition
167. 6:52almost all respondents supported this
168. 6:54General approach in ifer as 9 although
169. 6:56some stakeholders suggested that the
170. 6:58board could reconsider the the
171. 6:59application of the approach mainly for
172. 7:01cost benefit reasons rather than for
173. 7:04substantial fatal flaws as I said before
174. 7:06for specific types of instruments and
175. 7:08the bits that were mentioned were
176. 7:10ingroup financial instruments and
177. 7:12purchased Financial assets that are not
178. 7:13credit
179. 7:15impaired and similarly on the topic of
180. 7:17determining significant increases in
181. 7:19credit risk we noted large support from
182. 7:21stakeholders on maintaining the
183. 7:23assessment of changes in credit risk as
184. 7:25principle based but some stakeholders
185. 7:27ask for more guidance in complex act
186. 7:29pedant in light of this feedback the
187. 7:32board tentatively decided that there
188. 7:34wasn't sufficient evidence to Warrant
189. 7:35standard setting in these two areas and
190. 7:38what does that mean going forward so
191. 7:40further discussions in the next few
192. 7:42months about the other application
193. 7:44matters raised by the stakeholders such
194. 7:46as measuring expected credit losses
195. 7:48credit risk disclosures and other issues
196. 7:51great thank you Andreas and and the
197. 7:53board members were also quite profuse in
198. 7:56their appreciation for all of our
199. 7:57stakeholders and and all the feedback
200. 7:59that they provided so thank you to to
201. 8:01those of you if you've U been involved
202. 8:03in the process and um we look forward to
203. 8:05deliberating more of the the feedback in
204. 8:07future
205. 8:07months so let's shift gears to rate
206. 8:11regulated activities as many of you may
207. 8:13know the iasb is working on a new
208. 8:16accounting standard I think this will be
209. 8:18presumably IFRS 20 that would require
210. 8:21companies subject to rate regulation to
211. 8:24give investors better information about
212. 8:26their performance financial performance
213. 8:28and this new standard is a supplementary
214. 8:31model to IFS 15 on revenue and it will
215. 8:34replace ifs1 14 regulatory deferral
216. 8:38accounts so Linda can you start by
217. 8:43providing a little bit of rational
218. 8:45behind this standard and and set the
219. 8:47scene for us I'm happy to do that neie
220. 8:51so it's important to note that we're
221. 8:52focused on these specialized companies
222. 8:56that Supply goods or services that are
223. 8:58essential to to customers for example
224. 9:01electricity water transportation many of
225. 9:04these companies are subject to rate
226. 9:06regulation that determines how much
227. 9:07compensation they are entitled to charge
228. 9:10customers and also when they can include
229. 9:13that compensation in their regulated
230. 9:15rates now differences in timing arise
231. 9:18when the compensation for goods or
232. 9:20services supplied in one period gets
233. 9:22included in the regulated rates charged
234. 9:24in a different period and our project
235. 9:27focuses on this specific type of rate
236. 9:29regulation that creates differences in
237. 9:32timing when such differences in timing
238. 9:34arise the amount of Revenue recognized
239. 9:37in the period in accordance with ifus 15
240. 9:39does not include all of the compensation
241. 9:42that an entity is entitled for the goods
242. 9:44and services supplied in that period or
243. 9:47it includes amounts that relate to
244. 9:49compensation for goods or services
245. 9:51supplied in a different period now our
246. 9:54prospective standard aims to provide
247. 9:56information to users of financial
248. 9:58statements about the effect of such
249. 10:00differences in timing on a company's
250. 10:02financial position and financial
251. 10:05performance this is achieved by
252. 10:07requiring companies to recognize
253. 10:09regulatory assets and liabilities and
254. 10:11also regulatory income and expenses
255. 10:15let's try to use an example so let's say
256. 10:17a company incurred expenses
257. 10:19of1 while it was supplying Goods in year
258. 10:22one and they have the right to recover
259. 10:24it however Revenue in year one does not
260. 10:27include that compensation a regulatory
261. 10:30asset of 100 pound arising in year one
262. 10:33would let users know that the entity has
263. 10:35a right to recover the expenses incurred
264. 10:37in year one by adding 100 pounds to the
265. 10:40regulated rates charged to customers in
266. 10:42a future period now we published this
267. 10:45exposure draft in early
268. 10:4720201 and the comment period was closed
269. 10:50in June of 2021 now since that time
270. 10:53we've been red deliberating the feedback
271. 10:55from the exposure draft and we've made
272. 10:57significant progress having covered such
273. 10:59areas as scope total allowed
274. 11:02compensation and recognition and
275. 11:04measurement and and others now at this
276. 11:06month's board meeting we discussed how
277. 11:08the prospective standard could
278. 11:10articulate the guidance on the boundary
279. 11:12of a regulatory agreement we decided
280. 11:15that the standard will require that an
281. 11:17entity considers both its right to
282. 11:19operate and its right to recover a
283. 11:21regulatory asset when determining the
284. 11:23cash flows that should be included in
285. 11:26the measurement of the regulatory asset
286. 11:29we also discussed the consequential
287. 11:31amendments to is-36 impairment of assets
288. 11:34proposed in the exposure draft and we
289. 11:36decided to retain the proposal to
290. 11:38exclude regulatory assets from the scope
291. 11:41of
292. 11:42i36 and finally we discussed disclosure
293. 11:45requirements and made decisions on
294. 11:47disclosure requirements proposed in the
295. 11:50exposure draft and on some new
296. 11:51disclosures that will be included in the
297. 11:53prospective standard as a result of
298. 11:55feedback we've received for our next
299. 11:57steps at some some future ISB meetings
300. 12:00will continue red deliberating the
301. 12:02proposals the aim is to publish the new
302. 12:04IFRS accounting standard in
303. 12:0720125 thanks Linda and I know that's a
304. 12:11lot to work through but I think it's
305. 12:12really important that we start kind of
306. 12:14raising the prominence of this project
307. 12:17given that it's the next big new
308. 12:18standard that's coming out and although
309. 12:20it's not until 2025 and it's half two of
310. 12:2320125 it is the next new big standard so
311. 12:26wanted to make sure everyone's aware
312. 12:27that we're nearing the end technical
313. 12:29deliberations on that one and we'll
314. 12:31start going into the balloting process
315. 12:33for sure D we want to get it on their
316. 12:34radar screen so they're paying attention
317. 12:37absolutely and not to forget Ney the the
318. 12:40next big standard that's coming out
319. 12:42apart from obviously PFS and swapper uh
320. 12:45will be the standard which I think we
321. 12:47will be touching next yes thank you
322. 12:49that's a perfect transition so moving on
323. 12:53to the final project of this podcast and
324. 12:56the next big standard after ifer 18 and
325. 12:59ifs 19 that is the ifs forem accounting
326. 13:03standard this is our accounting standard
327. 13:05for entities without public
328. 13:08accountability essentially these are
329. 13:09companies that do not list shares in the
330. 13:11public market and do not hold Assets in
331. 13:14a fiduciary capacity for a broad group
332. 13:16of
333. 13:17Outsiders the accounting standard
334. 13:19simplifies full IFRS Accounting
335. 13:22Standards while still requiring useful
336. 13:24information to users of those financial
337. 13:26statements so Andreas can you give us an
338. 13:28up on the key developments of the
339. 13:30project this month happy too so we are
340. 13:33making good progress in this final stage
341. 13:35of the second comprehensive review of
342. 13:37the ifs for accounting standard we
343. 13:40published the exposure draft in
344. 13:42September 2022 the common period ended
345. 13:45in March 2023 and we have since been
346. 13:48looking at the feedback on the exposure
347. 13:50draft in February we continued our red
348. 13:53deliberations and considered feedback on
349. 13:55the following three sections of the
350. 13:56exposure draft um section n on
351. 13:59Consolidated and separate financial
352. 14:01statements section 19 business
353. 14:03combinations and Goodwill and section 23
354. 14:06revenue from contracts with customers so
355. 14:08all big three three big sections really
356. 14:11if I try to think about the most
357. 14:13interesting changes to the requirements
358. 14:15in the Ed that we've agreed on I would
359. 14:17probably mention the two following we
360. 14:20decided to proceed with the proposals in
361. 14:22the exposure draft to align section nine
362. 14:25on the standard with the acquisition
363. 14:26method on accounting an IFS three
364. 14:29business
365. 14:30combinations and regarding section 23
366. 14:32the board decided to change the proposed
367. 14:35requirements to make them easier for
368. 14:36smmes to understand and apply we decided
369. 14:39to withdraw the proposals in several
370. 14:41areas including contract modifications
371. 14:44customer options for additional goods or
372. 14:46services and cost to obtain a contract
373. 14:49the next steps will be further
374. 14:51deliberations on the proposals from the
375. 14:52Ed but we are really nearing completion
376. 14:55and we hope to be publishing the Third
377. 14:58Edition of the standard in the second
378. 15:00half of this
379. 15:03year thanks Andreas so that wraps up all
380. 15:06of the projects that we wanted to
381. 15:08highlight in this podcast there were a
382. 15:11number of other projects that we
383. 15:12discussed this week it was quite an
384. 15:14intense week and for more detailed
385. 15:16information please do refer to our
386. 15:19website for the next segment we normally
387. 15:22try to cover some questions that have
388. 15:25come from our listeners but
389. 15:27unfortunately I'm I'm sad that we didn't
390. 15:29get any questions this month so Andreas
391. 15:32and Linda you are off the hook the whole
392. 15:34goal of these questions is to put both
393. 15:35of you in the hot seat so listeners
394. 15:38please do send any questions that you
395. 15:40might have for our fearless leaders you
396. 15:43can send them to Communications with an
397. 15:45S at if rs. org and that wraps up this
398. 15:50month so thank you for joining us and if
399. 15:53you found this podcast informative we
400. 15:54encourage you to subscribe share and
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402. 15:58platform and we look forward to having
403. 16:01you back next month until then take care
404. 16:04and thank you for
405. 16:05[Music]
406. 16:18listening