Every five years, the International Accounting Standards Board (IASB) undertakes a public consultation on its agenda and work plan. This gives commentators the chance to raise any concerns they have with current financial reporting.
The process gives many of us financial reporting obsessives a glimmer of hope for change in those areas that we may sometimes complain about in class.
I have previously looked at the candidates for selection to be added to the workplan (see ‘Financial reporting fixes’ and ‘Financial reporting takes the spotlight’). Whether my selections were based on the most likely candidates, or just born out of pure optimism, I awaited news to see which had been selected.
In its March meeting, the IASB identified a shortlist of topics that would be considered further in April. While not quite raising the excitement of the Hollywood awards season shortlist, it is certainly hoped that there may be fewer altercations. This list included seven items, namely:
- climate-related risks
- cryptocurrencies and related transactions
- going concern disclosures
- intangible assets
- operating segments
- pollutant pricing mechanisms
- statement of cashflows and related matters.
Three items have been taken forward: climate-related risks, intangible assets, and statement of cashflows
What’s in and what’s not
Sadly, my column has had a relatively poor success rate, with only four of the topics previously covered being on this shortlist. Some of the box-office favourites were there – namely IAS 38, Intangible Assets – but there were also some more unexpected nominations to the red carpet, such as pollutant pricing mechanisms.
As with any awards season, some strong contenders are bound to miss out. This means that for another five years, anyone hoping for radical change to the accounting for government grants will have to look to the stars and wonder what could have been.
In April 2022, the IASB decided not to include projects on cryptocurrencies or going concern disclosures to its workplan, and to only add operating segments and polluting pricing mechanisms to a reserve list of projects. These will only be added if additional capacity becomes available.
Work on climate-related risk will not result in a new accounting standard
All this means that three items have been taken forward as part of the IASB plan: climate-related risks; intangible assets; and statement of cashflows and related matters.
Not that it’s important, but all three were identified and discussed in this column previously, giving us a clean sweep of the podium places. This is a slight relief for someone who likes to think that they are in touch with public financial reporting opinion (and, let’s be honest, that is potentially the most narrow field of public opinion that you can get).
The announcement of the addition of these three projects to the pipeline does not mean that work will begin immediately, or even soon, with the IASB committed to prioritising the items on the current workplan in addition to holding post-implementation reviews of IFRS 15, Revenue from Contracts with Customers, IFRS 9, Financial Instruments, and IFRS 16, Leases.
The most likely to see action is the project on climate-related risks, which has been added to the maintenance pipeline. These are projects that are narrow in scope, looking at improving specific aspects of existing standards, rather than creating a new IFRS Standard. This means that any work on climate-related risk will not result in a new accounting standard but may lead to changes to some of the existing ones.
While that may seem inconsistent with previous statements, it is important to remember that the addition of this climate-related risks project is separate from the proposed new International Sustainability Standards and is focused on the current IFRS Standards (see also Jane Fuller’s column, ‘Sustainability reporting will cost’). The IASB has added this project based on the feedback that there may be insufficient disclosures about climate-related risks and inconsistent application of requirements in IFRS Standards.
The IASB recognises that the issues surrounding intangible assets cannot be fixed by simply amending the disclosures required
The final two issues (intangible assets and statement of cashflows) have been added to the research pipeline. This means that while the projects may not be an immediate priority, the IASB acknowledges that any further changes are likely to be extensive, potentially resulting in the creation of new IFRS Standards.
No quick fixes
Both projects will be discussed further in the future in this column, but it is particularly pleasing to see that the IASB recognises that the issues surrounding intangible assets cannot be fixed by simply amending the disclosures required by the standard. The research project is likely to look at a wide range of issues, starting from the definition of intangible items and going right through to their recognition and measurement.
Finally, the way forward for the project on the statement of cashflows is less clear. The feedback on this was mixed. A project could focus on non-cash items being presented in the statement of cashflows but could even be as significant as examining whether the currently used sections of operating, investing and financing are still appropriate.
So, the people have spoken. Change may take a while, but there is the sound of rumbling as some of the wheels begin to slowly turn. For those of us who make a career out of explaining the myriad ways that IAS 38 is broken, we will have a few years yet but maybe, just maybe, those days are numbered.
Watch Adam Deller’s series of short videos explaining the basic principles of a number of IFRS Standards