This time of year is a period for great optimism in many quarters. If you’re a football fan, you may get a few weeks to dream that this could indeed be your team’s season – before they almost inevitably break your heart.
University students may be less excited about the prospect of returning to their studies, but they often do so intending to put in more work and improve their grades. It’s an approach that is invariably tested when the timetable reveals a Monday 9am lecture.
It may be less exciting, but this could also be a time of optimism about financial reporting updates. Believe it or not, even people with favourite accounting standards take a summer break, and progress on financial reporting projects has been quiet of late. With that in mind, this is a good time to zoom out and look at an overall picture of the current status of some of the larger ongoing projects.
Sustainability
The International Sustainability Standards Board (ISSB) has continued to appoint members to the board, which is now complete with 14 members. It has issued two exposure drafts – one on general sustainability-related disclosures and another on climate-related disclosures – which were highlighted in a ‘Sustainability standards take shape’ article in AB. (ACCA's Accounting for the Future conference will also feature an update from the ISSB on the exposure drafts.)
The comment period for those drafts ended on 29 July, and more than 1,300 comment letters were received. These letters will be discussed as the ISSB continues to consider the way forward in forming the new sustainability standards.
An update following discussion of the comment letters is currently scheduled for the final quarter of 2022. Given the sheer volume of letters, there is a chance that this timeline may be slightly pushed back, although the hope is that it will stay on track given the high-profile nature of the projects.
Additional accounting records are needed if a subsidiary prepares its own financial statements under IFRS for SMEs
Primary financial statements
The next milestone in the primary financial statements project is listed in the workplan of the International Accounting Standards Board (IASB) as ‘IFRS accounting standard’, making it the frontrunner for the next new standard to be issued. This may not be exciting to some of you, but in the Deller household it is big news. Well, for one of us, anyway.
This project is looking at the layout of financial statements, particularly in relation to the statement of profit or loss. Current proposals include the introduction of a mandatory operating profit subtotal and a new section on investing and financing categories.
Subsidiaries
There is another potential challenger to be the next new IFRS Standard, which relates to disclosures for subsidiaries without public accountability. It has been felt that the use of IFRS for SMEs for these subsidiaries is less than ideal, as the are some differences between IFRS for SMEs and IFRS Standards. A subsidiary needs to maintain additional accounting records if it prepares its own financial statements under IFRS for SMEs while the parent prepares consolidated accounts under IFRS Standards.
In response to this, the IASB is developing a new IFRS Standard with reduced disclosures that can be applied by subsidiaries without public accountability. As a disclosure-based standard, it is perhaps less exciting than the primary financial statements standard.
Reviews
The IASB undertakes post-implementation reviews of all new standards to assess the effect of each on investors, companies and auditors. It completed its post-implementation reviews of IFRS 10, 11 and 12 in June 2022, concluding that the standards are working as intended.
The post-implementation review of IFRS 9, Financial Instruments, is much larger and more complex, with the review split into two sections. The first section relates to the classification and measurement element of the standard, with an update due by the end of 2022. The second section looks at impairment, with further information scheduled for the first half of 2023.
The goodwill impairment project has rumbled on for quite some time
As explained in the AB article ‘SME standards catch up’, the IFRS for SMEs standard is in the process of being reviewed and updated for the first time since 2015. When finalised, it could lead to major changes for some SMEs, particularly in the areas of revenue recognition and impairment of financial instruments. I'm co-presenting an AB webinar on this topic on 18 October – find out more.
There are also a number of projects that the IASB has to decide a direction on. The goodwill impairment project has rumbled on for quite some time. Its current status is that enhanced disclosures are potentially being proposed, with the prospect of amortisation continuing to hover in the background.
The IASB also has to make decisions on how things will develop over extractive activities, provisions, business combinations under common control, and the use of the equity method.
There is plenty on the plate of the IFRS Foundation, particularly with the arrival of the ISSB. Let’s hope that the returning optimism leads to some good progress on the existing workplan and perhaps the issue of new IFRS Standards.
More information
See Adam Deller's series of videos for AB on 'the fundamentals of IFRS'
