This technical round-up includes developments up to 31 December 2023

International Accounting Standards

Supplier finance amendments endorsed for use in the UK

The UK Endorsement Board has adopted the IASB’s amendments Supplier Finance Arrangements: Amendments to IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments: Disclosures for use in the UK. The amendments are designed to meet investors’ demands for more detailed information about supplier finance arrangements and their impact on an entity’s liabilities, cash flows and exposure to liquidity risk. More detail is available in this previous technical round-up. 

The amendments are effective for annual reporting periods beginning on or after 1 January 2024, with early application permitted.

Financial instruments with characteristics of equity

In November 2023, the International Accounting Standards Board (IASB) issued proposals to address challenges faced by entities when reporting on financial instruments that have characteristics of both debt and equity.

The distinction between debt and equity instruments is an important one as classification impacts the depiction of a company’s financial position and performance. While the current requirements of IAS 32 Financial Instruments: Presentation works well for the majority of financial instruments, the increasing complexity of instruments has led to diversity in practice and a lack of comparability for users. 

The Exposure Draft proposes amendments to IAS 32, IFRS 7 Financial Instruments: Disclosures and IAS 1 Presentation of Financial Statements. Under the proposals:

• underlying classification principles in IAS 32 would be clarified;
• companies would be required to make further disclosures to explain the complexities of instruments with both debt and equity characteristics; and
• new presentation requirements would be issued, separating amounts of profit and total comprehensive income attributable to ordinary shareholders from amounts attributable to holders of other equity instruments.

The consultation is open for comment until 29 March 2024.

Overview of new IFRS Accounting Standard for subsidiaries

As highlighted in last quarter’s technical round-up, a new IFRS Accounting Standard is expected in Q2 2024, which will reduce disclosure requirements for subsidiaries that are not traded on a public market or which hold assets entrusted to them by their customers.

The IASB has produced a webcast explaining why the standard has been developed, providing an overview of the requirements, including who will be eligible to apply it, and the benefits that it will bring to subsidiaries, their parent companies and users of financial statements.

The new IFRS Accounting Standard will be effective for annual reporting periods beginning on or after 1 January 2027.

Compilation of Agenda Decisions: ninth edition published

The IFRS Foundation has published the ninth Compilation of Agenda Decisions by the IFRS Interpretations Committee, containing decisions made from May to October 2023. 

The Compilation includes three agenda decisions:

• Premiums Receivable from an Intermediary (IFRS 17 Insurance Contracts and IFRS 9 Financial Instruments);
• Homes and Home Loans Provided to Employees; and
• Guarantee over a Derivative Contract (IFRS 9).

As explained in more depth in this article, the Interpretations Committee works with the IASB to support the consistent application of IFRS Accounting Standards. Agenda decisions are issued in circumstances where the Interpretations Committee concludes that a standard-setting project should not be added to the IASB’s work plan. As well as the decision, in many cases they contain material explaining how the relevant principles and requirements in IFRS Accounting Standards apply to the issue described.

In the Interpretations Committee’s September meeting, a new submission about payments contingent on continued employment during handover periods, related to IFRS 3 Business Combinations, was discussed. Further information can be heard in the Interpretations Committee’s podcast.

Cash-flow economics

IASB member and former investor, Nick Anderson, has published an article exploring the increasing prevalence of transactions that are not reflected in cash-flow statements. Examples of non-cash changes in debt include changes to the classification of liabilities related to supplier finance arrangements, taking on debt as part of a business combination, entering lease agreements, changes in foreign exchange and changes in fair values. To compare and evaluate companies, investors need information about both cash flows and non-cash changes in debt. The article highlights where investors can find the information they need about non-cash changes in debt to aid their analysis.

UK GAAP

The Financial Reporting Council (FRC) published FRED 85 Draft amendments to FRS 101 Reduced Disclosure Framework - 2023/24 cycle in December 2023. FRS 101 sets out an optional reduced disclosure framework for individual financial statements of subsidiaries and ultimate parents that otherwise apply the recognition, measurement and disclosure requirements of UK-adopted International Financial Reporting Standards (IFRS).

The FRC undertakes an annual review process of FRS 101 to provide additional disclosure exemptions as IFRS Accounting Standards evolve and to respond to stakeholder feedback about other possible improvements. FRED 85 proposes amendments to FRS 101 for consistency with IAS 1 Presentation of Financial Statements. 

FRED 85 is open for comment until 4 March 2024.

Sustainability Reporting

ICAEW submits response on UK Endorsement of IFRS S1 and IFRS S2

A call for evidence seeking UK views on IFRS Sustainability Disclosure Standards and their prospective use in the UK closed for comment in October 2023. The UK government has committed to assessing whether to endorse IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures for use in the UK by the summer of 2024. The call for evidence was issued by the UK Sustainability Disclosure Technical Advisory Committee (TAC) to inform the decision. 

In its response, ICAEW highlights the benefits of the UK adopting IFRS Sustainability Disclosure Standards, but also raises specific concerns to consider when hardwiring these standards into legislation. ICAEW’s full response can be read here.

Call for evidence on Scope 3 emissions

In October 2023, the Department for Energy Security and Net Zero (DESNZ) launched a call for evidence on Scope 3 greenhouse gas emissions reporting. The consultation sought to gather feedback on the benefits, costs and practicalities of Scope 3 greenhouse gas emissions reporting in the UK to help inform the government’s decision on whether to endorse IFRS Sustainability Disclosure Standards for use in the UK and also to inform a post-implementation review of the Streamlined Energy and Carbon Reporting framework.

The call for evidence closed for comment on 14 December 2023. ICAEW’s response can be read here.

Disclosure Framework for transition plans

The final TPT Disclosure Framework was published in October 2023, setting out good practice for robust and credible transition plan disclosures. The Transition Plan Taskforce (TPT) is a UK Taskforce, established by the UK government in April 2022, with a two-year mandate to develop a ‘gold standard for private sector climate transition plans’ (see article Climate change: mission transition). The UK government is expected to consult soon on introducing requirements for the UK’s largest companies to disclose transition plans if they have them. The Financial Conduct Authority has also committed to consulting on disclosure requirements for listed companies aligned with the TPT Framework.

In November, the TPT launched consultations on its sector-specific transition plan guidance for preparers and users of climate transition plans. Seven sector deep dives, covering real economy sectors and finance sub-sectors, are available. The consultations closed for comment on 29 December 2023.

European Sustainability Reporting Standards integrated into legislation

In late October 2023, the first set of European Sustainability Reporting Standards (ESRS) passed through their final scrutiny period concluding the legislative process. Having been adopted by the European Commission in July and following a short feedback period in August, a two-month ‘accept or reject’ period for the European Parliament and Council began. Despite a last-minute challenge, the period for possible objection passed without opposition and the final delegated Acts were integrated into the European legislative framework within the Corporate Sustainability Reporting Directive. As outlined in more detail in this article European sustainability reporting developments: what do they mean for UK companies? (published early October 2023) certain entities, both in the EU and outside, will be required to apply ESRS from 2024.

The European Financial Reporting Advisory Group has launched an ESRS Q&A platform through which entities may submit questions regarding the implementation of ESRS. Non-authoritative clarifications to the issues raised may be published. However, legal interpretations will remain in the remit of the European Commission – as will any questions relating to CSRD specific issues, including scope. Further resources to support implementation are expected in due course (see International news).