IFRS Accounting Standards

IFRS 18 Presentation and Disclosure in Financial Statements

In April 2024, the International Accounting Standards Board (IASB) issued IFRS 18 Presentation and Disclosure in Financial Statements. Subject to any local endorsement requirements, IFRS 18 is effective for reporting periods beginning on or after 1 January 2027 with earlier application permitted.

IFRS 18 aims to provide greater comparability and transparency in how companies present their financial statements, with particular focus on financial performance in the statement of profit or loss (SOPL). As IASB member Nick Anderson explains in his article, this new standard will therefore aid analysis of financial performance.

IFRS 18 introduces three new requirements:

• Two new defined subtotals in the SOPL in the form of operating profit or loss and profit or loss before financing and income tax. In addition, there will be three new defined categories for income and expenses (operating, investing and financing) to bring about a consistent structure to the SOPL. 
• Disclosure notes on management-defined performance measures (MPMs). A disclosure note is required to explain why the MPM is reported, how it is calculated, any changes to the MPM and a reconciliation back to the most directly comparable IFRS-defined subtotal. As part of the financial statements, this note will be subject to audit. 
• Enhanced guidance on the aggregation and disaggregation of information in the financial statements. The guidance covers whether information should be presented in the primary financial statements or disclosed in the notes (if material), how to meaningfully label items and disclose information about ‘other’ items and how to present or disclose operating expenses by nature or by function.

IFRS 19 Subsidiaries without Public Accountability

The International Accounting Standards Board (IASB) issued IFRS 19 Subsidiaries without Public Accountability: Disclosures in May 2024, which allows eligible subsidiaries to use IFRS Accounting Standards with reduced disclosures. IFRS 19 aims to reduce the costs of preparing subsidiary financial statements without compromising the usefulness of information included in the financial statements. Subject to any local endorsement requirements, the standard is effective from 1 January 2027, with early adoption permitted.

IFRS 19 has been designed to simplify the group reporting process by:

• enabling subsidiaries to keep only one set of accounting records that satisfies the needs of both their parent and the users of their financial statements; and
• reducing disclosure requirements to be more proportionate to the needs of the users of their financial statements.

Subsidiaries are eligible to apply IFRS 19 if they do not have public accountability and their parent company applies IFRS Accounting Standards in their consolidated financial statements. A subsidiary has public accountability if it has equities or debt listed on a stock exchange or if it holds assets in a fiduciary capacity for a broad group of outsiders.

Narrow-scope amendments to classification and measurement requirements for financial instruments

The International Accounting Standards Board (IASB) issued amendments to the classification and measurement of financial instruments in May 2024 in response to demands for further clarity and consistency in reporting requirements for emerging financial assets and liabilities as part of a review of IFRS 9.

The main amendments to highlight are:

• clarification on how loans with environmental, social and governance (ESG) features should be assessed and ultimately measured, with the IASB determining that ESG-linked loans should be consistently measured at either amortised cost or fair value depending on the characteristics of the contractual cash flows; and 
• clarifying the date on which a financial asset or financial liability is derecognised on settlement of a financial asset or liability via electronic cash transfers. The IASB has included an accounting policy option that allows companies to derecognise a financial liability before it delivers cash on the settlement date if specified criteria are met.

There are additional disclosure requirements to enhance transparency for investors regarding investments in equity instruments designated at fair value through other comprehensive income and financial instruments with contingent features, eg, features tied to ESG-linked targets.

Power purchase agreements: proposed amendments to IFRS 9 and IFRS 7

The International Accounting Standards Board (IASB) published an Exposure Draft (ED), Contracts for Renewable Electricity Proposed amendments to IFRS 9 and IFRS 7, for public comment in May 2024. The ED proposes amendments to IFRS 9 Financial Instruments and IFRS 7 Financial Instruments: Disclosures to more faithfully represent the effects that renewable electricity contracts, also known as power purchase agreements, have on a company. 

The scope of the amendments are limited to contracts for renewable electricity with the following two characteristics:

• the source of production of the renewable electricity is nature-dependent so that supply cannot be guaranteed at specified times or for specified volumes; and
• the purchaser bears substantially all of the risk that the volume of electricity produced does not align with their demand for electricity at the time of production (the volume risk). 

The proposals: 

• address how the ‘own-use’ requirements would apply to contracts in scope;
• permit such contracts to be designated as a hedging instrument; and
• add disclosure requirements to enable users to understand the effects of these contracts on a company’s financial performance and future cash flows.

In recognition of the urgent need for these amendments, the proposals are subject to a 90-day comment period instead of the usual 120 days. The deadline for submission of comments is 7 August 2024. The IASB is aiming to finalise any changes by the end of 2024.

IASB review of accounting for intangibles

Following the Third Agenda Consultation, the International Accounting Standards Board (IASB) has started a project to comprehensively review the accounting requirements for intangibles. The review will assess whether the requirements of IAS 38 Intangible Assets remain relevant and continue to fairly reflect current business models or whether the requirements should be improved.

Respondents to the agenda consultation raised matters relating to the scope, recognition and measurement requirements (including the difference in the accounting for acquired and internally generated intangible assets) of IAS 38, as well as the adequacy of information companies are required to disclose. 

The IASB will initially seek to define the scope of the project, including whether it should be extended to address intangible items more broadly in addition to assets and expenses arising from expenditure on intangible items. The IASB will also consider the connections between this project and the work of the International Sustainability Standards Board. 

Sustainability reporting

UK Sustainability Reporting Standards timeline update

Just prior to calling the general election, the UK government announced plans to make UK-endorsed International Sustainability Standards Board (ISSB) standards available in Q1 2025. The endorsed standards will be known as UK Sustainability Reporting Standards. 

The government outlines its endorsement timeline to assess IFRS S1 and IFRS S2 which, subject to positive endorsement and following consultation, will conclude with the publication of UK Sustainability Reporting Standards.

Subject to positive endorsement decisions, the Financial Conduct Authority (FCA) will then be able to consult on requiring UK-listed companies to apply the standards. The government will determine disclosure requirements for companies not regulated by the FCA, with decisions on future requirements expected in Q2 2025. 

Based on these timelines, any requirements would not be effective earlier than accounting periods beginning on or after 1 January 2026. 

The impact of the general election result on this announcement is as yet unknown.

ISSB two-year work plan announced

Announced at the IFRS Foundation Conference in June 2024, the ISSB has embarked on its two-year work plan and published the Feedback Statement to its agenda priorities consultation accordingly.

The Feedback Statement confirms that the ISSB has decided that activities to support the implementation of IFRS S1 General Requirements for Disclosure of Sustainability-related Information and IFRS S2 Climate-related Disclosures, are the highest priority over the next two years. A slightly lower level of focus will be placed on enhancing the SASB Standards and beginning new research projects.

The new research projects announced are set to look at disclosure of risks and opportunities associated with nature and human capital. Under IFRS S1, companies are already required to disclose material information on all sustainability-related risks and opportunities. However, these new projects are the start of a process to develop standards on more specific disclosure areas thereby extending the global baseline of sustainability-related financial disclosure beyond just climate.

The ISSB will consider how to build on relevant pre-existing initiatives (eg, the Taskforce on Nature-related Financial Disclosures) and use the projects as an opportunity to assess and define the limitations with current disclosures in these areas, identify possible solutions and decide whether standard-setting is required.

Additionally, the IFRS Foundation has announced that it will assume responsibility for the disclosure-specific materials developed by the UK-based Transition Plan Taskforce. The IFRS Foundation expects to use these materials to develop educational guidance on providing high-quality, decision-useful information about the plans that companies have, consistent with the focus of IFRS S2.

UK regulation for company accounts

Medium-sized company consultation 

The Department for Business and Trade launched a consultation in May 2024 proposing to increase the employee threshold and introduce a reporting exemption for medium-sized entities.

The government is proposing to increase the medium-sized company employee threshold from up to 250 employees to up to 500, and to exempt medium-sized companies from the requirement to prepare a strategic report. These proposals are intended to ensure reporting is more proportionate and appropriate to the size of the company.

It is anticipated that uplifting the employee threshold would result in an additional 2,000 companies being categorised as medium-sized, while exempting medium-sized entities from preparing a strategic report would affect 41,000 companies.

The proposals are part of the government’s response to its Non-Financial Reporting Review Call for Evidence and follows the announcement in March of plans to increase the monetary company size thresholds by 50%.

The six-week consultation period closed for comment at the end of June.