This technical round-up includes developments up to 30 September 2023

International Accounting Standards

Two new IFRS Accounting Standards expected in the first half of 2024

The International Accounting Standards Board (IASB) has announced that it expects to issue two new IFRS Accounting Standards in the first half of 2024.

The first is the result of the IASB’s primary financial statements project. The new standard – IFRS 18 Presentation and Disclosure in Financial Statements – will affect all companies reporting under IFRS Accounting Standards and is designed to improve the information they provide about their financial performance. It will replace IAS 1 Presentation of Financial Statements, a standard that was first issued way back in 1975.

IFRS 18 will introduce three key improvements:

• To bring more rigour and comparability to the statement of profit or loss, two new mandatory subtotals will be introduced – operating profit and profit before financing and income taxes. 
• In certain circumstances, management-defined performance measures will be required to be presented together with relevant reconciliations to provide transparency.
• New guidance on aggregating and disaggregating the information provided on ‘the face’ of the financial statements or in the notes.

A result of the subsidiaries without public accountability: disclosures project, the second new standard will reduce disclosure requirements for subsidiaries that are not traded on a public market or hold assets entrusted to them by their customers. The standard will enable those subsidiaries to prepare full IFRS financial statements locally by using the information reported to their parent company but with reduced disclosures. 

The IASB has decided that the effective date of both new standards will be annual reporting periods beginning on or after 1 January 2027 to give companies sufficient time to implement the new requirements. Earlier application will be permitted.

IASB sets out accounting requirements for when a currency is not exchangeable

In August 2023, the IASB issued amendments to IAS 21 The Effects of Changes in Foreign Exchange Rates that will require companies to provide more useful information in their financial statements when one currency cannot be exchanged into another.

Under IAS 21, a company is required to use a spot exchange rate when translating foreign currency transactions. However, it is possible that, in some instances, one currency cannot be exchanged into another. IAS 21 already explains what should be done when exchangeability between two currencies is temporarily lacking, explaining that an entity should translate affected foreign currency transactions using the first subsequent exchange rate at which exchanges can be made. However, until this amendment, the standard did not explain what to do when the lack of exchangeability was not considered temporary.

The amendments fill this gap by explaining that, in such circumstances, an entity should estimate the spot exchange rate as the rate that would have applied to an orderly transaction between market participants at the measurement date and that faithfully reflects the economic conditions prevailing at that date. The amendments also add a new appendix to IAS 21 containing application guidance on how to assess whether a currency is exchangeable and how to estimate the spot rate when it isn’t. Additional disclosures are required to enable users of the financial statements to evaluate how a currency’s lack of exchangeable affects, or is expected to affect, its financial performance, financial position and cash flows.

The amendments are effective for annual reporting periods beginning on or after 1 January 2025. Early application is permitted.

IASB proposes annual improvements to IFRS Accounting Standards

In September 2023, the IASB published an exposure draft outlining proposed narrow-scope amendments to a number of IFRS Accounting Standards and accompanying guidance as part of its annual improvements process.

The proposed amendments include clarifications, simplifications, corrections or changes to improve consistency in:

• IFRS 1 First-time Adoption of International Financial Reporting Standards;
• IFRS 7 Financial Instruments: Disclosures and its accompanying implementation guidance;
• IFRS 9 Financial Instruments;
• IFRS 10 Consolidated Financial Statements; and
• IAS 7 Statement of Cash Flows.

The deadline for commenting on the proposals is 11 December 2023.

Post-implementation review of IFRS 15 launched

In June 2023, the IASB launched its post-implementation review of IFRS 15 Revenue from Contracts with Customers. The IASB is seeking stakeholders’ feedback on whether the standard’s requirements are working as intended.

The request for information begins by asking stakeholders for their overall views and experiences relating to IFRS 15. Respondents are asked to explain whether they think the standard has met its overall objective and whether its core principle and the supporting five-step revenue recognition model provide a clear and suitable basis for revenue accounting decisions. It then goes on to ask a series of questions focusing on specific areas of IFRS 15. 

A video of IASB member Patrina Buchanan talking about the request for information is available here.

The request for information is open for comments until 27 October 2023.

IASB amends IFRS for SMEs

The IASB has issued amendments to the IFRS for SMEs based on the amendments to IAS 12 Income Taxes issued in May 2023. 

As discussed in previous technical roundups, the OECD’s Pillar Two model rules introduce a global system of interlocking top-up taxes that aim to ensure that multinational enterprises with revenue in excess of €750m will be subject to a minimum 15% tax rate on the income arising in each of the jurisdictions in which they operate.The amendments provide a temporary relief from accounting for deferred taxes arising from the implementation of the Pillar Two model rules and introduce targeted disclosure requirements. 

Companies can benefit from the temporary exception in this amendment immediately. They are required to provide the disclosures set out in the amendments for annual reporting periods beginning on or after 1 January 2023.

Updated educational material on climate-related matters

The IFRS Foundation has published an updated version of its educational material on the effects of climate-related matters on financial statements.

While IFRS Accounting Standards do not refer explicitly to climate-related matters, they require companies to consider such matters in financial statements if the effects are material. The updated educational material sets out examples of situations in which companies might need to consider the effects of climate-related matters in their financial statements.

The educational material was first published in 2020. The updated version has been published in light of recent developments including the publication of the first two IFRS Sustainability Disclosure Standards by the International Sustainability Standards Board in June of this year.

The IASB is also working on a separate project on climate-related and other uncertainties in the financial statements. Possible outcomes include the development of additional educational materials, illustrative examples and targeted amendments to IFRS Accounting Standards to improve the application of existing requirements.

UK GAAP

FRC issues update on periodic review of UK accounting standards

The Financial Reporting Council (FRC) has published a project update on its periodic review of FRS 102 and other UK accounting standards.

FRED 82 Draft amendments to FRS 102 The Financial Reporting Standards applicable in UK and Republic of Ireland and Other FRSs was issued in December 2022 and proposed significant changes to the approach to revenue recognition and accounting for leases. It also included other incremental improvements and clarifications. 

The update explains that the FRC are fine-tuning their approach to revenue recognition in light of the feedback received. They are also considering how their proposals in relation to leases can be adjusted to ensure that their approach is proportionate and understandable for FRS 102 preparers of all sizes. Consequently, the final amendments are likely to differ in a number of respects from the FRED 82 proposals. 

The FRC currently expects to issue the final amendments in the first half of 2024, with an effective date not before 1 January 2026. FRED 82 had proposed that the amendments would be effective for periods commencing on or after 1 January 2025.

Further information about the periodic review proposals can be found at icaew.com/ukgaapreview

FRC amends FRS 102 and FRS 101 in response to the OECD’s Pillar Two model rules

In July 2023, the FRC issued Amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland and FRS 101 Reduced Disclosure Framework – International tax reform – Pillar Two model rules.

Similar to the amendments to the IFRS for SMEs discussed above, the amendments to FRS 102 introduce a temporary exception to the accounting for deferred taxes arising from the implementation of the Pillar Two model rules, alongside targeted disclosure requirements. The amendments to FRS 101 provide an exemption from some of the disclosure requirements in IAS 12, provided that equivalent disclosures are included in the consolidated financial statements of the group in which the entity is consolidated.

The temporary exception introduced into FRS 102 is effective immediately. The new disclosure requirements are effective for accounting periods beginning on or after 1 January 2023, with early application permitted.

Supplier finance arrangements: FRC proposes changes to FRS 102

The FRC has issued FRED 84 Draft amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland – Supplier finance arrangements. 

The exposure draft – which is based on amendments issued by the IASB in May 2023,discussed in July’s technical roundup – proposes to introduce new disclosure requirements to provide users of financial statements with additional information about an entity’s use of supplier finance arrangements and the effect of such arrangements on the entity’s financial position and cash flows.

Comments on FRED 84 are requested by 31 December 2023. The FRC expects to finalise the proposed amendments in the first half of 2024, alongside the amendments arising from the current periodic review of FRS 102 and other FRSs.

Comments invited on updated Limited Liability Partnerships Statement of Recommended Practice

In August 2023, the Consultative Committee of Accountancy Bodies (CCAB) published an updated draft of its LLPs SORP. The draft includes proposed updated guidance on: 

• amounts payable to former members; 
• sharing of profits – interest in subsidiaries; and 
• automatic division of profits to members who do not provide any services to the LLP.

The draft SORP has also been updated to reflect the new requirements for certain LLPs to provide climate-related financial disclosures in either the strategic report, if one is prepared, or in the energy and carbon report otherwise.

It is proposed that the updated SORP would be effective for periods commencing on or after 1 January 2024. 

Comments are invited until 27 October 2023.