This technical round-up includes developments up to 30 September 2024.

IFRS Accounting Standards

Equity method

In September, the International Accounting Standards Board (IASB) issued an Exposure Draft, Equity Method of Accounting – IAS 28 Investments in Associates and Joint Ventures (revised 202x), proposing amendments aimed at helping companies account for their investments in associates and joint ventures. 

The proposals focus on responding to questions on how to apply the equity method with a view to reducing diversity in practice. Areas addressed include: 

• Initial recognition;
• Changes in ownership;
• Share of profit or loss and other comprehensive income; 
• Transactions with associates and joint ventures; and
• Impairment indicators. 

The amendments seek to improve the clarity of existing requirements, most notably by reordering requirements along with updates to wording and subheadings. In addition, new disclosure requirements are proposed in IFRS 12 Disclosure of Interests in Other Entities and IAS 27 Separate Financial Statements.

These proposals would also apply to investments in subsidiaries in a parent’s separate financial statements which are accounted for using the equity method.

The comment period is open until 20 January 2025.

IFRS 19 Subsidiaries without Public Accountability: Disclosures

In July, the IASB published proposals to amend IFRS 19 Subsidiaries without Public Accountability: Disclosures. 

IFRS 19 allows eligible subsidiaries to apply IFRS Accounting Standards with reduced disclosure requirements. It will be amended alongside developments to IFRS Accounting Standards. This Exposure Draft proposes reduced disclosure requirements from new IFRS Accounting Standards and amendments issued between February 2021 and May 2024, namely:

• lack of exchangeability (amendments to IAS 21 The Effects of Changes in Foreign Exchange Rates);
• international tax reform – Pillar Two Model Rules (amendments to IAS 12 Income Taxes);
• supplier finance arrangements (amendments to IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments: Disclosures);
• primary financial statements (IFRS 18 Presentation and Disclosure in Financial Statements); and
• non-current liabilities with covenants (amendments to IAS 1 Presentation of Financial Statements).

The IASB is inviting feedback until 27 November 2024.

Climate-related and Other Uncertainties in the Financial Statements

Also in July, the IASB issued an Exposure Draft proposing eight examples to illustrate how companies can apply IFRS Accounting Standards when reporting the effects of climate-related and other uncertainties in their financial statements.

The eight illustrative examples focus on areas such as materiality judgements, disclosures about assumptions and estimation uncertainties, and disaggregation of information. The illustrative examples do not add to or change the requirements in IFRS Accounting Standards but instead provide guidance on how the requirements in the Standards should be applied.

Having been developed in collaboration with the International Sustainability Standards Board (ISSB), the examples work with the ISSB’s sustainability-related disclosure requirements. 

The Exposure Draft is open for comment until 28 November 2024.

Translation into a Hyperinflationary Presentation Currency

An Exposure Draft proposing narrow-scope amendments to IAS 21 The Effects of Changes in Foreign Exchange Rates was published by the IASB in July. The proposals introduce translation requirements for companies that translate financial information from a non-hyperinflationary currency into a hyperinflationary currency.

The Exposure Draft is open for comment until 22 November 2024. 

Contracts for Renewable Electricity

ICAEW submitted its response to the IASB’s consultation on Contracts for Renewable Electricity which proposes narrow-scope amendments to IFRS 9 Financial Instruments and IFRS 7 Financial Instruments: Disclosures.

ICAEW broadly supports the proposals, seeing them as a step towards providing a solution to the challenges in applying IFRS 9 to contracts for renewable electricity. With the objective of supporting the effective practical application of the amendments, ICAEW provided several recommendations and highlighted some concerns, one of the most notable being the risk of the narrow-scope amendments not capturing a significant number of contracts. ICAEW has urged the IASB to perform a broader-scope review of the own-use exception and hedge accounting requirements, perhaps in the forthcoming IFRS 9 post-implementation review of hedge accounting.

The IASB is now deliberating the feedback received and expects to issue final amendments in Q4 2024.

Feedback on IFRS 15 Post-implementation Review

The IASB has published a Project Summary and Feedback Statement following its post-implementation review of IFRS 15 Revenue from Contracts with Customers and has concluded that the requirements in IFRS 15 are working as intended.

The IASB has identified a few application issues to consider (listed below) in its next agenda consultation, which it plans to start in late 2025.

• how companies decide whether they are the main seller or an agent in a transaction;
• how to report on payments to customers; and
• how IFRS 15 works alongside several other IFRS Accounting Standards.

IASB agrees to finalise management commentary project

Announced in June, the IASB has agreed to finalise the revision of the IFRS Practice Statement 1 Management Commentary by making targeted refinements to proposals contained in its May 2021 Exposure Draft on the topic. A revised Practice Statement is expected to be issued in the first half of 2025.

UKEB adopts Lack of Exchangeability amendments

The UK Endorsement Board has adopted Lack of Exchangeability (amendments to IAS 21 The Effects of Changes in Foreign Exchange Rates), effective for annual reporting periods beginning on or after 1 January 2025, with early application permitted.

The amendments contain guidance specifying how to assess whether a currency is exchangeable into another currency and to determine the exchange rate to use and the disclosures to provide if the currency is not exchangeable. 

Sustainability reporting

UK Sustainability Reporting Standards

In September, the Department for Business & Trade published updated information on the UK government’s framework to create UK Sustainability Reporting Standards (UK SRS) by assessing and endorsing the global corporate reporting baseline of IFRS Sustainability Disclosure Standards.

ESRS-ISSB interoperability

Following May’s publication of Interoperability Guidance by the IFRS Foundation and the European Financial Reporting Advisory Group, in July the IFRS Foundation published a webcast to help explain the interoperability between the ISSB’s IFRS Sustainability Disclosure Standards and European Sustainability Reporting Standards (ESRS). The webcast covers:

• the background to the Interoperability Guidance;
• the common disclosures and high degree of alignment in climate-related disclosures;
• elements of the disclosures that companies need to approach in specific ways to be compliant; and
• incremental disclosures in ESRS. 

UK regulation for company accounts

ICAEW responds to medium-sized company consultation

At the end of June, ICAEW submitted its response to the Department for Business and Trade’s consultation proposing to increase the employee threshold for medium-sized companies and introduce an exemption for medium-sized entities from requirements to prepare a strategic report. 

While ICAEW believes there is merit in the proposals, we are concerned that they represent further piecemeal amendments that risk adding complexity and uncertainty rather than clarity and consistency. Our conclusion is that these proposals would be better suited as part of a broader, more complete set of recommendations that consider the consequences of making the changes in the context of other current and future reporting requirements and developments; specifically, the UK’s plans regarding the introduction of UK Sustainability Reporting Standards.

The consultation had been issued in May 2024, prior to the calling of the general election. It is not yet clear whether the new government will proceed with the changes proposed.

Other

Consultation on updated going concern guidance

In August, the Financial Reporting Council (FRC) issued draft updated Guidance on the Going Concern Basis of Accounting and Related Reporting, including Solvency and Liquidity Risk for comment. The guidance is designed to help companies perform going concern assessments and prepare company-specific disclosures about their going concern conclusions, including how they were reached. The draft guidance brings together the requirements and provisions of company law, accounting standards, auditing standards, listing rules, the UK Corporate Governance Code (the Code) and other regulations relating to reporting on the going concern basis of accounting and solvency and liquidity risks. 

The FRC is proposing to update the existing guidance to:

• include companies applying the Code within the scope of the guidance;
• provide additional guidance on overarching disclosure requirements, especially in situations where significant judgement is involved in the assessment of the appropriateness of the going concern basis of accounting, or the conclusion was that there are no material uncertainties;
• provide additional guidance on techniques that could support the assessment process; and
• reflect changes to related accounting standards and auditing standards.

The consultation is open for comment until 28 October 2024.

UK digital reporting discussion paper

Also in August, the FRC published a Discussion Paper: Opportunities for the future of digital reporting for comment. The comprehensive Discussion Paper addresses changes in the regulatory landscape and considers the impact of the Economic Crime and Corporate Transparency Act 2023. Seeking input from a wide range of stakeholders, it aims to help mould the future of UK digital reporting, ensuring it meets the needs of all users while promoting transparency, comparability, and efficiency in corporate reporting.

Key topics covered include:

• Potential alternatives to the European Single Electronic Format taxonomy for UK regulated markets;
• Proposed changes to structured digital reporting to support regulatory disclosure initiatives;
• Considerations for mandatory assurance of digital tagging;
• The impact of ‘full tagging’ requirements on companies and charities; and
• Strategies to support stakeholders in adapting to new digital reporting requirements.

The Discussion Paper is open for comment until 1 November 2024.