Eddy James’s review of the latest technical developments in corporate reporting includes IASB proposals for temporary relief from deferred tax accounting for ‘pillar two’ tax rules, and the ISSB’s final decisions on IFRS Sustainability Disclosure Standards.

International Accounting Standards Board

International Accounting Standards Board (IASB) proposes temporary relief from deferred tax accounting for ‘pillar two’ tax rules

In March 2022, the Organisation for Economic Co-operation and Development (OECD) published detailed rules as part of its project to address the tax challenges arising from the digitalisation of the global economy. Elaborating on previous guidance issued in December 2021, it is designed to assist in the implementation of landmark reform to the international tax system; reform that will ensure multinational enterprises with revenue in excess of €750m are subject to a minimum 15% tax rate on the income arising in each of the jurisdictions in which they operate. More than 135 countries and jurisdictions representing more than 90% of global GDP have agreed to these so-called ‘pillar two’ model rules.

In response to concerns raised by stakeholders about the potential accounting implications of these rules, the IASB has issued an exposure draft (ED) proposing to provide temporary relief from the requirements in IAS 12 Income Taxes. The proposals would mean an entity would neither have to recognise nor disclose any information about deferred tax assets and liabilities arising from the imminent implementation of the OECD Pillar Two model rules.

In view of the urgency of the matter, the ED was issued with a short comment period, which has now passed. An amendment to IAS 12 is expected to be issued shortly.

IASB votes to retain impairment-only approach for goodwill accounting

After deliberating on whether there is sufficient evidence to reintroduce the amortisation model for goodwill accounting, the IASB has voted to retain the current impairment-only approach. This decision brings the curtain down on a long-running debate that began with the post-implementation review of IFRS 3 Business Combinations in 2014. Feedback received from stakeholders and subsequent research has led the IASB to conclude that there is no ‘compelling case’ to change its current approach to accounting for goodwill.

Post-implementation review of IFRS 9’s classification and measurement requirements

The IASB has completed its post-implementation review of the classification and measurement requirements in IFRS 9 Financial Instruments. The project report and feedback statement published in December 2022 concluded that these requirements are working as intended. The IASB has, however, started a project to clarify the classification and measurement requirements in response to the feedback received, leading to the narrow-scope amendments outlined below. The IASB has also decided to add a project on amortised cost measurement to its research pipeline.

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

To address some of the findings from the post-implementation review of the classification and measurement requirements in IFRS 9, the IASB has decided to make narrow-scope amendments to IFRS 9 and IFRS 7 Financial Instruments: Disclosures. An ED proposing amendments to the following requirements was published in March 2023:

settling financial liabilities using an electronic payment system; and
assessing contractual cash flow characteristics of financial assets, including those with environmental, social and governance-linked features.

Certain amendments and additions to disclosure requirements are also proposed. The ED is open for comment until July 2023.

IASB concludes project to improve its approach to developing disclosure requirements

The IASB has concluded its project on improving its approach to developing and drafting disclosure requirements in IFRS Accounting Standards.

The IASB has published guidance summarising the improved approach, which involves:

early engagement with investors;
developing disclosure requirements alongside recognition and measurement requirements;
considering digital reporting implications;
using objectives to explain investors’ information needs; and
supporting specific objectives through disclosure requirements.

The improved approach is designed to help the IASB develop Accounting Standards that will enable companies to make better judgements about which information is material and should be disclosed, thereby providing more useful information to investors. The IASB intends to use this approach when developing disclosure requirements in future.

The IASB has also published a project summary and feedback statement officially bringing the project to a close.

Project initiated to consider climate-related risks in financial statements

Responding to feedback received in its Agenda Consultation, the IASB has added a project to its work plan to explore whether and how companies can provide better information about climate-related risks in their financial statements. The project will research to what extent educational material published in 2020 is helping companies reflect the effects of climate-related risks and what actions, if any, the IASB could take to improve information about these matters.

The IASB aims to ensure any resulting proposals will complement the work of the ISSB and requirements of IFRS Sustainability Disclosure Standards.

UK Endorsement Board adopts three narrow-scope amendments

The UK Endorsement Board has adopted the following three narrow-scope amendments to IFRS Accounting Standards for use in the UK:

Amendments to IAS 1 Presentation of Financial Statements – disclosure of accounting policies;
Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors – definition of accounting estimates; and
Amendments to IAS 12 Income Taxes – deferred tax related to assets and liabilities arising from a single transaction.

These amendments are effective for annual periods beginning on or after 1 January 2023, with early application permitted.

International Sustainability Standards Board

Final decisions made on IFRS Sustainability Disclosure Standards

The International Sustainability Standards Board (ISSB) has now taken its final decisions on the technical content of its initial two IFRS Sustainability Disclosure Standards, IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures. The final drafting and formal balloting process is now underway.

The ISSB has also agreed that these standards will become effective in January 2024. The final standards are expected towards the end of Q2 2023.

UK GAAP

Periodic Review of UK GAAP

As discussed extensively elsewhere in our features, the FRC has published an exposure draft proposing a number of changes arising from the second periodic review of UK GAAP. The proposed effective date of the amendments is 1 January 2025. Comments are requested by 30 April 2023.

FRC issues revised Application Guidance to FRS 100

The FRC has issued amendments to FRS 100 Application of Financial Reporting Requirements, which revise the standard’s application guidance to reflect changes to company law and decisions on equivalence following the UK’s exit from the European Union. The revised guidance is based on current legal requirements and became effective immediately.

The FRC has also issued a revised edition of FRS 100, which incorporates the revised application guidance and other amendments made since the previous edition of the standard was issued in 2018.

Eddy James, External Adviser on Corporate Reporting (Contractor), ICAEW