The International Accounting Standards Board (IASB), the body saddled with the responsibility of issuing the IFRSs, in her usual monthly practice, held their meeting on July 22 -24, 2024 to discuss issues bordered around IFRSs.
In this article, based on information available from the board we will look into the agenda points they discussed as well as some of the major decisions taken at the meeting.
Agenda For The IASB July Meeting:
1. Dynamic Risk Management
2. Financial Instruments with Characteristics of Equity
3. Post-implementation Review of IFRS 15 Revenue from Contracts with Customers
4. Rate-regulated Activities
5. Consistent application activities
6. Second Comprehensive Review of the IFRS for SMEs Accounting Standard
Major Issues discussed And Agreed On During IASB July 2024 Meeting:
1. Dynamic Risk Management (Agenda Paper 4)
The IASB met on 23 July 2024 to continue its discussions on the Dynamic Risk Management (DRM) model, in particular on:
which risk management activities would be applicable to the DRM model (Agenda Paper 4A); and
whether to make applying the DRM model mandatory or optional for entities with applicable risk management activities (Agenda Paper 4B).
Applicable risk management activities for the DRM model (Agenda Paper 4A)
The IASB discussed which risk management activities would be applicable to the DRM model. The IASB also considered initial feedback from targeted discussions with insurers on their risk management strategies and activities.
The IASB tentatively decided that an entity would only be able to apply the DRM model if it:
1. has business activities that expose it to interest rate repricing risk arising from financial assets and financial liabilities;
2. adopts a dynamic risk management strategy with a dual objective that aims to mitigate the variability of both the net interest income and the economic value of equity, based on an aggregated (combined or net) repricing risk over a predetermined period;
3. uses a systematic process to determine the net repricing risk exposure based on a specified managed rate and frequently adjusts its risk mitigation activities; and
4. has free access to a liquid market that enables it to raise funding or invest excess cash at the prevailing benchmark interest rate.
The IASB also tentatively decided to include a specific question for insurers in the prospective DRM exposure draft to collect more information about their risk management strategies and activities.
All 14 IASB members agreed with these decisions.
2. Financial Instruments with Characteristics of Equity (Agenda Paper 5)
The IASB met on 24 July 2024 to discuss the:
detailed feedback gathered from comment letters and outreach meetings with users of financial statements on the Exposure Draft Financial Instruments with Characteristics of Equity, issued in November 2023; and
project plan, including a preliminary project timeline.
The IASB was not asked to make any decisions.
Next step
The IASB will begin to redeliberate the proposals in the Exposure Draft.
3. Post-implementation Review of IFRS 15 Revenue from Contracts with Customers (Agenda Paper 6)
The IASB met on 22 July 2024:
to finalise its decisions in the Post-implementation Review (PIR) of IFRS 15 Revenue from Contracts with Customers; and
to discuss a summary of the work it carried out in response to feedback from the second phase of the PIR of IFRS 15, and the IASB’s next steps.
Finalising decisions in the PIR of IFRS 15 (Agenda Paper 6A)
The IASB:
concluded that, overall, the requirements in IFRS 15 are working as intended; and
decided not to include in the Standard itself explanations from paragraphs BC105, BC116K, BC385E and BC385H of the Basis for Conclusions on IFRS 15.
All 14 IASB members agreed with these decisions.
4. Second Comprehensive Review of the IFRS for SMEs Accounting Standard (Agenda Paper 30)
The IASB met on 22 July 2024 to redeliberate the proposals in the Exposure Draft Third edition of the IFRS for SMEs Accounting Standard.
Impairment of financial assets (Agenda Papers 30A–30C)
The IASB tentatively decided to withdraw its proposal to introduce an expected credit loss model for the impairment of some financial assets.
Twelve of 14 IASB members agreed with this decision.
The IASB tentatively decided to add a requirement for an SME to disclose its analysis of financial assets by due date (ageing analysis).
Thirteen of 14 IASB members agreed with this decision.
Issued financial guarantee contracts (Agenda Paper 30D)
The IASB tentatively decided:
to include intragroup financial guarantee contracts issued at nil consideration in the scope of Section 21 Provisions and Contingencies;
to keep other issued financial guarantee contracts in the scope of Part II of Section 11 Financial Instruments of the third edition of the Standard and to require an SME to measure such contracts at fair value through profit or loss; and
to add to Section 21 requirements for an SME to disclose:
the nature and business purpose of an issued intragroup financial guarantee contract;
the maximum amount the SME would have to pay if that contract is called on; and
an indication of the uncertainties relating to the amount or timing of any outflow of resources under the contract.
All 14 IASB members agreed with these decisions.
For more details on the above and other decisions taken by the IASB, you may go to the IFRS website:
https://www.ifrs.org/news-and-events/updates/iasb/2024/iasb-update-july-2024/