The IASB finalised the prior quarter’s work targeting an increased level of transparency of Supplier Finance Arrangements (SFAs) by announcing a new set of disclosure requirements affecting IFRS 7 Financial Instruments: Disclosures and IAS 7 Statement of Cash Flows. The main purpose of this decision is to clarify the effects of SFAs on a company’s liabilities, cash flows and exposure to liquidity risk.
These amendments will require a company to disclose:
• Terms and conditions;
• The amount of the liabilities that are part of the arrangements;
• Ranges of payment due dates; and
• Liquidity risk information.
The additional disclosure requirements come into force for annual reporting periods beginning on or after 1 January 2024.
Following the implementation of the OECD’s Pillar Two model rules, the IASB has faced concerns from stakeholders regarding uncertainties over the deferred tax accounting requirements arising from the implementation of such rules. The IASB has therefore amended IAS 12 Income Taxes to respond to such concerns by introducing the below amendments to the standard:
· A temporary exception from accounting for deferred taxes which arise as a consequence of implementing the global tax rules;
· Targeted disclosure requirements which will help investors better understand a company’s exposure to income taxes arising from the reform. The additional disclosure requirements are required from accounting periods beginning on or after 1 January 2023.
In response to the possible impact of the Pillar Two model rules on SMEs, the IASB has proposed amendments to the IFRS for SME accounting standard. This would introduce a temporary exemption to the requirements of recognising deferred tax assets and liabilities, similar to the amendments implemented within IAS 12 Income Taxes. The proposal also includes additional disclosure requirements related to the subject matter.
The Conceptual Framework can be considered as the standard setters’ toolbox in its function as a reference point in the standard setting process. A newly introduced chapter within the FASB’s conceptual framework describes a Reporting Entity, providing the respective definitions and characteristics of a reporting entity which can be used by the FASB in delivering its functions.
The new chapter describes a reporting entity as:
“a circumscribed area of economic activities that can be represented by general purpose financial reports that are useful to existing and potential investors, lenders, and other resource providers in making decisions about providing resources to the entity.”
FASB’s Conceptual Framework also describes the following three features of a reporting entity:
a) Economic activities have been conducted;
b) Those economic activities can be distinguished from those of other entities;
c) The financial information in general purpose financial reporting faithfully represents the economic activities conducted within the circumscribed area and is useful in making decisions about providing resources to the reporting entity.
The concepts taken into consideration within this definition are similar to those put forward in IASB’s definition of a Reporting Entity within its Conceptual Framework. This is possibly a result of the joint work which took place on reporting entity concept by the two standard setting bodies back in 2010.
The degree of estimation uncertainty and management judgement required in fair value measurements is generally influenced by external market conditions. The challenging market environment faced by many businesses in today’s economy will be reflected in most profit and cash flow forecasts, which changes fall within the remit of IFRS 13. The need for clear, consistent and transparent disclosures about any uncertainties, risks and assumptions underlying fair value measurements reported in the financial statements are expected to become increasingly important.
The published review reflects the experience of the Financial Reporting Council with IFRS 13, particularly focusing on measurement and disclosure matters. The main findings include:
1) Fair value measurements should use market participants’ assumptions rather than the company’s own assumptions. This is particularly relevant in cases of related party transactions where the transaction price might not necessarily coincide with the fair value.
2) In situations of valuing material items without having the required internal expertise, it is highly recommended to make use of third-party specialists whilst disclosing this fact.
3) High quality disclosures which adhere to the minimum requirements of IFRS 13 as well as faithfully represent the assumptions underlying the valuations are key. Information which is relevant and not immaterial, including climate related matters, should be disclosed.
In June 2023, the ISSB released its first two sustainability standards, IFRS S1 and IFRS S2 with the aim of increasing trust and confidence in company disclosures regarding sustainability.
IFRS S1 includes disclosure requirements regarding sustainability-related risks and opportunities faced over the short, medium and long term. IFRS S2 includes specific climate-related disclosures and is designed to be used alongside IFRS S1.
These standards are designed to ensure that companies provide sustainability-related information along with their financial statements. These standards are intended to be suitable for worldwide application, creating a global baseline for all.
In a statement released by Kevin Dancey, CEO of IFAC, he expressed that it is now the responsibility of all professional accountants to implement these standards to ensure high-quality corporate reporting of sustainability-related information.
IFAC encourages all professionals in the global accountancy profession to work with regulators and stakeholders to ensure adequate adoption of the standards. It is also essential to build the necessary capacity for implementing these standards alongside any local supplementary reporting requirements, while ensuring a continued contribution of expertise and feedback to the International Sustainability Standards Board (“ISSB”), as it carried out its crucial work in setting standards.
The Chair of the International Auditing and Standards Board (“IAASB”) was interviewed in April 2023 to shed some light onto IAASB’s activities and future visions. It was highlighted that a Sustainability Insurance Standard is currently underway and is expected to be completed by the end of 2024. The development of ISSA 5000, General Requirements for Sustainability Assurance Engagements, is expected to be one of many standards addressing sustainability going forward.
In June 2023, the IAASB approved the draft International Standard, with consultation planned to be open by early August until early December 2023. Such consultation will ensure a broad and timely input into the development of the standard whilst also contributing to the completion of the final standard in 2024, which is expected to be a stand-alone standard suitable for both limited and reasonable assurance engagements of sustainability information.
Once the standard is finalised, this will apply to sustainability information reported across any topics related to sustainability and prepared under numerous frameworks. The IAASB are currently working towards releasing the draft standard, which should occur in the coming weeks, including finalising its plans for a series of roundtable discussions, as well as the holding of virtual, regional and national events, held together with other organisations during the consultation period.
In April 2023, proposed revisions to the current standard on going concern ISA 570 (Revised) were issued by the IAASB.
As quoted within paragraph 7 to the explanatory memorandum of the exposure draft for proposed ISA 570 (Revised), Going concern, the purpose of the proposed changes is to:
• Promote consistent practice and behaviour and facilitate effective responses to identified risks of material misstatement related to going concern;
• Strengthen the auditor’s evaluation of management’s assessment of going concern, including reinforcing the importance, throughout the audit, of the appropriate exercise of professional skepticism; and
• Enhance transparency with respect to the auditor’s responsibilities and work related to going concern where appropriate, including strengthening communications and reporting requirements.
The deadline for comments on the proposed revisions is 24 August 2023.
In April 2023, an anti-corruption workbook was issued by the International Federation of Accountants (“IFAC”) to assist PAO’s and accountancy profession leaders in creating the right approaches and systems to suit their jurisdiction and needs. The workbook is entitled ‘Global Fight, Local Actions: Anti-corruption advocacy workbook for PAO’s’.
As noted in the background section to the workbook:
‘For PAO’s to engage as central allies, it is essential to understand the current situation in your jurisdiction. PAO leadership can come up to speed quickly by reviewing the UNCAC IRM and FATF Mutual Evaluation Reports and OECD Anti-Bribery Convention Implementation Reports.’
The workbook includes relevant sections assisting PAO’s in the identification of stakeholders, crafting of messages as well as engagement tools and methods.
On 24 May 2023, the IAASB issued its eighth market scan covering the internet of things, particularly focused on Networks for Asset Monitoring and Data Generation.
Such market scan delves into the meaning of the internet of things and why these are important, the latest developments and what this might mean for the IAASB.
The specifics in relation to the implications of technology may highlight certain topics worthy for future standard setting activities.
To ensure high quality, cost effective and useful decision reporting, organisations need to ensure that effective oversight arrangements are in place. This will assist with the effective implementation of the ISSB’s standards, jurisdictional standards and regulatory requirements.
The IFAC have released key questions for audit committees who oversee sustainability-related disclosures. Such questions cover:
• Roles and responsibilities across the organisation
• Data collection, processes and controls
• Audit and assurance
The purpose of such questions is to assist and guide audit committee members in carrying out their responsibilities with respect to:
• Overseeing sustainability and ESG disclosures
• Ensuring financial impacts of material climate-related risks have been considered and reflected in the financial statements,
• Ensuring consistency and connectivity of sustainability and ESG disclosures across general purpose financial reporting and other public disclosures,as well as overseeing sustainability and ESG assurance activities.