IFRS News 2022

28.04.2022 Craig Standsfield, Director, Nolands Cape Town

As we enter into May, it is appropriate for us to recap the amendments released by the IASB which have recently become effective, or are to become effective in the short-term. In addition, we should reflect on the activity of the IASB to ensure we are up-to-date as to what is currently on their agenda, which could be topical in client interactions over the upcoming months.

Firstly, let’s recap the amendments issued by the IASB which became effective for annual periods starting on or after 1 January 2021, as these would be relevant for your current and upcoming audit clients:

IFRS 4 Insurance Contracts

Interest Rate Benchmark Reform Phase 2: The amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 amend requirements relating to changes in the basis for determining contractual cash flows of financial assets, financial liabilities and lease liabilities, hedge accounting and disclosures.

The amendment to IFRS 4 enables an insurer applying the temporary exemption from IFRS 9 to apply a practical expedient to account for a change in the contractual cash flows that are required by IBOR reform by updating the effective interest rate to reflect any change arising from the reform.

IFRS 7 Financial Instruments: Disclosures

The amendment to IFRS 7 requires a company to make additional disclosures in its financial statements so that investors can better understand the effects of IBOR reform on that company.

IFRS 9 Financial Instruments

Interest Rate Benchmark Reform Phase 2: The amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 amend requirements relating to changes in the basis for determining contractual cash flows of financial assets, financial liabilities and lease liabilities, hedge accounting and disclosures.

The amendments to IFRS 9 enable a company to apply a practical expedient to account for a change in the contractual cash flows that are required by IBOR reform by updating the effective interest rate to reflect any change arising from the reform.
The amendments to IFRS 9 enable (and require) companies to continue hedge accounting in circumstances when changes to hedged items and hedging instruments arise as a result of changes required by the IBOR reform, by requiring companies to amend their hedging relationships to reflect:
- designating an alternative benchmark rate as the hedged risk; or
- changing the description of the hedged item, including the designated portion, or of the hedging instrument.

IFRS 16 Leases

The amendment to IFRS 16 enables a company to apply a practical expedient to account for a lease modification required by the IBOR reform.

Let us then look at what amendments are effective for annual periods starting on or after 1 January 2022, as you would need to ensure your audit clients are aware of these, and implement them in their next financial reporting period:

IFRS 1 First-time Adoption of International Financial Reporting Standards

Annual Improvements to IFRS Standards 2018–2020: Extension of an optional exemption permitting a subsidiary that becomes a first-time adopter after its parent to measure cumulative translation differences using the amounts reported by its parent, based on the parent’s date of transition to IFRSs. A similar election is available to an associate or joint venture.

IFRS 9 Financial Instruments

Annual Improvements to IFRS Standards 2018–2020: The amendment clarifies which fees an entity includes when it applies the ‘10 percent’ test in assessing whether to derecognise a financial liability.

IAS 16 Property, Plant and Equipment

Property, Plant and Equipment: Proceeds before Intended Use: The amendments prohibit an entity from deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Instead, an entity recognises the proceeds from selling such items, and the cost of producing those items, in profit or loss.

IAS 37 Provisions, Contingent Liabilities and Contingent Assets

Onerous Contracts—Cost of Fulfilling a Contract: The amendments specify which costs should be included in an entity’s assessment whether a contract will be loss-making.

IAS 41 Agriculture

Annual Improvements to IFRS Standards 2018–2020: The amendment removes the requirement for entities to exclude taxation cash flows when measuring the fair value of a biological asset using a present value technique.

Lastly, let’s look at the amendments which would only become effective for annual periods starting on or after 1 January 2023. These would impact financial statement disclosures, in particular, disclosure of Standards issued not yet effective as is required in terms of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors para 30 and 31.

IFRS 17 Insurance contracts

IFRS 17 creates one accounting model for all insurance contracts in all jurisdictions that apply IFRS.

IFRS 17 requires an entity to measure insurance contracts using updated estimates and assumptions that reflect the timing of cash flows and take into account any uncertainty relating to insurance contracts.
The financial statements of an entity will reflect the time value of money in estimated payments required to settle incurred claims.
Insurance contracts are required to be measured based only on the obligations created by the contracts.
An entity will be required to recognise profits as an insurance service is delivered, rather than on receipt of premiums.
This standard replaces IFRS 4 – Insurance Contracts.

IAS 1 Presentation of Financial Statements

Classification of Liabilities as Current or Non-current: Narrow-scope amendments to IAS 1 to clarify how to classify debt and other liabilities as current or non-current.

Disclosure of Accounting Policies: The amendments require companies to disclose their material accounting policy information rather than their significant accounting policies, with additional guidance added to the Standard to explain how an entity can identify material accounting policy information with examples of when accounting policy information is likely to be material.

IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors

Definition of Accounting Estimates: The amendments clarify how companies should distinguish changes in accounting policies from changes in accounting estimates, by replacing the definition of a change in accounting estimates with a new definition of accounting estimates. Under the new definition, accounting estimates are “monetary amounts in financial statements that are subject to measurement uncertainty”. The requirements for recognising the effect of change in accounting prospectively remain unchanged.

IAS 12 Income Taxes

Deferred Tax related to Assets and Liabilities arising from a Single Transaction: The amendment clarifies how a company accounts for income tax, including deferred tax, which represents tax payable or recoverable in the future. In specified circumstances, companies are exempt from recognising deferred tax when they recognise assets or liabilities for the first time. The aim of the amendments is to reduce diversity in the reporting of deferred tax on leases and decommissioning obligations, by clarifying when the exemption from recognising deferred tax would apply to the initial recognition of such items.

Current topical projects the IASB is working on, which are included on their workplan, include the following (with relevant links for further reading):

Project	Link to IASB website
Goodwill and impairment	https://www.ifrs.org/projects/work-plan/goodwill-and-impairment/
Business combinations under common control (BCUCC)	https://www.ifrs.org/projects/work-plan/business-combinations-under-common-control/
Financial instruments with the characteristics of Equity (FICE)	https://www.ifrs.org/projects/work-plan/financial-instruments-with-characteristics-of-equity/
Disclosure Initiative - Subsidiaries without public accountability	https://www.ifrs.org/projects/work-plan/subsidiaries-smes/
Second Comprehensive Review of the IFRS for SMEs Standard	https://www.ifrs.org/projects/work-plan/2019-comprehensive-review-of-the-ifrs-for-smes-standard/

After digesting that – let us consider what has been the highlighted discussion point of the IASB in 2022 - Sustainability and the formation of the ISSB.

Refer to the following link for an update on the state of play when it comes to the ISSB and Sustainability:

https://www.ifrs.org/groups/international-sustainability-standards-board/#about

Disclaimer: The material and information contained in this article is for general information purposes only. You should not rely upon the material or information in this article as the basis for making any business, legal or other decisions.