Hey everyone,
You’d think that when you set up a committee that makes decisions by majority vote, it would be a bad idea to have an even number of members, right? Well, the IFRS Foundation learned this the hard way when the IFRS Interpretations Committee failed to reach a clear agenda decision thanks to a 7-7 stalemate.
September headlines also included the SEC chair calling out the IFRS Foundation for their £1.6m loss last year, shaky funding model, and perhaps trying to do too much at once after bringing sustainability reporting under their umbrella.
Let’s dive in.
Technical Publications
Accounting for emissions allowances
KPMG has updated its guidance on accounting for emissions allowances under a cap-and-trade scheme. In these schemes, companies are allowed to emit pollutants up to a set limit and can usually trade allowances with others.
You might remember from the November 2024 edition of Reporting Period that ESMA also published guidance on accounting for emissions trading schemes and other carbon pricing programmes under IFRS. That report included an overview of current practices among European companies.
Report on adoption of IFRS 17 in New Zealand
The New Zealand Financial Markets Authority (FMA) has released findings from its review of IFRS 17 implementation. Insurers generally made strong efforts to provide high-quality disclosures and meet the new requirements. That said, the FMA noted that life insurers provided more comprehensive disclosures, likely because IFRS 17 had a bigger impact on them.
IFRS Interpretations Committee Meeting
The Committee met on 16 September and considered two new questions.
Foreign exchange differences on intragroup monetary items under IFRS 18
The fact that the Committee already received a question on IFRS 18 is a clear sign that companies are already preparing for the new standard. The issue raised was how to classify, in consolidated P&L, foreign exchange differences on intragroup monetary items (an issue many multinationals will soon face).
IFRS 18.B65 requires FX differences to be classified in the same P&L category as the income and expenses that gave rise to them. The problem is that intragroup income and expenses are eliminated on consolidation, leaving only the FX differences in the consolidated P&L.
Two main views were as follows:
- View I: Since the related income and expenses are eliminated, there’s no relevant category under IFRS 18.B65. The FX differences therefore default to the operating category per IFRS 18.52.
- View II: FX differences should be classified in the same category as the income and expenses would have been before interco eliminations.
The Committee split evenly: seven members saw View I as the only acceptable interpretation, while the other seven thought both views were reasonable — effectively leaving the issue unresolved. I’ll be sending a comment letter asking the Committee to provide clear guidance.
Learn more:
- The Committee’s tentative agenda decision.
- Staff paper prepared for the meeting.
Next steps: Comments are open until 25 November 2025.
Economic benefits from use of a battery under IFRS 16
The second request concerned leases. Specifically, whether a customer obtains substantially all of the economic benefits from use of an identified asset under IFRS 16.B9(a).
The scenario involved a battery offtake arrangement between a battery owner and an electricity retailer operating in a gross pool electricity market. The battery owner was a registered market participant and had to run the battery according to the retailer’s instructions.
The Committee noted that the economic benefits arise from the battery’s storage and discharge capacity. Since the electricity retailer has exclusive rights to both and could set charging/discharging schedules, the Committee concluded that the retailer did indeed obtain substantially all of the economic benefits.
Learn more:
- The Committee’s tentative agenda decision.
- Staff paper prepared for the meeting.
Next steps: Comments are open until 25 November 2025.
Work in Progress at the IASB
Phew! No major updates from the IASB’s agenda in September 😉
Miscellany
SEC calls for stable funding and independence of the IASB
Back in the March edition of Reporting Period, I flagged that the IFRS Foundation ended the 2024 financial year in the red. The SEC has noticed too, and is now worried about the lack of stable, independent funding for the IASB. SEC Chair Paul Atkins is even considering revoking the 2007 mandate that lets non-US preparers file IFRS financial statements in the US without reconciling to US GAAP.
It probably doesn’t help that both accounting and sustainability standards now sit under the “IFRS” umbrella, given the current US administration’s hostility to sustainability reporting.
John Hughes covers the whole saga in his usual uncompromising style on his blog.
FRC’s corporate reporting review
The FRC has published findings from its annual corporate reporting review. For the third year running, impairment was the most common issue raised with companies. Another recurring problem area is the cash flow statement, along with ensuring consistency between the financial statements and other parts of the annual report.
While the report focuses on UK companies, the FRC’s level of technical discussion is excellent, so many of the insights are valuable wherever you’re based.
That’s all for this edition of Reporting Period. Thanks for reading and see you in the next issue.
Best regards,
Marek