Hi everyone,
The start of July was particularly busy for me, so this edition of Reporting Period is arriving a little later than usual. Not to worry though! We’ll be taking a well-earned summer break in August, giving you plenty of time to dive into the IFRS developments from June 😉 You should expect the next issue around 2-3 September (it will summarise IFRS updates from both July and August).
Before we sign off for the summer, here’s a look at what happened in June.
Revised IFRS Practice Statement on management commentary
The IASB has issued a revised version of Practice Statement 1 Management Commentary, a significant update to the original 2010 publication. For those unfamiliar, management commentary, often referred to as “MD&A” (Management Discussion and Analysis), is typically part of the annual report. It provides management’s narrative on financial performance, systems and controls, regulatory compliance, and the company’s response to operational challenges. It also outlines objectives and strategic initiatives for the year(s) ahead.
It’s important to note that IFRS Practice Statements are not IFRS Standards. Financial statements comply fully with IFRS even if they are not accompanied by a management commentary prepared under IFRS Practice Statement 1. In most jurisdictions, MD&A requirements are determined by local regulations but the IASB’s revisions may prompt national regulators to change their own requirements.
Further reading:
The revised Practice Statement is currently available only to IFRS.org premium subscribers. It will be freely accessible as part of the annual consolidated IFRS Accounting Standards volume in early 2026.
Technical Publications
ESMA enforcement decisions
The European Securities and Markets Authority (ESMA) has published a new extract from its confidential database of enforcement decisions issued by European national enforcers. This database is designed to improve the quality and consistency of IFRS reporting across the EU. While some of the topics are niche, they all reflect genuine IFRS application challenges.
The latest extract includes decisions on:
- Impairment test of goodwill
- Cash flow projections and useful lives of assets
- Recognition of deferred tax assets on tax losses
- Disclosure of parent company
- Assessment of whether a transaction qualifies as a business combination
- PPAs and categorisation of fair value inputs
- Principal vs. agent considerations in revenue recognition
- Considering substantive rights when assessing control over another entity
Economic volatility vs. IFRS 17 accounting
The latest article by The Footnotes Analyst team explores how various sources of economic volatility affect insurance companies and how these are reflected in financial statements under IFRS 17. Their analysis highlights the difference between accounting and economic volatility: some volatility is deferred or smoothed in the financial statements, while other reported movements may not reflect underlying economic changes at all.
As usual, Steve and Dennis ground their analysis in real-life examples, making this a worthwhile and insightful read.
IFRS Interpretations Committee Meeting
The final week of June marked a notable moment for the IFRS Community, as a topic raised by one of our members made its way onto the IFRS Interpretations Committee’s agenda. The question concerned whether legal advisory fees incurred during loan negotiations qualify as incremental transaction costs under IFRS 9, even if incurred before the loan contract is signed.
This prompted an interesting discussion. One view held that such costs are “incremental” only if they are directly triggered by the execution of the contract, i.e. they would not have been incurred otherwise. This interpretation stems from IFRS 9 defining an incremental cost as one that “would not have been incurred if the entity had not acquired, issued or disposed of the financial instrument”.
The alternative perspective was that preparatory costs incurred prior to signing should also qualify as incremental, provided it is probable that the contract will ultimately be executed. We didn’t reach a consensus, and both arguments had merit. That’s why I submitted the question to the Interpretations Committee for their assessment. You can read my three-page submission here.
The Committee’s initial observation is that companies and audit firms adopt a broader view: they treat such pre-signing costs as incremental and capitalise them as prepayments (or other assets). Thanks to the Committee’s transparent due process, we can follow how this discussion developed – I’ve shared a clip of the final 15 minutes of the meeting on LinkedIn.
At the time of writing, the Committee has not yet released the tentative wording of its agenda decision. Other issues were also discussed at that meeting, so we’ll return to the June meeting in the next edition of Reporting Period, once I’ve had time to review the IFRIC Update.
Work in Progress at the IASB
Here are the key updates from the IASB’s agenda.
Post-implementation review of IFRS 16
If you’ve been waiting to air your frustrations about lease accounting, now’s your chance 😉 The IASB has just published the Request for Information as part of its post-implementation review of IFRS 16. The comment period is open!
Jokes aside, this is a great opportunity to have your voice heard at the IASB. If you’ve run into areas where IFRS 16 doesn’t work well in practice, a short comment letter can make a real difference.
For instance, I plan to suggest that the IASB build the 2019 IFRS Interpretations Committee agenda decision on “broader economics of the contract” into the standard itself. Too often, I still see companies applying the short-term recognition exemption to key real estate leases just because the contract has an indefinite term and a few months’ notice.
Deloitte has published a helpful technical summary of the RFI.
Next milestone: Comments are due by 15 October 2025.
That’s all for this edition of Reporting Period. Thanks for reading and enjoy your summer break!
Best regards,
Marek