Hi All!
March brought the release of the Exposure Draft with proposed changes to IAS 36 and IFRS 3. These relate to business combination disclosures and impairment tests. Although the most ambitious proposals from the Discussion Paper, such as goodwill amortisation and revising the scope of separately recognised identifiable intangible assets, didn’t progress to the Exposure Draft stage, the proposed changes remain significant for nearly every company.
Also, in this issue of Reporting Period, the Footnotes Analyst team highlights why IFRS 18 is a boon for investors, and the IASB has made several preliminary decisions on accounting for Power Purchase Agreements (PPAs).
Let’s dive in.
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Technical Publications
Why IFRS 18 is a win for investors
IFRS 18 might already be out by the time you read this (it’s scheduled for 9 April 2024). But the Footnotes Analyst team didn’t wait for the final version and compiled insights from all the supporting IASB documents. Their latest article details how IFRS 18 will more closely align financial reporting with equity analysis and offer more comparable and extensive data.
We’ll explore the accounting perspective thoroughly in our April issue, after the standard’s official release.
Work in Progress at the IASB
Business combinations – disclosures and impairment
The IASB’s Exposure Draft proposes amendments to IFRS 3 and IAS 36, focusing on impairment tests and disclosure requirements for business combinations. It requires companies to disclose objectives and performance targets for ‘strategic’ acquisitions, including post-acquisition assessments. For all material acquisitions, companies would also need to disclose expected synergies.
Goodwill accounting will continue under the impairment-only model, as previously confirmed by IASB member Rika Suzuki. Notably, the Exposure Draft simplifies value in use calculations, allowing for including cash flows from uncommitted restructuring or asset enhancements, and removing the pre-tax calculation requirement.
Check out this snapshot for a summary of proposed amendments.
Next milestone: The Exposure Draft is open for comment until 15 July 2024.
Power purchase agreements (PPAs)
At its March meeting, the IASB made several tentative decisions relevant to PPAs. This is an important update for anyone involved in PPAs, so be sure to visit the project page for details.
Background: A PPA is a long-term contract where a business procures electricity directly from a renewable energy generator. In response to global efforts to combat climate change, entities are increasingly engaging in PPAs, which has led to challenges and queries regarding the application of the ‘own use’ exception set out in IFRS 9.2.4. The IASB aims to introduce targeted amendments to IFRS 9 concerning the application of this exception to PPAs, both physical and virtual.
Next milestone: Exposure Draft proposing amendments to IFRS 9 (expected in May 2024).
IFRS Interpretations Committee Meeting
The Committee met on 5 March but didn’t release any new agenda decisions.
Miscellany
Tracing ‘reserves’ in accounting
Peter Clark recently tackled a linguistic oddity in accounting – the all-encompassing use of the term ‘reserves’ for assets, liabilities, and equity. He evaluates the suitability of applying this term so broadly.
For those interested in the linguistic intricacies of accounting, his earlier article offers an insightful look at the use of the precise phrase ‘if, and only if’ in certain IFRS requirements, as opposed to a mere ‘if’.
That wraps up this edition of Reporting Period. Your feedback is valuable to me, so don’t hesitate to respond directly to this email with your thoughts and comments.
Thank you for being a subscriber.
Best regards,
Marek