Financial Reporting & Audit Newsletter Q3 2023

Adhering to its regular maintenance of Accounting Standards, the IASB has released its suggested revisions to IFRS Accounting Standards, along with the corresponding supporting guidance. These yearly enhancements are focused on modifications that aim to clarify the language used in an IFRSs, rectify minor oversights, or resolve conflicts between accounting requirements stated in the Accounting Standards.

“The proposed amendments include clarifications, simplifications, corrections or changes to improve consistency in IFRS 1 First-time Adoption of International Financial Reporting Standards; IFRS 7 Financial Instruments: Disclosures and its accompanying Guidance on implementing IFRS 7; IFRS 9 Financial Instruments; IFRS 10 Consolidated Financial Statements; and IAS 7 Statement of Cash Flows.”

Reference:

https://www.ifrs.org/news-and-events/news/2023/09/iasb-proposes-annual-improvements/

IFRS 15 introduced a standardized 5-step approach which aimed at enhancing the quality and comparability of revenue-related information. Given the substantial changes in how revenue is measured, recognized, and disclosed, the IASB has initiated its customary post-implementation review (PIR) stage to evaluate whether the requirements are functioning as intended.

Furthermore, the IASB has also completed its post-implementation review of IFRS 9 – impairment. This review focused on assessing whether the forward-looking approach to credit losses has provided users of financial statements with adequate information. The effectiveness of this expected credit loss approach was especially scrutinized during the COVID-19 crisis. The IASB eagerly awaited the results of this review as they will provide valuable insights into its performance under such challenging circumstances.

References:

https://www.ifrs.org/projects/work-plan/post-implementation-review-of-ifrs-9-impairment/video–zach-gast-explains-the-request-for-information/

https://www.ifrs.org/projects/work-plan/post-implementation-review-of-ifrs-15-revenue-from-contracts-with-customers/video-patrina-buchanan-explains-the-rfi/

The IASB has concluded its decision making on two projects which represents the final step before drafting and voting upon two new standards. The first of these standards targets improvements in comparability through consistency and transparency. This new Standard resulted from the Primary Financial Statement project and will supersede IAS 1 Presentation of Financial Statements.

The second new accounting standard targets to lessen the amount of information disclosed by subsidiaries that are not traded on a public exchange. as a result of the Subsidiaries without Public Accountability: Disclosures project.

The new Standards will be applicable for annual reporting periods beginning on or after 1 January 2027 giving companies ample time to implement the new requirements.

Reference: https://www.ifrs.org/news-and-events/news/2023/07/iasb-completes-technical-work-on-two-new-ifrs-accounting-standards/

The IASB has issued amendments to IAS 21 The Effects of Changes in Foreign Exchange Rates in an attempt to enhance the provision of information in the scenario where a currency cannot be exchanged into another currency. The amendments emanate from stakeholder feedback noting that diversity in accounting for lack of exchangeability between currencies exists.

The amendments will require a consistent approach with the exchangeability assessment as well as in determining the exchange rate to use when such currencies are deemed not exchangeable. The amendments will become effective for annual reporting periods beginning on or after 1 January 2025. Early application is permitted.

Reference:

https://www.ifrs.org/news-and-events/news/2023/08/iasb-sets-out-accounting-requirements-for-when-currency-not-exchangeable/

In July 2023, the International Federation of Accountants (IFAC) released a second installment forming part of a three-part publication series to assist small and medium-sized practices to implement the quality management standards, ISQM 1 and ISQM 2.

While installment one addressed the mindset change that comes along with the new standards, shifting focus from one of quality control to one of quality management, installment two assists with the development of a detailed implementation plan. This assists firms in identifying their quality objectives, completing their risk assessment process, identifying quality risks and communicating the system of quality management.

Reference: https://www.ifac.org/news-events/2023-07/ifac-releases-second-installment-implementation-support-series-small-firms-iaasb-s-quality 

The proposed International Standard on Sustainability Assurance, ISSA 5000, General Requirements for Sustainability Assurance Engagements, was published for public consultation on 2 August 2023, and will remain open until 1 December 2023.

The standard will serve as a stand-alone standard used on both limited and reasonable assurance engagements. Furthermore, it will apply to all sustainability related information reported on sustainability matters, such as ESG and disclosures on sustainability, and will be used by all professionals carrying out sustainability assurance engagements.

Those preparing, using or providing assurance on sustainability information, including users of such information, are invited by the International Auditing and Assurance Standards Board (“IAASB”) to provide their feedback.

Reference: https://www.iaasb.org/news-events/2023-08/iaasb-launches-public-consultation-landmark-proposed-global-sustainability-assurance-standard

The European Commission, EFRAG and the International Sustainability Standards Board (ISSB) have been working jointly to improve interoperability between the newly adopted ESRS and IFRS S1 and S2 with the main aim of enabling an entity to apply both sets of ESG-related standards as efficiently as possible.

Reference: https://www.ifrs.org/news-and-events/news/2023/07/european-comission-efrag-issb-confirm-high-degree-of-climate-disclosure-alignment/

The European Commission, EFRAG and the International Sustainability Standards Board (ISSB) have been working jointly to improve interoperability between the newly adopted ESRS and IFRS S1 and S2 with the main aim of enabling an entity to apply both sets of ESG-related standards as efficiently as possible.

Reference: https://www.ifrs.org/news-and-events/news/2023/07/european-comission-efrag-issb-confirm-high-degree-of-climate-disclosure-alignment/

In an era dominated by climate change and economic complexities, the financial world is undergoing a significant transformation. With businesses facing unprecedented challenges due to environmental uncertainties, the need for transparent and accurate reporting has never been more critical. The International Sustainability Standards Board (ISSB) is focusing efforts on improving the reporting of climate-related and other uncertainties in financial statements.

The possible actions to be taken by the ISSB include the development of educational material, illustrative examples and targeted amendments to IFRS Accounting Standards to further enhance the current existing requirements.

Reference:

https://www.ifrs.org/projects/work-plan/climate-related-risks-in-the-financial-statements/#about