IASB issues new standard on reporting by subsidiaries without public accountability
The IASB has released IFRS 19 Subsidiaries without Public Accountability: Disclosures, which introduces a reduced disclosure regime in IFRS Accounting Standards for certain subsidiaries of entities reporting under IFRS Accounting Standards. Subsidiaries applying IFRS 19 are able to make a statement of compliance with IFRS Accounting Standards (and IFRS 19).
Subsidiaries eligible to apply IFRS 19 comply with the recognition and measurement requirements of IFRS Accounting Standards, but make fewer disclosures based on the IFRS for SMEs Accounting Standard. To this end, the standard was developed in a process that ostensibly follows the approach adopted by the AASB in developing AASB 1060 General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities. However, disclosure differences exist between IFRS 19 and AASB 1060 (e.g. IFRS 19 requires more disclosures about financial instruments, impairment and pronouncements on issue which have not yet been applied).
Furthermore, the scope of IFRS 19 is significantly narrower than AASB 1060 (as AASB 1060 applies to all entities without public accountability that are required to comply with Australian Accounting Standards).
The AASB has considered whether, and if so, how, to introduce IFRS 19 in the Australian context. At its November 2023 meeting, the AASB considered a paper on this topic and decided to consider the issues as part of the post-implementation review of AASB 1060. However, since amendments may be needed to AASB 1060 to reflect changes to the IFRS for SMEs Accounting Standard arising from the IASB’s review of that Standard, the AASB will also consider the outcomes of that review in making a decision. Accordingly, amendments to AASB 1060 may be made, AASB 1060 replaced, or IFRS 19 issued alongside AASB 1060 in due course. The paper considered at the November 2023 meeting indicated a possible decision on the way forward being made by the end of 2025.
IFRS 19 is applicable to annual reporting periods beginning on or after 1 January 2027, but may be applied earlier.
For more information about IFRS 19, see iGAAP in Focus IASB introduces reduced disclosure framework for subsidiaries.
IASB proposes to allow ‘own use’ and hedge accounting in relation to power purchase agreements (PPAs)
On 8 May 2024, the IASB issued IASB/ED/2024/3 Contracts for Renewable Electricity, which proposes to amend IFRS 9 Financial Instruments and IFRS 7 Financial Instruments: Disclosures (and IFRS 19) to alter the treatment of certain renewable energy power purchase agreements (PPAs).
The proposals are broadly limited to contracts for renewable energy (both physical and virtual PPAs), where the source of production is nature-dependent (such as wind, solar and hydroelectricity) and the purchaser is exposed to substantially all of the volume risk (i.e. the risk the volume produced does not coincide with the purchaser’s demand) through ‘pay-as-produced’ features.
The exposure draft proposes to permit:
- The application of the ‘own-use’ requirements in IFRS 9 to eligible power purchase contracts, subject to certain considerations from contract inception and throughout its duration
- The designation of a variable nominal volume (or quantity) of forecast sales or purchases of renewable electricity as the hedged item in a cash-flow hedging relationship with the PPA as the hedging instrument, subject to meeting certain criteria. Furthermore, the hedged item can be measured using the same volume assumptions as those used for the hedging instrument (PPA).
In addition, the exposure draft proposes including specific disclosures about eligible PPAs in IFRS 7.
The exposure draft follows an earlier IFRIC agenda decision that confirmed the treatments proposed by the current exposure draft were not permitted.
The IASB is fast-tracking the amendments, and the exposure draft is open for a shortened 90 day comment period until 7 August 2024. The exposure draft indicates that the IASB intends to issue the amendments in the fourth quarter of 2024 and asks whether it would be appropriate to set an effective date of the amendments to apply to annual reporting periods beginning on or after 1 January 2025.
For more information, see IAS Plus article IASB proposes amendments to IFRS 9 and IFRS 7 regarding power purchase agreements.
ISSB adds new research projects on nature and human capital
Following an agenda consultation process, the ISSB has announced it will commence research projects on disclosure about risks and opportunities associated with:
- Biodiversity, ecosystems and ecosystem services (BEES)
- Human capital.
Any proposals arising out of these projects will seek to build from existing initiatives, such as the SASB Standards, Climate Disclosure Standards Board (CDSB) guidance and the Task Force on Nature-related Financial Disclosures (TNFD).
In deciding on this approach at its April 2024 meeting, the ISSB decided not to add projects to its work plan that were also included in the consultation process, including projects on human rights and integration in reporting.