IFRS quarterly update: Key IFRS developments in Q2 2026

Progress on improving cash flow reporting

What’s new?

Following stakeholder feedback highlighting significant diversity in practice, the IASB continued discussions on improving how entities apply the definition of cash equivalents under IAS 7.

The IASB voted in favor of staff recommendations to update the definition of cash equivalents. The requirement to hold these investments for short-term cash commitments will now sit directly within the definition itself, highlighting the importance of holding purpose. This potential amendment reinforces that classification depends on an entity's intended use of the instrument, not just its liquidity features.

The Board also discussed staff recommendations to expand application guidance by establishing a rebuttable presumption that investments with maturities exceeding three months do not qualify as cash equivalents. However, IASB members expressed concern that while this rule may reduce diversity in practice, it could increase complexity and invite inconsistent application. Consequently, no tentative decision was reached, and staff will develop alternative approaches for future review.

In parallel, the IASB approved a package of staff-recommended proposals to improve cash flow statement presentation. These updates provide additional guidance on aggregating and disaggregating line items, promote more consistent labeling between the statement of cash flows and the statement of financial position, and strengthen cross-referencing to related notes.

The Board also agreed to enhance the disclosure objective for changes in liabilities arising from financing activities. New rules will explicitly require disclosures that enable users to link liability movements directly to both the statement of financial position and the statement of cash flows.

During its June meetings on the broader cash flow statement project, the IASB focused on improving consistency in classifying cash flows from derivatives and government grants. A majority of members supported staff recommendations to classify cash flows from non-hedging derivatives by aligning them with the cash flows of underlying risk-managed items where practicable (or as operating activities if alignment involves undue cost or effort).

Similarly, board members backed classifying cash flows from government grants in line with related items. Where alignment is impracticable, cash flows related to income should be presented as operating activities, and asset-related grants as investing activities on a gross basis.

Who’s affected?

The proposals are particularly relevant for Luxembourg banks, investment funds, and alternative investment structures that actively manage large liquid portfolios through treasury or cash management functions. Short-term deposits, money market investments, and highly liquid debt securities may require closer assessment to confirm they genuinely meet the cash equivalent definition based on contractual terms and holding purpose.

For investment funds—including undertakings for collective investment in transferable securities (UCITS), private equity, private debt, and real estate funds—these clarifications should drive consistent classification of liquid holdings, particularly temporary investments held pending capital deployment or investor distributions. Proposed guidance on aggregation and disaggregation, consistent line-item labeling, and note cross‑referencing may also require finance teams to revisit how cash flow details link across primary financial statements.

Consequently, banks and other financial institutions may need to reassess existing treasury policies to ensure instruments reported as cash equivalents are supported by documented evidence showing they meet short-term operational liquidity needs rather than investment return goals. Teams should also prepare to enhance financing liability disclosures—ensuring reconciliations clearly link balance sheet and cash flow movements—and evaluate how new derivative and government grant rules could shift cash flow reporting across operating, investing, or financing activities.

Business combinations—disclosures, goodwill and impairment

What’s new?

The IASB continued redeliberations on the Exposure Draft Business Combinations—Disclosures, Goodwill and Impairment, focusing on improving disclosures about acquired business performance and expected synergies. While investors broadly support enhanced transparency on whether acquisitions deliver intended value, preparers and auditors have raised concerns about auditability, commercial sensitivity, litigation risk, and the cost of producing forward-looking information.

To address these concerns, the staff proposed a revised disclosure package that narrows the scope of performance information, primarily requiring entities to disclose currency-based performance targets (including related ratios or percentages) used by management to monitor acquisitions. The proposals also clarify that expected synergy disclosures are required only when information is already monitored internally, and that disclosed targets reflect management's expectations at the acquisition date rather than accounting estimates.

The IASB also voted in favor of a limited exemption from certain disclosure requirements where providing information would breach statutory, legal, or regulatory requirements. However, the Board decided against extending the exemption to other situations, concluding that potential commercial, operational, or other adverse consequences do not justify withholding information beyond the proposed statutory relief.

The Board also reaffirmed its proposal to amend IAS 36 Impairment of Assets. Under the update, entities can include expected cash flows from future restructurings and asset enhancements when calculating value in use, with no added disclosure requirements or implementation guidance.

Who’s affected?

The proposals are particularly relevant for Luxembourg investment funds, private equity managers, and commercial companies that regularly undertake acquisitions or business combinations.

Private equity, UCITS, and alternative investment managers completing platform acquisitions or buy-and-build strategies could face enhanced disclosure requirements regarding acquisition objectives, expected synergies, and post-acquisition financial performance. The proposed changes streamline disclosures by focusing primarily on quantitative metrics rather than broad qualitative descriptions.

Banks and larger financial institutions involved in strategic acquisitions may also need to strengthen governance over post-acquisition monitoring, particularly where internal management reports track specific financial targets or synergy expectations.

New IASB standard on rate‑regulated activities—IFRS 20

What’s new?

The IASB issued IFRS 20, replacing IFRS 14 Regulatory Deferral Accounts and introducing a mandatory accounting model for entities subject to defined types of rate regulation.

IFRS 20 requires entities to recognize regulatory assets and liabilities when rate‑setting mechanisms create timing differences between supplying goods or services and billing customers. Because of these timing gaps, revenue recognized under IFRS 15 Revenue from Contracts with Customers may not fully reflect an entity’s performance in a given period. By recognizing regulatory assets, liabilities, income, and expenses, IFRS 20 intends to align financial reporting with underlying economic performance.

Entities must present regulatory income and expense separately—generally immediately below revenue—and report regulatory assets and liabilities separately on the statement of financial position. The standard becomes effective for annual reporting periods beginning on or after 1 January 2029, with early application permitted subject to EU endorsement.

Who’s affected?

Direct application primarily impacts Luxembourg entities operating regulated businesses (such as electricity, gas, water, or transportation) or holding significant stakes in these businesses through Luxembourg holding structures.

Banks and credit institutions with exposures to regulated utilities through project finance, infrastructure lending, or structured credit must evaluate how IFRS 20 alters borrower balance sheets and profit profiles, as these shifts may influence covenant design, capital models, and ECL assessments.

Investment funds—including UCITS and alternative investment funds (AIFs)—investing in regulated entities will see adjustments to net asset values and metrics adjacent to earnings before interest, taxes, depreciation, and amortization (EBITDA), potentially impacting valuation analysis and investor reporting.

Private equity and private debt funds targeting energy transition, utilities, transport, and infrastructure must check if portfolio companies are subject to rate regulation. Affected funds will need to update deal models, leverage ratios, distribution calculations, and post-acquisition reporting to reflect regulatory assets and liabilities. Real estate funds with assets tied to regulated networks (e.g., district heating, power distribution, or transport‑linked assets) may also be indirectly affected if tenant or operator cash flows shift under IFRS 20.

Equity method: Ongoing IASB clarifications

What’s new?

The IASB continued redeliberating its Exposure Draft Equity Method of Accounting, focusing on presenting associate results and accounting for transactions between an investor and its associates.

During this quarter’s meetings, the IASB agreed with staff recommendations that when an investor's share of an associate's profit or loss and other comprehensive income (OCI) both exceed the investment’s carrying amount, profit or loss should be recognized before OCI. Responding to stakeholder feedback on complexity, the Board withdrew its earlier proposal that would have required entities to continue recognizing losses once an investment’s carrying amount reaches zero.

The IASB also approved proposals regarding the initial measurement of associate investments. Deferred tax effects arising from fair value adjustments to an associate's identifiable assets and liabilities should form part of the investment’s carrying amount. The Board also clarified that where an entity obtains significant influence by issuing debt or equity instruments, related issuance costs remain governed by IAS 32 Financial Instruments: Presentation and IFRS 9. In addition, investors must reassess whether all identifiable assets and liabilities have been properly identified and measured before recognizing a bargain purchase gain.

In parallel, the Board agreed that a bargain purchase gain from acquiring an additional ownership interest must be recognized in profit or loss. The IASB also tentatively confirmed that if an investor previously reduced an investment’s carrying amount to zero, acquiring an additional stake does not trigger immediate recognition of previously unrecognized losses.

To address the long-standing inconsistency between IAS 28 Investments in Associates and Joint Ventures and IFRS 10 Consolidated Financial Statements, the Board tentatively agreed to introduce an accounting policy choice. Entities can apply either full or restricted recognition of gains and losses on transactions with associates (while transfers of businesses must always be recognized in full).

Finally, the IASB addressed applying the equity method in separate financial statements. Entities should maintain a consistent equity‑method accounting policy across both consolidated and separate financial statements. However, entities that recognized full gains and losses in their consolidated financial statements may choose between full or restricted recognition in their separate financial statements.

Who’s affected?

These proposed amendments affect all entities that are not investment entities and do not measure associate investments at fair value.

For Luxembourg commercial and industrial groups holding strategic investments in associates and joint ventures—especially those with frequent intercompany transactions—the new accounting policy choice could materially affect how gains and losses are recognized and reported. Developing a consistent group‑wide policy and robust disclosures will be essential.

Banks and other financial institutions holding strategic investments under the equity method should also monitor these developments closely. Clarifying profit or loss versus OCI recognition will drive consistency, while expanded disclosure rules could demand more detailed data on transactions with associates. In many cases, the upcoming IFRS 18 framework and related IAS 28 amendments may prompt entities to transition to fair value through profit or loss rather than continuing with the equity method.

Presentation of taxes or other charges that are not tax expense or tax income applying IAS 12/IFRS 18

What’s new?

The IFRS Interpretations Committee (“the Committee”) evaluated how entities applying IFRS 18 should present taxes or charges that fall outside the scope of IAS 12 Income Taxes.

The question arises because IFRS 18 requires entities to classify income and expenses into specific statement of profit or loss categories—including an “income taxes” category—prompting stakeholder questions on whether non‑income taxes can appear there. Following a tentative agenda decision by the Committee, the IASB explored whether certain non‑income tax charges could be included in the income taxes category if they qualify as covered taxes under the OECD Pillar Two model rules.

However, because several board members opposed the inclusion of covered taxes in that line item, the IASB directed staff to explore alternative classification methods for specific non-income tax charges within the statement of profit or loss.

Who’s affected?

Luxembourg constituent entities within the scope of the Luxembourg Pillar Two Law should monitor these discussions closely, as the final guidance will dictate how Pillar Two top‑up taxes and other covered taxes are classified and presented under IFRS 18.

For investment funds and real estate vehicles, the impact hinges on whether the fund and its Luxembourg special purpose vehicles (SPVs) qualify as excluded entities under Pillar Two. Non-excluded entities must track this IFRS 18 classification work to determine how Pillar Two charges will affect their financial statements.

Amortized cost measurement (IFRS 9)

What’s new?

The IASB is undertaking a targeted project on amortized cost measurement to clarify and refine core principles in IFRS 9 without altering the underlying classification and measurement model.

At its 21 April 2026 meeting, the IASB approved staff recommendations to amend paragraph B5.4.5 of IFRS 9. Under the update, entities must adjust the EIR when re‑estimating contractual cash flows that reflect consideration for the time value of money or credit risk.

Consequently, the EIR may adjust for movements in benchmark interest rates, inflation indexes, or credit spreads. Other contractual cash flow re-estimations (excluding modifications and changes in ECL estimates) will continue to follow IFRS 9:B5.4.6.

All IASB members voted in favor of the recommendation. The Board will seek stakeholder feedback on whether the proposed approach reduces application diversity and achieves an appropriate balance between investor information benefits and preparer application costs. The IASB plans to issue an Exposure Draft in the second half of 2026, including application guidance and illustrative examples to help preparers apply the clarified requirements.

The IASB also discussed when modifying a financial asset or liability should trigger derecognition. The Board tentatively decided that entities should assess whether a modification is “substantial” through a holistic assessment of qualitative and quantitative factors, treating the existing 10% test in IFRS 9:B3.3.6 as a supplementary indicator rather than a decisive rule.

The upcoming Exposure Draft will highlight indicators of substantial modification—such as currency changes, shifts affecting solely payments of principal and interest (SPPI) or embedded derivative assessments, borrower substitutions, or commercial renegotiations to market terms—to reduce diversity in derecognition practices.

Who’s affected?

Luxembourg banks and credit institutions face the most direct impact given their extensive portfolios of loans, debt securities, and other financial instruments measured at amortized cost. Updated EIR mechanics will directly influence interest revenue recognition, margin analyses, and ECL models.

Investment funds—particularly private debt, loan funds, and multi‑asset strategies—must evaluate how clarified EIR rules apply to amortized‑cost holdings, especially where complex features or restructurings are common. Additionally, adopting a holistic modification test could shift when loans and other financing arrangements are derecognized, altering reported gain or loss timing on restructurings.

Commercial entities and industrial groups with material intragroup loans or supplier financing may see a medium impact, particularly across treasury and group financing vehicles holding material amortized‑cost receivables and payables.

Insurers holding large bond portfolios measured at amortized cost or issuing policyholder loans will also be affected, as EIR adjustments can alter interest margins and the interaction between asset yields and insurance contract measurements.

FICE

What’s new?

At its April 2026 meeting, the IASB continued redeliberations on the FICE project, focusing on how contractual terms drive the distinction between equity and financial liabilities for complex instruments.

The Board confirmed that contingent settlement provisions apply only when settlement depends on uncertain future events beyond the control of both the issuer and the holder. It also agreed that dividends on instruments classified entirely as financial liabilities should be recognized as expenses, resolving an existing inconsistency in IAS 32.

In addition, the IASB clarified two foundational classification concepts. Liquidation is now defined as converting assets to cash, settling obligations, and distributing remaining assets to equity holders to permanently cease operations. The Board also clarified that when assessing whether a contractual term is "not genuine", entities should consider both the likelihood and nature of the contingent event. A term serving a genuine business purpose will not be considered "not genuine", even if the triggering event is highly unlikely.

The IASB decided against proceeding with proposed measurement requirements for contingent settlement provisions under FICE, shifting those measurement issues to its separate project on amortized cost measurement under IFRS 9.

Finally, for written put options and forward purchase contracts over NCI, the FICE project maintains their basic classification as financial liabilities while clarifying equity presentation. The proposals require written puts and forward purchase contracts on an entity’s own equity  instruments (including NCI puts) to be shown on a gross basis and provide clearer guidance on attributing the initial debit and subsequent remeasurements within equity—including reclassifications when options expire—to reduce today’s practice diversity and improve leverage transparency.

Who’s affected?

These proposals are particularly relevant for Luxembourg banks, insurers, investment funds, and other entities issuing or holding complex capital instruments, such as preference shares, perpetual bonds, convertible debt, and other hybrid structures.

Banks and other regulated financial institutions should monitor these updates closely. Clarified contingent settlement rules could directly affect additional Tier 1 (AT1) capital—hybrid capital instruments designed to convert to equity during severe distress—with knock‑on impacts for regulatory capital, leverage ratios, and financing cost presentation.

Private equity funds, infrastructure funds, real estate funds and other alternative investment structures should also reassess instrument classifications and related distribution accounting. While measurement rules for contingent settlement provisions were deferred to the IFRS 9 project, managers of complex financing structures should track future developments, as subsequent liability measurements could shift.

The proposed changes for put options mainly affect groups that use written put options over NCI as part of their ownership or exit structures. This includes corporate groups with staged or contingent buyouts of minority shareholders, private equity and infrastructure platforms granting NCI puts to co‑investors, and institutions holding subsidiaries with structured minority arrangements. For these entities, clearer FICE guidance on classification and presentation will directly impact how leverage, equity, and performance effects are reported and communicated.