The International Accounting Standards Board (IASB) published a consultation document, proposing eight examples to demonstrate how companies apply IFRS Accounting Standards when reporting the effects of climate-related and other uncertainties in their financial statements.

The illustrative examples were created to provide helpful information to clarify proper reporting, they do represent new mandatory requirements. IASB is issuing this guidance following requests from stakeholders, particularly investors, who expressed concerns that the information about climate-related risks in financial statements was insufficient or inconsistent. This new proposed guidance is intended to strengthen the connection and consistency between financial statements and the company’s other reports such as sustainability disclosures.

The eight illustrative examples in the guidance focus on key areas such as disclosures on assumptions and estimations, disaggregation of information and materiality judgments. The IASB worked with the International Sustainability Standards Board (ISSB) to provide these clarifying examples and is continuing to explore ways to help improve widespread reporting of the financial impact of climate-related risks.

Comments must be submitted to the IASB by November 28, 2024. The IASB will review feedback to determine whether to finalize the proposed examples and provide them with the IFRS Accounting Standards.  

Click here to read the full proposal.

The International Sustainability Standards Board (ISSB) issued its inaugural standards—IFRS S1 and IFRS S2 — related to sustainability disclosures for capital markets worldwide.  The Standards will help to improve trust and confidence in company disclosures about sustainability to inform investment decisions.  The standards are designed to create a common language for disclosing the effect of climate-related risks and opportunities on a company’s prospects.  These standards will likely for the basis for disclosures that will ultimately be incorporated by supervisors for credit unions.

IFRS S1 specifically provides a set of disclosure requirements designed to enable companies to communicate to investors about the sustainability-related risks and opportunities they face over the short, medium and long term. IFRS S2 sets out specific climate-related disclosures and is designed to be used with IFRS S1.

Together these standards support a comprehensive global baseline of sustainability-related disclosures that demonstrate the widespread demand for a consistent understanding of how sustainability factors affect companies’ prospects.  The ISSB Standards are designed to ensure that companies provide sustainability-related information alongside financial statements—in the same reporting package.

Of importance to credit unions are the mechanisms included to address proportionality.  This includes the use of reasonable and supportable information that is available without undue cost or effort and the consideration of an entity’s skills, capabilities, and resources.  This standard should allow for the implementation of disclosures that minimize the cost and expenditures necessary by credit unions to prepare their reporting (once implemented at the national-level).

WOCCU has been advocating for the inclusion of proportionality measures into the standard at all levels of development, including directly with the ISSB, the Basel Committee, and the Financial Stability Board, all of whom have been consulted during the development of this standard.

Work now will turn to jurisdictions and companies to work with the Transition Implementation Group that is being launched to support implementation of the standard.

A copy of the proposal can be viewed here.

The International Accounting Standards Board (IASB) has added a project to its work plan to explore whether and how companies can provide better information about climate-related risks in their financial statements.

The initiation of the project responds to feedback received from the IASB’s recent Agenda Consultation for the IASB to enhance the reporting of climate-related risks in the financial statements.

In undertaking the project, the IASB will consider the work of the International Sustainability Standards Board (ISSB) to ensure any proposals work well with IFRS Sustainability Disclosure Standards and that any information required by the two boards would be complementary. The first two IFRS Sustainability Disclosure Standards are due to be issued by the end of Q2 2023.

The project was discussed at a recent IASB meeting noting that the project will research to what extent the educational material published in 2020 is helping companies reflect the effects of climate‑related risks in the financial statements, and what actions, if any, the IASB could take to further improve information about these matters.

World Council recently released its Guide to International Sustainable Finance Regulations “What Credit Unions Should Know About Sustainable Finance”, a guide to help credit unions understand many of the international standards and emerging regulatory frameworks surrounding climate-related and sustainable finance issues wherein it discusses recent developments in disclosures by the ISSB.

A copy of the press release can be viewed here.

World Council of Credit Unions (World Council) urged the IASB to provide greater clarity in its proposed revisions to the IFRS’ Exposure Draft for IFRS for SMEs Accounting Standard (Exposure Draft), that would clearly delineate that credit unions can used the relaxed standard for its allowance for loan and lease loss accounting (IFRS 9 or CECL).  This standard is currently utilized in several countries for credit unions, however, many countries due to the current definition of “publicy accountable” contained in the current definition.  Some jurisdiction tend to view credit unions as “publicly accountable” even though the term as used in the standard tend to apply to publicly traded vs. non-publicly traded entities, thus acting as a barrier to utilization of the IFRS for SME’s standard.  Other countries have allowed accounting standards based on the IFRS for SME standard for credit unions.

While the language proposes changes that would bring some greater clarity to the definition, WOCCU urged IASB to provide certainty in the revisions noting that credit unions due to their cooperative model, their relatively small size as compared to banks, and the use of financial statements by their members would warrant such a treatment.

Explicitly allowing use of the IFRS for SME standard would prove a valuable contribution to the objective of financial inclusion, particularly in developing countries where pro forma accounting systems are imposed without regard for the size and complexity of the institution subject to the accounting standard.  Allowing credit unions to state their financials in conformity with the IFRS for SME standard will not only reduce compliance burdens and provide proportionality but will likely improve the quality of financials provided to their members and regulators.

A copy of the letter can be viewed here.

The International Accounting Standards Board (IASB) released its Third Agenda Consultation Snapshot and Feedback Statement, outlining its priorities from 2022 to 2026. The Feedback Statement summarized feedback received from a 2021 public consultation, contributing, in large part, to shaping its priorities and work plan. The IASBs key strategic priorities include:

• Maintaining the strategic direction and balance of the IASB’s activities. These will remain largely the same, but in response to stakeholder feedback, they will increase “efforts in developing digital financial reporting and on improving the understandability and accessibility of IFRS Accounting Standards”.
• Completing current projects. This will include deliberations on current projects such as Primary Financial Statements, Goodwill and Impairment, as well others that will likely continue for the rest of 2022 and into 2023.
• Adding intangibles and cash flows to work plan. This will involve a comprehensive review of accounting requirements for intangible assets and review of the accounting requirements for the statement of cash flows and related matters.The IASB also identified areas where they can work in tandem with the International Sustainability Standards Board (ISSB) to create a “connected financial reporting package”.

In response to stakeholders and in light of the continuing Covid-19 pandemic, on March 31, 2021, the International Accounting Standards Board (Board) prolonged aid to lessees accounting for Covid-19-related rent concessions by extending, for one year, the application period of the practical expedient in IFRS 16 Leases.

The amendment was implemented to alleviate lessees accounting of Covid-19 related rent concessions, “such as rent holidays and temporary rent reductions, while continuing to provide useful information about their leases to investors.” The amendment, which was originally issued in May 2021, will now apply to rent concessions reducing lease payments due on or before June 30, 2022.

The International Accounting Standards Board requested comment on their Discussion Paper regarding Business Combinations – Disclosures, Goodwill and Impairment. World Council supported the adoption of the scheduled goodwill amortization as well as simplifications offered for the impairment test, but urged the disclosure of scheduled goodwill amortization as a separate item outside of the operating result. World Council expressed concern that this disclosure would “require the disclosure of internal confidential information that, if disclosed, could operate to the detriment of a company.”

World Council’s comments on IASB’s Discussion Paper on Business Combinations – Disclosures, Goodwill and Impairment, can be found here.

In September 2020, the International Accounting Standards Board requested stakeholders to respond to the IFRS Foundation’s questions on sustainability reporting found in their Consultation Paper on Sustainability Reporting. The consultation paper hoped to address concerns surrounding consistency and comparability in sustainability reporting.  According to the IFRS, “A set of comparable and consistent standards will allow businesses to build public trust through greater transparency of their sustainability initiatives, which will be helpful to investors and an even broader audience in a context in which society is demanding initiatives to combat climate change.”

World Council supported the IFRS’ goal to implement internationally recognized sustainability reporting standards as well as the development of a sustainability standards board (SSB) but requested that the IFRS consider small financial cooperatives when creating sustainability reporting standards. World Council asked that these standards avoid overburdensome reporting requirements; and include goals for financial inclusion as a requirement essential for the success of the SSB’s implementation.

World Council’s response to the IFRS’ Consultation Paper on Sustainability Reporting can be found here.

The World Council of Credit Unions urged the IASB to allow a greater use of the IFRS for SMEs Standard and in particular to make it easier for credit unions to utilize the standard.  The comments came as a part of the Request for Information on the IFRS for SMEs Standard issued by the International Accounting Standards Board. 

In particular, WOCCU noted that allowing some credit unions—especially smaller institutions and those in developing countries— would help limit excessive compliance burdens on small credit unions and reduce the burden on those smaller financial institutions in developing countries.  WOCCU urged the IASB to allow expressly the ability to state financials in conformity with the IFRS for SMEs standard noting that this could be accomplished with little effort and without defeating the purpose of the standard.

A copy of the letter can be viewed here.

The Trustees of the IFRS Foundation (IFRS) have published a Consultation Paper to assess demand for global sustainability standards and, if demand is strong, assess whether and to what extent the Foundation might contribute to the development of such standards.

Amid heightened focus on environmental, social and governance (ESG) matters, developments in sustainability reporting and increased calls for standardisation of such reporting, the IFRS is now seeking stakeholder input on the need for global sustainability standards.

The Consultation Paper sets out possible ways the IFRS might contribute to the development of global sustainability standards by broadening its current remit beyond the development of financial reporting standards and using its experience in international standard-setting, its well-established and supported standard-setting processes and its governance structure.

A copy of the consultation can be viewed here.

At the IFRS Foundation's IFRS Virtual Conference a panel discussing the Second Comprehensive Review of the IFRS for SMEs Standard mentioned that credit unions in particular were interested in clarifying the scope of the IFRS for SME standard to clarify that IFRS for SMEs can be used for purposes of calculating Expected Credit Losses and other accounting measures. WOCCU is pleased to hear that this possibility will be considered by IFRS.

Currently the United Kingdom and the Republic of Ireland base their requirements on IFRS for SMEs.  Small credit unions in the United States allows credit unions under $10 million in assets to follow Regulatory Accounting Principles which are similarly less stringent than G.A.A.P.  Many countries are reluctant to allow the use of IFRS for SMEs for accounting purposes for credit unions because the lack of clarity surrounding the applicability of the "publicly accountable" standard, which many regulators interpret as prohibiting them from using the standard for credit unions.

WOCCU has urged clear expansion of the standard as use of the IFRS for SME standard would represent a lighter and more appropriate treatment of IFRS 9/CECL for credit unions.  WOCCU intends to comment on the review by the close of the October 28 comment period.

The International Accounting Standards Board (IASB) has issued an amendment to dever by one year the effective date of Classification of Liabilities as Current or Non-Current, which amends IAS 1, Presentation of Financial Statements. WOCCU supported this delay in light of the COVID-19 pandemic.  The proposal was issued in January 2020 for annual reporting periods beginning on or after January 1, 2022.  They standard is now effective for annual reporting periods beginning on or after January 1, 2023.

WOCCU welcomes this delay as it should provide regulatory relief to credit unions during the COVID-19 pandemic.

WOCCU responded to the International Standards Accounting Board’s (IASB) requested comments on their Exposure Draft Classification of Liabilities as Current or Non-current—Deferral of Effective Date Proposed amendment to IAS 1. In January 2020, due to Covid-19 pandemic interferences, the IASB proposed a deferral to the amendments for IAS 1 Presentation of Financial Statements, moving the annual reporting periods to the beginning or after January 1, 2023. WOCCU expressed its concurrence with the deferral, expressing the necessary operational relief the deferral would provide to credit unions suffering from pandemic pressures, “that could delay the implementation of any changes in classification resulting from the application of these amendments and… the pandemic will delay the ability of a credit union to start and extend the duration of the renegotiation of loan covenants.” WOCCU’s full response to the IASB’s Exposure Draft can be found here.

The World Council of Credit Unions (WOCCU) urged the International Accounting Standards Board (IASB) to adopt measures that would reduce regulatory burden on credit unions in its comment letter on the IASB's Exposure Draft on Interest Rate Benchmark Reform. 

The Exposure Draft is part of the IASB's Interest Rate Benchmark Reform, which was issued in September 2019, and is the next phase of the project that considers the effects of interest rate benchmark reform on an entity’s financial statements that arise when interest rate benchmarks are replaced with alternative, nearly risk-free interest rates that are based, to a greater extent, on transaction data (alternative benchmark rates). 

WOCCU urged the use of the practical expedient in numerous instances to reduce the regulatory burden on the preparation of financial statements.  

A copy of the comment letter can be viewed here.

The International Accounting Standards Board (IASB) is undergoing a comprehensive review for the purposes of updating the IFRS for SMEs Standard.  This simplified accounting standard for small and medium entities is used by some jurisdictions as the basis for the requirements of implementing IFRS 9 for Financial Instruments and the expected loss calculations.  Although the standard is intended for "publicly accountable entities", WOCCU has supported its use for credit unions as a means of simplifying the accounting and reporting requirements of IFRS 9 for credit unions.  WOCCU intends to look at ways that the standard and approaches can be aligned with IFRS 9.

A copy of the consultation can be viewed here.
 

In a recently filed comment letter with the International Accounting Standards Board (IASB) on their Discussion Paper:  Financial Instruments with Characteristics of Equity, WOCCU strongly supported continuing the IASB existing approach to classifying cooperative shares as equity when the cooperative has an unconditional right to refuse redemption of the shares,  yet urged clarification on the IASB’s approach to the treatment of accounting for convertible bonds and similar instruments particularly as they relate to contractual and non-contractual rights of the instrument.

A copy of the comment letter can be viewed here.

The International Accounting Standards Board (IASB) issued their new work plan at the end of January containing a number of items relevant to credit unions this year.  A thorough summary of the January IASB meeting, containing numerous details can be found here.

Of particular interest to credit unions are the following:

• IASB will finish the Conceptual Framework in March.  This is the primary accounting standard on defining equity versus liabilities, and could impact the ability of cooperatives to use shares as equity;
• The IASB will issue a Discussion Paper in the Second Quarter of 2018 called Financial Instruments with Characteristics of Equity, which may also address when credit union shares and cooperative shares qualify as equity on an accounting basis (assuming this is not addressed in the Conceptual Framework); 
• IASB is planning Discussion Papers or Exposure Drafts (similar to proposed rules) on requirements for primary financial statements—including, according to the IASB meeting summary, requiring companies to disclose their key management performance measures, as well as proposals on management commentary and disclosure requirements; and
• IASB is also planning to issue a research summary paper on share-based payments, which indicates that they are considering changes to the rules on dividends.  This item may or may not affect credit unions based on the share-based dividends aspect.

WOCCU will closely monitor these items as they evolve throughout the year and will continue to ensure that the credit union/cooperative perspective is considered at each step of the process.