COVID-19: Paving the Future of Digitisation

The recent AICPA Conference on Current SEC and PCAOB Developments was hosted from the 7^th  to the 9th of December 2020 where Vice-Chair of the IASB, Sue Lloyd, made a few remarks on the impact of Covid-19 on 2020 as well how to move forward in 2021. Here are a few highlights from that speech. 

Covid-19 

Let’s start with this year. Of course, this has been a year like no other—at least, within most of our lifetimes. The covid-19 pandemic has tested us all both personally and in business. 

At the IASB, we’ve been mainly working from home since March. The novelty of this has worn off, and I’m really missing meeting people in person—both my colleagues and our stakeholders around the world. 

The pandemic is first and foremost a public health crisis. But the resulting economic consequences have also presented challenges for accountants. 

When the impact of the pandemic started to crystallise, we used our ongoing engagement with the accounting profession, market and prudential regulators and others to understand any challenges companies may have in applying IFRS Standards as a result of the pandemic. The pandemic created the first real stress test for the new expected credit loss approach, and leases, because it is only a year since the new leasing requirements came into effect and, given the effects of lockdowns around the world, many lease arrangements were affected by the pandemic. We then issued targeted amendments, on an expedited basis, to our leasing standard, IFRS 16, in order to simplify the accounting for lessees when they are granted rent concessions because of covid-19. 

Priority projects for 2020 

Whilst the response to covid-19 has been a priority for everyone, we’ve all had to balance this with getting on with the day job. For us, this meant identifying our highest priorities. 

IFRS 17 

We worked hard to finalise amendments to our insurance contracts Standard, IFRS 17, on time, despite the pandemic. When the IASB overhauled the international standards that it inherited from its predecessor body, it didn’t have time to introduce a fully-fledged Standard for insurance. Now we have a required measurement model for insurance contracts for those applying IFRS Standards. The model results in measurement of insurance liabilities on a current basis and improves the information provided about profitability. That work was completed in June this year and included moving the effective date for the new insurance requirements out by two years to 2023. 

Primary Financial Statements and Goodwill and Impairment 

We’ve also had two very important consultations out for comment this year. One of them is on improvements to the Primary Financial Statements, or what we call our PFS project for short. 

Over recent years, the IASB has substantially enhanced Standards dealing with recognition and measurement, but presentation has perhaps been the poor relation. Our PFS project presents an opportunity to rectify this situation. Our Chair Hans Hoogervorst calls PFS a game-changer in financial reporting, and for good reason. The Discussion Paper also looks at the question of the subsequent accounting for goodwill. The IASB, by the very slimmest of majorities, voted to retain an impairment-only approach to accounting for goodwill. Given the slim majority, the Discussion Paper sets out the pros and cons of both the impairment-only approach and amortisation. This is a long-debated issue in accounting, as you all know, not just in the US but internationally. This project is still in the early stages. 

IFRS Interpretations Committee work 

Before moving on to our priorities for next year, I should also say a few words about our ongoing work to support consistent application of our Standards. Having true comparability globally between IFRS financial statements is a key strategic priority for us so we spend a lot of time on this. The Committee responds to questions about the application of IFRS Standards, particularly where divergence in practice exists. In some cases, the Committee will decide that narrow-scope standard-setting is needed to address an issue. But in other cases, the Committee may decide that standard-setting is not required. In the latter case, it explains why in an agenda decision. 

If the Committee decides that standard-setting isn’t necessary because sufficient guidance already exists in our Standards, the agenda decision explains how the Standards should be applied to answer the question that was submitted, so useful information about how to apply our Standards is included in agenda decisions. 

Priorities for 2021 

Let me now turn to our priorities for the coming year. And when I say ‘our’, I mean the work of the IASB—the accounting standard-setting body of which I am Vice-Chair—but also the work of our oversight body, the IFRS Foundation. What happens next year is of course caveated by the uncertainty resulting from the ongoing pandemic; however, there are a couple of key developments that I would like to flag. 

Agenda Consultation 

In the first quarter of 2021, the IASB will be consulting on its future agenda. This is an important exercise. We are now in our 20th year. Our first decade was largely focused on growing the IFRS family, and in the second decade we have introduced some major upgrades to our Standards and have focused on consistent application. Now we are looking forward to our third decade, and our agenda consultation is an important opportunity for us to ask our stakeholders to tell us what they think we should work on—both which standard-setting projects our stakeholders think are important for the IASB to consider, but also how much time we should spend on developing new Standards relative to our other activities, such as supporting consistent application and working on our Taxonomy.  

Technology and digital transformation 

Covid-19 has made the importance of digitalisation clear. As an international body we have really seen some of the benefits of technology that we had perhaps underutilised in the past—this has enabled us not only to stay in contact with our stakeholders during the pandemic, but in some instances has allowed us to reach more stakeholders than ever before. We will reflect on this experience to shape how we work going forward. 

We are also looking at how we as a standard-setter can use new technology more effectively. This includes looking at ways to improve the accessibility of IFRS Standards and related information for companies, auditors and regulators through our digital offerings. And, as digital reporting increasingly becomes the norm across jurisdictions, we are also continuing to invest in and further develop the IFRS Taxonomy. This reflects the importance of ensuring that global comparability extends to digital reporting. 

Sustainability reporting 

Finally, let me say a few words about another topic that will continue to be big in 2021—climate-related and sustainability reporting. Although the term ‘climate change’ is not explicitly mentioned in IFRS Standards, climate-related matters that are material to a company’s financial statements are already required to be considered when applying IFRS Standards. We have recently published educational materials to highlight this important point by using references to specific IFRS requirements as a means of illustration. 

Source: ifrs.org 

To view our related Courses – IFRS Training material on the standards discussed above, follow the links before: 

> COVID-19 & IFRS | COVID Impact on Financial Statements | IFRS Training 

> IFRS 16 Leases Updated | 2020 | 2021 | IFRS Training 

> IFRS 17 Insurance Contracts Updated | 2020 | 2021 | IFRS Training 

> IFRS Masterclass Updated | 2020 | 2021 | IFRS Training 

> IFRS Free Training Course Videos : IFRS Taxonomy | IFRS Training