The Impact of COVID-19 on IFRS (IASB Speech)

A virtual seminar was hosted by the JICPA on the 16^th of December 2020 where Chair of the IASB, Hans Hoogervorst, spoke on the impact of Covid-19 on IFRS in 2020 as well as future challenges for 2021. Here are a few highlights from that speech.   

Covid-19 

The coronavirus situation is affecting us all. In the UK, we have just come out of a second lockdown, but we are still quite restricted in what we can do. My colleagues and I have all been working predominantly from home since March. I can assure you: it is no fun and I miss the informal contact at the workplace. 

We have responded to covid in two main ways. Early in the pandemic, we published educational materials to support the application of the financial instruments Standard, IFRS 9, and the leases Standard, IFRS 16. We also worked swiftly to amend IFRS 16 in relation to covid-19-related rent concessions. This amendment made the accounting easier for lessees. Looking back 

In 2012, I set out to dispel some myths that were rife at the time. Such as the myth that IASB would only be interested in fair value and the balance sheet. Looking back at the 10 years of my chairmanship, our actions have provided plenty evidence that such myths are not valid. 

The revised Conceptual Framework from 2018 made it clear that we do not favour one measurement method over others. Indeed, an important Standard like IFRS 9 uses a mixed measurement model and most of a bank’s accounting remains based on historical cost. Clearly, the IASB is far from obsessed with fair value accounting. 

Our Primary Financial Statements (PFS) project, one of our most important projects, makes very clear that the IASB is not fixated on the balance sheet. Quite the opposite; the project has very much focused on the income statement and its accompanying note disclosures. We know that in most cases, investors base their valuations on the income statement and that is why we have focused on it in the PFS project. 

There are a few other developments that I would like to highlight. 

All the big, important Standards have been completed—IFRS 9, IFRS 15, IFRS 16 and IFRS 17. All but one have been implemented. We have dedicated a lot of effort to supporting their implementation. We have shifted our attention from improving recognition and measurement to improving presentation and communication of financial information. We have done a lot of work to improve the effectiveness of disclosures. The PFS project improves the structure of the income statement and increases transparency of so-called non-GAAP information. Last, but not least, our work to update the Management Commentary Practice Statement is very important. It will give more and better guidance to companies on how to write the narrative that complements the financial statements. Tom Scott and the management commentary team will discuss this topic today in a later session. 

We have stronger engagement now than 10 years ago with the investor community. Investors have always been key to our standard-setting, but the engagement has become more formalised than in my early days. We also now have more Board members with an investor background. 

Ten years ago, a lot of our time was spent discussing development of new Standards. That is still important, but we are now putting a lot more effort into supporting consistent application of the Standards. The IASB works closely with the IFRS Interpretations Committee to support application of our Standards. We have become more aware of application questions and provide answers on a timely basis. 

In 2013, we launched a project to assess adoption of IFRS Standards around the world. Back then, we had researched 66 jurisdictions. Fifty-five required use of our Standards. Now, we have over 160 profiles on our website. More than 140 jurisdictions require use of IFRS Standards, and quite a few others permit their use. 

Let me finally say a few words about the future. 

The future 

Sustainability 

Many countries have set a policy goal of zero emissions by 2050. There is a lot of focus on climate and sustainability also in the business community. Investors increasingly want and need non-financial, or rather pre-financial, information that might affect the financial performance of a company in the longer term. 

This is one of the reasons why the IASB has been working on an update of the Management Commentary Practice Statement. Our exposure draft—to be published in the spring of next year—will provide guidance on how to include information on sustainability and intangibles in the management commentary to the financial statements. 

We often receive questions about IFRS Standards in relation to climate change and sustainability. The reality is that the word ‘climate’ is not mentioned in our literature. However, because our Standards are principle-based, companies may still need to consider climate-related matters when preparing their financial statements. 

Goodwill 

The treatment of goodwill is one of the most difficult issues in accounting. Opinions are very divided, but we probably all agree that a completely satisfactory solution does not exist. 

You may be aware that the IASB is currently consulting on possible ways to help investors to hold companies to account for acquisitions—and on goodwill accounting. Among our suggested improvements is better disclosures about acquisitions. What are the company’s objectives for the acquisition? And how is the acquisition performing against those objectives? 

We have looked at the question of how to account for goodwill and the impairment test. By a narrow majority, the IASB has suggested to retain the impairment-only approach, but this is very much still a discussion in progress. Our colleagues in the United States are leaning towards a reintroduction of amortisation. 

Source: ifrs.org 

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

> The Impact of COVID-19 on IFRS Financial Statements | IFRS Training 

>IFRS 9 Financial Instruments Updated 2020 2021 | IFRS Training 

>IFRS 15 Revenue from Contracts with Customers Updated | 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