The IASB recently issued its exposure draft of “Annual Improvements to IFRS Accounting Standards – Volume 11”, with comments requested by December 11, 2023.

So look, suppose someone says to you, I just improved my home; and you say, sounds great, what did you do; and he says, I fixed a leaky faucet….well, you might concede that the place is indeed now better functioning than it was before, but wouldn’t it seem rather grandiose to place that effort in the category of “home improvement”? There’s no litmus test for it, no doubt, but I’d say the bathroom needs to look and function demonstrably better than it did before if that’s not to be judged a category error. So, you know…to call this stuff “improvements” sometimes seems like a stretch. I suppose “Annual Minor Maintenance Fixes…” just wouldn’t seem exciting enough, but that’s really what we have here. If in contrast they suddenly proposed ripping out a page or two of IFRS 2 disclosure requirements, constituents might indeed (once they stopped applauding) hail these as improvements (of course some would object, probably the same people who haven’t renovated their bathrooms for years either). Anyway, that’s just to say that it’s a stretch to get a full blog post out of this material, but here we are anyway, trying our best. One of the (slightly more) interesting items relates to the following paragraphs in IFRS 10:

• When assessing control, an investor shall consider the nature of its relationship with other parties and whether those other parties are acting on the investor’s behalf (ie they are ‘de facto agents’). The determination of whether other parties are acting as de facto agents requires judgement, considering not only the nature of the relationship but also how those parties interact with each other and the investor.

• Such a relationship need not involve a contractual arrangement. A party is a de facto agent when the investor has, or those that direct the activities of the investor have, the ability to direct that party to act on the investor’s behalf.

On a close reading, those two paragraphs might be considered to contradict each other: the assertion on the investor or others having “the ability to direct that party to act on the investor’s behalf” seems more direct and conclusive than the preceding reference to applying judgment.  The IASB now proposes to amend the second paragraph to read as follows:

• Such a relationship need not involve a contractual arrangement. A party is a de facto agent when the investor has the ability to direct that party to act on the investor’s behalf. A party might be a de facto agent when those that direct the activities of the investor have the ability to direct that party to act on the investor’s behalf.

I suppose the subtlety lies mainly in that insertion of “might be.” As before, the second paragraph then goes on to indicate that “the investor shall consider its de facto agent’s decision-making rights and its indirect exposure, or rights, to variable returns through the de facto agent together with its own when assessing control of an investee.”

The exposure draft proposes a few changes to IFRS 7 and to the guidance on implementing it, to improve clarity and consistency. For example, a lead-in sentence saying that “An entity might disclose the following to comply with” a cited paragraph is to be amended to say that “An entity might disclose the following to comply with some of the requirements in” the cited paragraph. And then for first time adopters, IFRS 1 currently states that “if, before the date of transition to IFRSs, an entity had designated a transaction as a hedge but the hedge does not meet the conditions for hedge accounting,” then the entity shall discontinue hedge accounting. That term “conditions” derives from the old IAS 39; hedge accounting nowadays is covered in IFRS 9, which instead uses the term “qualifying criteria.” As the document explains: “Both IFRS 9 and IAS 39 remain in effect for hedge accounting; which Standard is applicable depends on an entity’s accounting policy choice when it first applied IFRS 9. However, in accordance with IFRS 1, first-time adopters of IFRS Accounting Standards are required to apply IFRS 9 instead of IAS 39. Accordingly, the term ‘conditions’ in paragraph B6 of IFRS 1 is outdated for first-time adopters.” And thus a proposed change.

Another item relates to a lessee’s accounting for a derecognition of a lease liability; it’s seemed to some stakeholders to be unclear whether a lessee recognizes the gain or loss on extinguishment in profit or loss or in another manner—such as by making a corresponding adjustment to the right of-use asset recognized in accordance with IFRS 16. The IASB proposes to address this simply by adding an additional cross-reference. And then they throw in a few other items along the same lines. And thus no more leaks.

The opinions expressed are solely those of the author.