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Ann Tarca, International Accounting Standards Board member, delivered her plenary address at the Irish Academic Accounting and Finance Association (IAFA) Conference in Belfast on 14 June 2024.

Thank you for the opportunity to speak to you today. I’m really pleased to talk about the issues facing our profession—both practicing accountants and academic accountants. I have been a member of the International Accounting Standards Board (IASB) for seven years and I have given a lot of thought to contemporary accounting issues—what they are, why they arise and interact―and also to what action standard-setters can and should take and what other stakeholders can do about these issues. Of course, the views expressed today are my own; IASB views are arrived at following our due process.

Before joining the IASB I was a professor of accounting at the University of Western Australia. I was also a national accounting standard-setter and, in the beginning of my career, a practising chartered accountant. My experience informs my work at the IASB. Practising accountants are dealing with contemporary issues on a daily basis. And I know from an academic perspective that understanding contemporary issues is important for teaching the accounting professionals of the future and for directing research initiatives that can shed light on the pressing issues of the day. I hope my talk is informative and stimulating for you, whatever your professional occupation.

Today I will speak about the IASB’s work program and how we are addressing current issues faced by practitioners and academics. I will cover four topics:

  • how the IASB identifies current issues and determines its response;
  • projects on the IASB’s current agenda;
  • the IFRS Foundation’s response to future concerns; and
  • the role of academics.

Identifying current issues

The IASB work program reflects a formal agenda consultation process as well as issues that are brought to our attention by stakeholders or through our own horizon-scanning process.

In July 2022 the IASB published the feedback statement on its Third Agenda Consultation. This followed a rigorous process of issuing a request for information and discussing the feedback received. We sought stakeholder views on:

  • the strategic direction and balance of the IASB’s activities;
  • criteria for assessing the priority of potential projects; and
  • potential projects themselves.

More than 22 potential projects were included in the consultation document to help stakeholders think about which projects that were important to them. Needless to say, we heard a range of views about the priority of projects. In addition, there was support for the IASB to continue with its current work plan.

In response to the feedback received, the IASB decided to continue with its current focus on its main activities. However, we decided to slightly decrease our focus on new Standards and major amendments and to slightly increase our level of focus on digital financial reporting and the understandability and accessibility of the IFRS Accounting Standards. This IASB response reflects feedback that digital financial reporting is of growing importance in capital markets, reflecting the increased use of technology in general. I will return to the topic of digital financial reporting later in this talk.

The projects that received the most widespread support―and by widespread I mean across a range of different types of stakeholders and geographies―were those on climate-related risks, cryptocurrencies, intangible assets, going concern, pollutant pricing mechanisms and the statement of cash flows. Users also supported work on segment reporting. You could see that stakeholders were thinking about the future in many of the projects they ranked highly.

The IASB carefully considered the feedback received. To choose among projects, the board looked for evidence about the importance of each matter to investors; how pervasive it is (that is, whether the problem is widespread); and whether there is a deficiency in financial statements. The IASB also considered the complexity and feasibility of potential solutions, the interaction of the project with other projects on the work plan and the capacity of the IASB and stakeholders to make timely progress on the potential project.

During the process of evaluating the feedback received, the IASB consulted with a wide range of stakeholders via our consultative groups. It sought feedback from the IFRS Advisory Council and the International Forum of National Standard Setters (IFASS), as well as consultative groups representing financial statement preparers and investors.

Current and pipeline projects

The IASB selected Intangible Assets and Statement of Cash Flows and Related Matters for the research pipeline, with a plan to commence work on these projects within the next five-year period. A project on Climate-related and Other Uncertainties in the Financial Statements was added to the maintenance projects. Pollutant pricing mechanisms and segment reporting were placed on the reserve list with the aim of reconsidering these projects if additional capacity becomes available.

But before beginning the new projects on intangible assets and cash flows, which we were keen to do, the IASB had to first complete projects on the existing work plan. We have made significant progress on this task and are very pleased to have issued two new standards in first half of 2024. These are IFRS 18 Presentation and Disclosure in Financial Statements and IFRS 19 Subsidiaries without Public Accountability: Disclosures.

IFRS 18 is the output of the Primary Financial Statements project. The new standard, effective 1 January 2027, will improve the quality of financial reporting by:

  • requiring defined subtotals in the statement of profit or loss;
  • requiring disclosure about management-defined performance measures; and
  • adding new principles for aggregation and disaggregation of information.

The IASB expects these improvements will enable investors to make more informed decisions leading to better allocations of capital that will also contribute to long-term financial stability.

IFRS 19 is a reduced disclosure Standard that permits eligible subsidiaries to provide in their own financial statements disclosures that are proportionate to the information needs of their users. IFRS 19 enables companies to simplify their reporting systems and processes, reducing the costs of preparing eligible subsidiaries’ financial statements. Companies may elect to use IFRS 19 from 1 January 2027.

We know new standards bring work for many stakeholders―investors, preparers, auditors, regulators and others―and we are currently engaged in meeting and discussing these standards with stakeholders and providing education materials. Our use of IFRS Accounting Standards around the world section includes more information about how we can assist you in your adoption journey. These new Standards also provide opportunities for new academic research, which I will discuss later.

In 2024 we have continued to work on the long-awaited standard for Rate-regulated Activities, and we have completed an extensive second comprehensive review of the IFRS for SMEs Accounting Standard. We have also discontinued two projects (Extractive Activities and Business Combinations under Common Control) because we concluded the costs of developing and implementing new standards were likely to outweigh the benefits of changes in financial reporting.

In terms of costs and benefits, we are sometimes asked what costs, and for whom, we are referring to. In both these discontinued projects we discussed the costs that would be incurred in further standard-setting activities. These costs include the time of staff, board and, importantly, external stakeholders when we consulted with them in the many stages during the development of a project. We consider costs to preparers of fulfilling new disclosure requirements and the costs to investors (or auditors or regulators) of the lack of such requirements.

When the IASB thinks about benefits we consider first primary users of financial information, as per the Conceptual Framework for Financial Reporting. These users are existing and potential investors, lenders and other creditors. We may also consider other parties such as regulators. For example, we considered regulators in our discussion about retiring the Business Combinations under Common Control (BCUCC) project.

Consistent with stakeholder support for the IASB to work on application and maintenance issues, we have worked on several narrow-scope amendments, notably new disclosure requirements for supplier finance arrangements and more guidance for entities working with currencies that lack exchangeability.

As mentioned, we commenced a maintenance project on Climate-related and Other Uncertainties in the Financial Statements. Some stakeholders had expressed concerns that information about the effects of climate-related uncertainties in financial statements is sometimes insufficient and appears to be inconsistent with information reported outside the financial statements.

Some stakeholders have called for changes to IFRS Accounting Standards to promote more disclosure about the impact of climate-related issues. However, others hold the view that the requirements of the Standards are generally sufficient; and the problem lies with how the Standards are applied. Besides non-compliance, there are other reasonable explanations for a lack of disclosure, including that the financial impact in the current year is not material. Please recall that the materiality test relates to whether omission or misstating information about a specific entity could influence the decisions of users of the financial information. Judgements about materiality should consider the nature or magnitude (or both) of items of information.[1]

Academic research has been helpful in this project by providing evidence about current reporting practices. Studies show an increase over time of the amount of discussion of climate-related matters in the annual report. For some entities there is specific discussion of climate-related matters that impact on impairment testing.[2] People may expect, and find, that information about expected useful lives and estimated residual values has changed due to climate-related effects.

The IASB has been investigating this topic via research and consultation with stakeholders. The project is a narrow-scope project which relates to IFRS Accounting Standards. The IASB is not undertaking the writing of a climate disclosure standard. That work has been completed by the ISSB. What we are doing is preparing to issue an exposure draft containing illustrative examples which we propose to add as guidance to various IFRS Accounting Standards, such as IFRS 18 Presentation and Disclosure in Financial Statements and IAS 37 Provisions, Contingent Liabilities and Contingent Assets.

We look forward to your feedback on these examples—we want to know if you think they will be helpful to people in making judgements about disclosure and recognition under current IFRS Accounting Standards. If your view is that we need to make changes to the requirements of the Standards themselves, we look forward to hearing about what changes you would like to see and why.

Academic research about the impact of mandatory requirements compared to guidance through examples and other materials would be relevant to our deliberations in this area. Research about factors that impact on the quality, timeliness and relevance of disclosure are also of interest. If you have research to share on these topics, please contact us.

The IFRS Interpretations Committee (Committee) has also considered the topic of provisions and climate-related disclosure. With respect to current IFRS Accounting Standards, the Committee recently opined on how to determine whether and when an entity’s statement of a net zero commitment should be recognised in the financial statements as a provision or a contingent liability. Whether a net zero commitment results in a contingent liability depends on the facts and circumstances of the commitment. Most of the net zero commitments that have been made would not result in a provision as these relate to future emissions—there has been no past event.

In April of this year, the IASB commenced work on the Intangible Assets project. This is a milestone event for the IASB because of the high demand for this project—the current IAS 38 Intangible Assets is old and the business environment has changed dramatically since it was issued. The criticisms of the Standard are many, including that it fails to recognise intangible assets, which are the value drivers of many businesses, so that the gap between market value and book value of net assets is growing. Other concerns raised are that lack of recognition and disclosure about intangibles leads to lack of transparency and comparability, making analysis more difficult and leading investors to search elsewhere for relevant information.

The initial papers presented on intangibles to the IASB in April included an academic literature review that referenced many academic papers and studies carried out by regional and national standard-setters such as the European Financial Reporting Advisory Group (EFRAG), the UK Endorsement Board (UKEB) and the Australian Accounting Standards Board. The next steps are for the IASB to determine the scope of the project—that is, what problem is the Board trying to solve?—including what issues to address and when. The IASB must also determine whether to pursue the project in different stages. Remember that the larger the project, the longer the time before a new standard will be issued and the financial reporting problems addressed.

In the second half of this year, the IASB expects to start work on the project Statement of Cash Flows and Related Matters. As with the Intangible Assets project, we will start with an academic literature review. We will also consider evidence from national and regional standard-setters and our research for other projects such as Primary Financial Statements (IFRS 18).

We hope the evidence from academic studies will help us make decisions about what to address in this project. Should we focus on exempting financial institutions from IAS 7 Cash Flow Statements (a small project) or writing a standard for them (likely a medium project)? Or should we focus on the non-cash transactions that investors want to know more about, such as those involving acquisitions for shares, leasing and share-based payments. As you can see, there is much to consider to ensure our standard-setting activity is efficient and effective. We will do this in consultation with stakeholders such as yourselves.   

The IASB also engages in horizon scanning to keep up to date with concerns people have. We are monitoring interest from stakeholders about the pollutant pricing mechanisms project in the research pipleline. At the June meeting the IASB will discuss additional outreach on the topic of pollutant pricing mechanisms and subsequently consider whether to prioritise a project on this topic.

Another topical subject is cryptocurrencies. In the last Agenda Consultation, many people asked for the IASB to commence work in this area, pointing to their concerns about perceived gaps in current reporting requirements. The IASB continues to monitor information about the extent to which IFRS reporting entities have holdings of cryptocurrencies. We are also observing the work of the FASB in this area to gain any relevant insights from them.[3]

When I joined the IASB, some people suggested the work of the IASB was done, because the big Standards for financial instruments, revenue, leasing and insurance—IFRS 9, 15, 16 and 17—had been issued. I hope you can see from my talk today that there still pressing issues that stakeholders want the IASB to address, to ensure that the future financial reporting has a solid basis and effectively meets the information needs of users and other stakeholders.  

Responding to future concerns

In recent years, the IFRS Foundation has been active in responding to stakeholder concerns about the quality and comparability of information provided in capital markets. For example, the IFRS Foundation Trustees became aware of the need to reduce diversity in the quality and content of sustainability disclosures. In 2020, the Trustees sought feedback on the demand for global sustainability standards and whether the IFRS Foundation should take a role. There was overwhelmingly positive support for involvement of the Foundation and the International Sustainability Standards Disclosure Board (ISSB) was launched in November 2021.

The ISSB has produced two Sustainability Disclosure Standards, namely IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosure. It is working with organisations around the world on adoption of the Standards and on capacity building to support implementation. The ISSB has also consulted on its agenda priorities for the next two years. The ISSB’s consultation followed the same due process as that of the IASB. The ISSB has decided to undertake two research projects on disclosure of risks about opportunities having to do with (1) biodiversity, ecosystems and ecosystem services; and (2) human capital. Like the IASB, our sister board is keen to work on projects that address issues that are relevant to the future and are of concern to a wide range of people.

Stakeholders commonly ask us about the connectivity of financial reporting and sustainability reporting. Both sets of Standards aim to provide useful information for investors’ decision-making. We know that while financial accounting information remains foundational to investors’ work, they also make use of many other types of information in their decision-making. This is a trend we expect to continue in the future.

Stakeholders have highlighted the benefits to be gained from having two standard-setting boards within the IFRS Foundation, with both focused on providing better information for investment decisions.

The Chairs of the boards have explained what connectivity means. It includes connectivity in process and in our products. Regarding process, we mean we are working towards holistic, comprehensive and coherent general purpose financial reports by collaborating at board and staff level, guided by advisory bodies that inform both boards. We aim for our products to reflect compatible concepts with no gaps or unintended overlaps in accounting and sustainability-related financial disclosure requirements and their related taxonomies. Examples of working together include a joint board meeting in January 2024 to discuss the ISSB consultation on agenda priorities and staff working together on the Climate-related and Other Uncertainties project.

At the joint meeting in January 2024 the IASB and ISSB discussed a potential project on integration in reporting. Please listen to this meeting if you are involved in or considering research in this area. On balance, board members did not appear to support such a project at the current time; however, many spoke about the evolving landscape of financial reporting and the importance of links between the two boards. Reference was also made to the present and future contributions of the Integrated Reporting Framework, which has now found a home at the IFRS Foundation.

In feedback on the ISSB’s Agenda Consultation, stakeholders pointed to the Integrated Reporting Framework and the IASB’s Management Commentary project as sources of material for a future project on integration in reporting. In June 2024, the IASB will decide its next steps for the Management Commentary project. Alternatives include finalising the project, keeping the project on hold or retiring the project. There are many arguments in favour of completing the project, given that the work is well advanced and many stakeholders believe a revised practice statement can make a valuable contribution by providing a global benchmark for regulators seeking to update national requirements and for companies seeking to meet investor information needs.

An important area that affects both boards is digital financial reporting. More than 90% of listed companies make use of some form of digital financial reporting. In the UK and the European Union, regulators have mandated the electronic tagging of financial statements so that listed entities using IFRS Accounting Standards are also using the IFRS Accounting Taxonomy. We have also released the IFRS Sustainability Taxonomy to facilitate digital reporting of sustainability disclosures provided in compliance with S1 and S2.

In response to stakeholder demand, the IASB decided to slightly increase its focus on digital reporting following the Third Agenda Consultation. The stakeholder feedback recognises the importance of technology in collecting, processing and consuming accounting and sustainability information both now and in the future. The IASB decided: to consider the implications of digital consumption for standard-setting; to continue to improve the IFRS Accounting Taxonomy; to engage further with our partners in the digital ecosystem, for example regulators and preparers, to support quality outcomes from applying the taxonomy; and to work with the ISSB so that both taxonomies have a consistent approach and concepts and are technologically compatible.

Role of academics

The IASB is required by the Trustees of the IFRS Foundation to carry out evidence-based standard-setting. We gather evidence in several ways—through the consultations with stakeholders I have mentioned, through staff research and, importantly, from academic research. Academics have an important role to play because they have the skills and experience to carry out high-quality, large-scale research with professional independence.

The IASB values the evidence that academics can provide while we develop standard-setting proposals and review the implementation of Standards. The IASB interacts with academics through conferences like this one and other events such as our annual IASB Research Forum—this year in Sydney, Australia—and next year in Paderborn in Germany. Read the 2025 call for papers.

We rely on academic input as an important part of our Post-implementation Review (PIR) process, when the IASB reviews the application of a Standard and considers whether it is working as intended. We are well advanced in our work on PIRs of the revenue and financial instruments standards. Academics have made useful contributions to these projects through evidence on aspects of the questions under discussion. You can find the literature reviews presented to the IASB on the Post-implementation Review of IFRS 15 Revenue from Contracts with Customers and Post-implementation Review of IFRS 9—Impairment project pages. We also benefitted from specific research conducted by a team from Lancaster University. They examined IFRS 7 disclosures as part of the PIR of IFRS 9 Financial Instruments on impairment and presented their findings to the IASB.

Looking ahead to the issues that will concern the IASB in the coming years, there are several opportunities for academics to contribute. The IASB will be commencing a PIR of IFRS 16 Leases later this year. We are expecting many comments on the Standard. I hope academic studies will provide evidence on the questions of interest to practitioners and the IASB. In due course we will commence PIRs on insurance and the new Standards IFRS 18 and IFRS 19.

In terms of the new projects on intangible assets and cash flows, the IASB is keen to hear about evidence that will help us determine the scope these projects. As I have outlined, deciding on scope is not an easy matter. The IASB has many factors to consider. I hope that academic studies can provide input about current reporting practices and identify important issues that standard-setting needs to address. Recall that we are looking for the impact in practice of inconsistencies or gaps in Accounting Standards and that we aim to provide useful information for decision-making by primary users. This evidence would feed into IASB decisions about the focus and timing of its work.

In terms of horizon scanning and future work, some stakeholders are concerned about lack of guidance for accounting for pollutant pricing mechanisms. Other stakeholders are keen for the IASB to provide direction on accounting for cryptocurrencies. Academic studies with evidence relevant to accounting and financial reporting in these areas are of interest to the IASB. Research may focus on one country or industry, or several, and all types of research have the potential to contribute. Please remember that descriptive statistics that show impact and pervasiveness can be particularly useful.

I know there is widespread interest in matters relating to climate change and environmental and social reporting more generally. The IASB is interested in research that informs our work on the Climate-related and Other Uncertainties project and the IAS 37 provisions project. We also see scope for investigating connectivity in reporting, particularly as companies using IFRS Accounting Standards begin reporting using the ISSB’s S1 and S2.

May I encourage you to consider how your research projects could inform the work of the IASB and thus contribute to public policy debates. We recognise the contributions of research in our board papers and on our academic page. You can follow our activities there and contact us via the button below:

Conclusion

Thank you for the opportunity to share information about the current work of the IASB, particularly our work that relates to ensuring accounting standards and financial reporting remain strong and effective in a changing environment. We work in collaboration with many stakeholders like yourselves because we know that high-quality financial reporting depends on more than the accounting standards. We recognise the important role of educators, professional accountants, auditors, investors and regulators in promoting an environment that supports exchange of high-quality information and efficient capital markets. We face many challenges in the years ahead. I am confident that working together we will arrive at helpful ways forward on the issues we face.

[1] IAS 1 Presentation of Financial Statements.

[2] AP14: Cover paper—Climate-related Risks in the Financial Statements (September 2023 IASB meeting)

[3] Accounting for and Disclosure of Crypto Assets (Completed Project Summary) (fasb.org).