In September 2022, the IASB decided to explore narrow-scope standard-setting instead of approving the IFRS Interpretations Committee (IFRS IC) agenda decision ‘Cash Received via Electronic Transfer as Settlement for a Financial Asset (IFRS 9)’.
What is the issue?
In September 2021, the IFRS IC published a tentative agenda decision in response to a submission relating to the recognition of cash received via an electronic transfer as settlement for a financial asset applying IFRS 9, ‘Financial Instruments’.
The IFRS IC received 27 comment letters on its tentative agenda decision.
Based on the feedback, the IFRS IC reaffirmed its views that the principles and requirements in IFRS 9 provide an adequate basis for an entity to determine when to derecognise a trade receivable and recognise cash received via an electronic transfer system as settlement for that receivable. As such, subject to approval by the IASB, in June 2022 the IFRS IC voted to finalise the agenda decision and not to recommend that the IASB undertake standard-setting to answer the question in the submission.
However, the IFRS IC acknowledged that many respondents expressed practical concerns about finalising the agenda decision. Accordingly, the IFRS IC decided to report those concerns to the IASB alongside its technical analysis. The practical concerns expressed included:
- disruption to long-standing accounting practices;
- consequences for other fact patterns, such as trade payables or payments made by cheque or credit card; and
- costs and complexities to implement changes, including potential changes to systems and controls required for bank reconciliations.
Considering both the technical analysis and the practical concerns, at its September 2022 meeting, the IASB decided to explore narrow-scope standard-setting instead of approving the agenda decision.
What is the impact and for whom?
The impact of any potential standard-setting is currently unknown, because the IASB has not made any tentative decisions. The analysis discussed by the IASB at its September meeting indicates that any standard-setting:
- would not have an objective of simply allowing entities to retain existing accounting practices;
- would be narrow in scope (that is, it would not amend the general recognition and derecognition requirements in IFRS 9);
- would create an exemption from the general recognition and derecognition requirements in IFRS 9 only if doing so does not significantly reduce the usefulness of the information that would otherwise result from applying these requirements;
- might need to specify the required characteristics of payment systems to which it would apply, to ensure that entities could apply any new requirements to different payments systems, regardless of the specific legal environment; and
- would have a specified effective date by which all entities would be required to apply the new requirements.
PwC observation
The IASB has highlighted that if it does undertake standard-setting, any amendments would not be finalised in 2022.
However, in light of the recent discussions and in anticipation of any possible future standard-setting, entities might consider disclosing their accounting practices relating to this issue.
We will continue to update our observations on this topic as the issue develops.
Next steps
At a future meeting, the IASB will discuss the form that any possible narrow-scope standard-setting would take, as well as the scope of transactions to which it would apply (for example, whether it would apply to payments that an entity makes, receives, or both).
Any standard-setting would be subject to the IASB’s usual due process. This includes inviting all stakeholders to comment on a draft of any proposals before they are finalised.
