11/05/2021 - EFRAG’s draft comment letter and invitation to participate in field-test on ED/2021/3 Disclosure Requirements in IFRS Standards (Extended deadlines)
EFRAG’s has published its draft comment letter on ED/2021/3 Disclosure Requirements in IFRS Standards—A Pilot Approach (Proposed amendments to IFRS 13 and IAS 19), seeks constituents' view on and invites preparers to participate in field testing the proposals . EFRAG, in close coordination with with EFRAG Member Organisations and other European National Standard Setters and the IASB, will conduct field-testing of the IASB's proposals.
Companies interested can already indicate their interest : Disclosureinitiative-pilot@efrag.org
At its July 2021 meeting, the IASB decided to exceptionally extend the comment period for its Exposure Draft Disclosure Requirements in IFRS Standards—A Pilot Approach (the 'ED') to 290 days until 12 January 2022. Consequently, EFRAG is:
- Extending its period to conduct its field-testing with preparers until 25 October 2021. Interested corporates, banks or insurers can register to partake in the field test by emailing disclosureinitiative-pilot@efrag.org by 10 September 2021.
- Extending the comment period of its Draft Comment Letter until 4 January 2022. The draft comment letter can be found here.
In its Draft Comment Letter, EFRAG welcomes the Exposure Draft and supports the objective of the project to improve the relevance of disclosures and to develop a more rigorous methodology for the IASB to define objective-based disclosure requirements. EFRAG holds the view that developing and testing such an approach has merits and should be encouraged as we support the reduction of detailed disclosure checklists.
EFRAG agrees, in particular, with the proposal to work closer with users of financial statements and other stakeholders early in the standard-setting process.
EFRAG notes that the proposed approach introduces a radical change from the existing guidance by making minimum requirements an exception. EFRAG is concerned that, absent a list of minimum disclosure requirements, the proposed approach would expose preparers to second guessing. It would also make review of such disclosures and enforcement of the requirements more difficult for auditors and regulators and may ultimately not lead to the intended changes and improvement to information relevance. Therefore, the success of the proposed approach depends on the IASB striking the correct balance between a tier of disclosures that are always required (that ensure a minimum level of comparability), and objectives to elicit additional entity-specific disclosures.
In addition, EFRAG encourages the IASB to further consider the interactions between its proposed approach to develop disclosure requirements and:
- The assessment of stewardship.
EFRAG's draft comment letter can be found here.
Field testing the proposals
EFRAG recommends that a comprehensive outreach and field testing of the proposals are undertaken to assess the operational challenges for preparers but also for enforcers and auditors.
EFRAG notes that the final impact of the proposals depends, to some extent, on the willingness of preparers to undertake a change to their approach to the use of judgement. In some cases, a tendency to maintain the existing requirements or an increase of disclosures cannot be excluded. The field test would help to better understand this issue.
As expressed above, a critical feature of the revised approach to the disclosure is to define an appropriate set of minimum requirements. Understanding the potential for a loss of information would provide input on such minimum requirements.
EFRAG has considered the application of the proposed approach to IAS 19 Employee Benefits (‘IAS 19’) and IFRS 13 Fair Value Measurement (‘IFRS 13’). EFRAG considers that it is not in a position to express definitive views on the proposed changes and their expected effects, until EFRAG has conducted appropriate outreach and field testing. A comprehensive field testing of the proposals as applied to the disclosure requirements of IAS 19 and IFRS 13 is necessary to assess whether the proposals would enable companies to apply effective judgement and provide information that is more useful to investors.
Therefore, EFRAG, in close coordination with EFRAG Member Organisations and other European National Standard Setters and the IASB, will conduct field-testing of the IASB proposals and will issue shortly an invitation for companies to participate in its field test activities.
Participating companies will be asked to test the application of the proposed new requirements in IAS 19, IFRS 13 or both by preparing selected disclosures affected by the proposals.
All EU companies applying IFRS are welcome to participate - corporates or financial institutions. EFRAG is specifically interested in including smaller or medium-sized companies in addition to large companies.
