What’s new in IFRS in 2024?

2 new standards, amendments to 4 standards

IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures

The publication of the first two IFRS sustainability disclosure standards is a key milestone in realizing the International Sustainability Standards Board's (ISSB)’s vision - to create a global framework for investor-focused sustainability reporting that local jurisdictions can build on.

The standards are designed to meet the needs of all companies, not just the most prominent ones. They provide a clear picture of what reporting companies need to provide to meet the needs of global capital markets. It is expected that the new IFRS S1/S2 standards will help provide investors with globally comparable information.

The first two ISSB standards to be applied together focus on identifying and reporting information that investors need to make informed decisions - in other words, information that is expected to affect the assessments that investors make about companies' future cash flows.

To achieve this goal, the first general standard, S1 General Requirements for Disclosure of Sustainability-related Financial Information, provides companies with a framework for reporting on all topics related to sustainability in relation to governance, strategy, risk management, and metrics and targets.

In the second standard, S2 Climate-related Disclosures, more detailed guidance on how to report the risks and opportunities associated with climate. Additional standards covering other topics are expected in the future, and in the meantime, companies will use the guidance of the first general standard to report on other topics.

The standards are effective from January 1, 2024, but individual jurisdictions will decide whether to adopt them. With the support of global organizations, a rather rapid adaptation is expected in a number of jurisdictions.

In the future, connected financial and sustainability reporting will become a requirement rather than a feature of best practice reporting. The International Sustainability Standards Board (ISSB) refers to the disclosures as “sustainability-related financial information,” demonstrating that disclosures to be directly related to the information in the financial statements.

Companies will need processes and controls in place to provide sustainability-related information of the same quality, and at the same time as their financial reporting.

Amendments to standards

 IAS 1 Presentation of Financial Statements

In accordance to the amendments to IAS 1 Presentation of financial statements the classification of some liabilities as current or non-current may change (e.g. convertible debt). In addition, companies may be required to provide new information regarding liabilities subject to covenants.

Companies need to review their credit agreements now to determine whether the classification of their obligations (such as convertible debt) will change and prepare for new disclosures regarding certain covenants.

Under existing IAS 1 requirements, a company classifies a liability as current if it does not have an unconditional right to defer settlement for at least 12 months after the reporting date. The International Accounting Standards Board (IASB) has removed the requirement for a right to be unconditional and instead now requires that a right to defer settlement must exist at the reporting date and have substance.

A company classifies a liability as non-current if it has a right to defer settlement for at least 12 months after the reporting date. This right may be granted to a company that complies with conditions (covenants) specified in a loan agreement.

Only covenants that a company must comply with on or before the reporting date affect whether a liability is classified as current or non-current. Covenants that the company must comply with after the reporting date do not affect the classification of a liability at that date.

The amendments are effective for annual reporting periods beginning on or after 1 January 2024, with earlier application permitted.

IFRS 16 Leases

Amendments to IFRS 16 Leases affect how a seller-lessee accounts for variable lease payments arising in a sale-and-leaseback transaction. Such variable lease payments must be included in the lease liability. The new variable payment accounting model will require seller-lessees to reassess and possibly restate sale-and-leaseback transactions entered into since 2019.

The seller-lessee will measure the right-of-use asset at its present value, calculated as the carrying amount of the underlying asset*(the present value of the expected lease payments (all variables)/the fair value of the underlying asset). The lease liability will be measured at the present value of the expected lease payments (all variable), although all lease payments are variable. The resulting difference, gain or loss, will be recognized in profit or loss.

For subsequent accounting for the lease liability, the seller-lessee will reduce the lease liability as if the "lease payments" had been paid at the transaction date. Any difference between these lease payments and the amounts actually paid will be recognized in profit or loss. A seller-lessee may determine the lease payments deductible from the lease liability in several ways, such as as “expected lease payments” or as “equal periodic payments” over the lease term.

The amendments are effective for annual reporting periods beginning on or after 1 January 2024, with earlier application permitted.

IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments: Disclosures

The International Accounting Standards Board (IASB) has amended IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments: Disclosures, to better meet information users' needs. The amendments introduce disclosure requirements that will increase transparency of supplier finance arrangements and their impact on a company's liabilities and cash flows. US GAAP has similar disclosure requirements.

The IASB amendments apply to supplier finance arrangements, also known as supply chain finance, accounts payable finance or reverse factoring.

Key amendments to IAS 7 and IFRS 7 include disclosure requirements for:

• the amounts of financial liabilities that are part of supplier finance arrangements and the items in which these liabilities are presented;

• the amounts of financial liabilities for which suppliers have already received payment from financial service providers;

• range of payment terms for both financial obligations that are part of these arrangements and comparable trade payables that are not part of such arrangements.

Under the amendments, companies also need to disclose the type and effect of non-cash changes in the amounts of the financial liabilities that form part of a supplier finance arrangement.

All companies using supplier finance agreements will be required to disclose new information, provided it is material.

The amendments are effective for annual reporting periods beginning on or after 1 January 2024, with no comparative information required for the first year.