Q4 2023 new IFRS® Accounting Standards and amendments: Are you ready?

Effective January 1, 2023¹

IFRS 17, Insurance Contracts
New IFRS Accounting Standards requirements	Comparison to US GAAP
IFRS 17 provides the first comprehensive guidance on accounting for insurance contracts under IFRS Accounting Standards. It aims to increase transparency and reduce diversity in the accounting for insurance contracts. Certain insurers also benefited from a temporary exemption from IFRS 9 Financial Instruments until IFRS 17 was effective.	Unlike IFRS Accounting Standards, the guidance addressing long-duration contracts issued by insurers and reinsurers under US GAAP applies only to insurance companies. The FASB has made significant changes to the accounting for long-duration contracts². With the implementation of IFRS 17, the accounting for insurance contracts differs significantly between IFRS Accounting Standards and US GAAP for insurers, reinsurers and non-insurers.

IFRS 17, Insurance Contracts

New IFRS Accounting Standards requirements

Comparison to US GAAP

IFRS 17 provides the first comprehensive guidance on accounting for insurance contracts under IFRS Accounting Standards. It aims to increase transparency and reduce diversity in the accounting for insurance contracts.

Certain insurers also benefited from a temporary exemption from IFRS 9 Financial Instruments until IFRS 17 was effective.

Unlike IFRS Accounting Standards, the guidance addressing long-duration contracts issued by insurers and reinsurers under US GAAP applies only to insurance companies. The FASB has made significant changes to the accounting for long-duration contracts².

With the implementation of IFRS 17, the accounting for insurance contracts differs significantly between IFRS Accounting Standards and US GAAP for insurers, reinsurers and non-insurers.

Amendments to existing standards
New IFRS Accounting Standards requirements	Comparison to US GAAP
Disclosure of Accounting Policies (Amendments to IAS 1, Presentation of Financial Statements, and IFRS Practice Statement 2, Making Materiality Judgments), continues the IASB’s clarifications on applying the concept of materiality. These amendments help entities provide useful accounting policy disclosures by: requiring entities to disclose their material accounting policies instead of their significant accounting policies; clarifying that accounting policies related to immaterial transactions, other events or conditions are themselves immaterial and do not need to be disclosed; and clarifying that not all accounting policies relating to material transactions, other events or conditions are themselves material. The IASB also amended IFRS Practice Statement 2³ to include guidance and examples on applying materiality to accounting policy disclosures.	US GAAP financial statements must include a description of all significant accounting policies. Assessing which accounting policies are considered ‘significant’ is a matter of judgment. Further, Chapter 3 of Concepts Statement No. 8 states that a uniform quantitative threshold for materiality cannot be specified because materiality is an entity-specific aspect of relevance. When preparing financial statements under both US GAAP and IFRS Accounting Standards, management of SEC registrants as well as their auditors apply guidance in SEC Staff Accounting Bulletin No. 99 – Materiality. This requires consideration of both quantitative and qualitative factors.
Definition of Accounting Estimates (Amendments to IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors), clarifies how entities distinguish changes in accounting policies from changes in accounting estimates, with a primary focus on the definition and guidance on accounting estimates. The distinction between the two is important because changes in accounting policies are applied retrospectively, whereas changes in accounting estimates are applied prospectively. The amendments clarify that accounting estimates are monetary amounts in the financial statements subject to measurement uncertainty. The amendments also clarify the relationship between accounting policies and accounting estimates by specifying that an entity develops an accounting estimate to achieve the objective set out by an accounting policy.	Like IFRS Accounting Standards, US GAAP distinguishes changes in accounting principles (applied retrospectively) from changes in accounting estimates (applied prospectively). However, it does not explicitly define accounting principles versus estimates.
Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12, Income Taxes), clarifies how entities account for deferred taxes on certain transactions, such as leases and decommissioning obligations, with a focus on reducing diversity in practice. The amendments narrow the scope of the initial recognition exemption so entities will need to recognize a deferred tax asset and a deferred tax liability arising from transactions that give rise to equal and offsetting temporary differences.	Unlike IFRS Accounting Standards, US GAAP does not contain an exemption from recognizing a deferred tax asset or liability for the initial recognition of an asset or liability in a transaction that is not a business combination. As a result, the amendments to IAS 12 align the accounting for deferred taxes that arise at inception of a lease or decommissioning provision (asset retirement obligations) with US GAAP.
International Tax Reform—Pillar Two Model Rules (Amendments to IAS 12) introduces an immediate temporary mandatory exception from accounting for deferred tax related to GloBE top-up tax. However, entities will be required to provide new disclosures about their potential exposure to the top-up tax at the reporting date in periods in which a tax law is enacted but the top-up tax does not yet apply. The disclosure requirements apply from December 31, 2023. No disclosures are required in interim periods ending on or before December 31, 2023.	Under US GAAP, GloBE is an alternative minimum tax because it is a separate but parallel system for an entity to pay a minimum level of tax. Therefore, entities will not record GloBE-specific deferred taxes or remeasure existing deferred taxes under local regular income tax systems to the GloBE rate, like IFRS Accounting Standards. Unlike IFRS Accounting Standards, additional disclosures related to the GloBE top-up tax are not required under US GAAP.
KPMG resources: Resource page: Insurance (IFRS Accounting Standards) Article: Are you in scope of IFRS 17? Article: Applying materiality when preparing financial statements Article: Accounting policy or estimate? Article: Recognising deferred tax on leases Hot Topic: Global Minimum Tax Article: Global minimum top-up tax

Amendments to existing standards

New IFRS Accounting Standards requirements

Comparison to US GAAP

Disclosure of Accounting Policies (Amendments to IAS 1, Presentation of Financial Statements, and IFRS Practice Statement 2, Making Materiality Judgments), continues the IASB’s clarifications on applying the concept of materiality. These amendments help entities provide useful accounting policy disclosures by:

requiring entities to disclose their material accounting policies instead of their significant accounting policies;
clarifying that accounting policies related to immaterial transactions, other events or conditions are themselves immaterial and do not need to be disclosed; and
clarifying that not all accounting policies relating to material transactions, other events or conditions are themselves material.

The IASB also amended IFRS Practice Statement 2³ to include guidance and examples on applying materiality to accounting policy disclosures.

US GAAP financial statements must include a description of all significant accounting policies. Assessing which accounting policies are considered ‘significant’ is a matter of judgment.

Further, Chapter 3 of Concepts Statement No. 8 states that a uniform quantitative threshold for materiality cannot be specified because materiality is an entity-specific aspect of relevance.

When preparing financial statements under both US GAAP and IFRS Accounting Standards, management of SEC registrants as well as their auditors apply guidance in SEC Staff Accounting Bulletin No. 99 – Materiality. This requires consideration of both quantitative and qualitative factors.

Definition of Accounting Estimates (Amendments to IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors), clarifies how entities distinguish changes in accounting policies from changes in accounting estimates, with a primary focus on the definition and guidance on accounting estimates. The distinction between the two is important because changes in accounting policies are applied retrospectively, whereas changes in accounting estimates are applied prospectively.

The amendments clarify that accounting estimates are monetary amounts in the financial statements subject to measurement uncertainty. The amendments also clarify the relationship between accounting policies and accounting estimates by specifying that an entity develops an accounting estimate to achieve the objective set out by an accounting policy.

Like IFRS Accounting Standards, US GAAP distinguishes changes in accounting principles (applied retrospectively) from changes in accounting estimates (applied prospectively). However, it does not explicitly define accounting principles versus estimates.

Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12, Income Taxes), clarifies how entities account for deferred taxes on certain transactions, such as leases and decommissioning obligations, with a focus on reducing diversity in practice.

The amendments narrow the scope of the initial recognition exemption so entities will need to recognize a deferred tax asset and a deferred tax liability arising from transactions that give rise to equal and offsetting temporary differences.

Unlike IFRS Accounting Standards, US GAAP does not contain an exemption from recognizing a deferred tax asset or liability for the initial recognition of an asset or liability in a transaction that is not a business combination.

As a result, the amendments to IAS 12 align the accounting for deferred taxes that arise at inception of a lease or decommissioning provision (asset retirement obligations) with US GAAP.

International Tax Reform—Pillar Two Model Rules (Amendments to IAS 12) introduces an immediate temporary mandatory exception from accounting for deferred tax related to GloBE top-up tax. However, entities will be required to provide new disclosures about their potential exposure to the top-up tax at the reporting date in periods in which a tax law is enacted but the top-up tax does not yet apply. The disclosure requirements apply from December 31, 2023. No disclosures are required in interim periods ending on or before December 31, 2023.

Under US GAAP, GloBE is an alternative minimum tax because it is a separate but parallel system for an entity to pay a minimum level of tax. Therefore, entities will not record GloBE-specific deferred taxes or remeasure existing deferred taxes under local regular income tax systems to the GloBE rate, like IFRS Accounting Standards.

Unlike IFRS Accounting Standards, additional disclosures related to the GloBE top-up tax are not required under US GAAP.

KPMG resources:

Resource page: Insurance (IFRS Accounting Standards)
Article: Are you in scope of IFRS 17?
Article: Applying materiality when preparing financial statements
Article: Accounting policy or estimate?
Article: Recognising deferred tax on leases
Hot Topic: Global Minimum Tax
Article: Global minimum top-up tax

Effective January 1, 2024¹

Amendments to existing standards
New IFRS Accounting Standards requirements	Comparison to US GAAP
Lease Liability in a Sale-and-Leaseback (Amendments to IFRS 16, Leases) requires a seller-lessee to account for variable lease payments that arise in a sale-and-leaseback transaction as follows. On initial recognition, include variable lease payments when measuring a lease liability arising from a sale-and-leaseback transaction. After initial recognition, apply the general requirements for subsequent accounting of the lease liability such that no gain or loss relating to the retained right of use is recognized. Seller-lessees are required to reassess and potentially restate sale-and-leaseback transactions entered into since the implementation of IFRS 16 in 2019.	Unlike IFRS Accounting Standards, US GAAP does not include variable lease payments in the measurement of a lease liability arising from a sale-and-leaseback transaction. Accounting for sale-and-leaseback transactions under US GAAP overall differs significantly from IFRS Accounting Standards; therefore, dual reporters may need to separately track the accounting for these transactions.
Classification of Liabilities as Current or Non-current and Non-current Liabilities with Covenants (Amendments to IAS 1, Presentation of Financial Statements), published in 2020 and 2022 respectively, clarify that the classification of liabilities as current or noncurrent is based solely on a entity’s right to defer settlement for at least 12 months at the reporting date. The right needs to exist at the reporting date and must have substance. Only covenants with which a entity must comply on or before the reporting date may affect this right. Covenants to be complied with after the reporting date do not affect the classification of a liability as current or noncurrent at the reporting date. However, disclosure about covenants is now required to help users understand the risk that those liabilities could become repayable within 12 months after the reporting date. The amendments also clarify that the transfer of a entity’s own equity instruments is regarded as settlement of a liability. If a liability has any conversion options, they generally affect its classification as current or noncurrent, unless these conversion options are recognized as equity under IAS 32, Financial Instruments: Presentation.	The current and noncurrent classification of liabilities was not converged between IFRS Accounting Standards and US GAAP before the amendments to IAS 1. We expect differences will still exist once the amendments are effective. In April 2021, the FASB removed from its technical agenda a project intended to simplify US GAAP. Like IFRS Accounting Standards, US GAAP requires disclosure of information to help users understand the risk that those liabilities could become repayable after the reporting date, e.g. adverse consequences of expected covenant violation. However, unlike the IAS 1 amendments, there is for example no requirement to disclose potential non-compliance with future covenants as if those were to be assessed at the reporting date.
Supplier Finance Arrangements (Amendment to IAS 7, Statement of Cash Flows and IFRS 7, Financial Instruments: Disclosures) requires an entity to disclose qualitative and quantitative information about its supplier finance arrangements⁴, such as terms and conditions – including, for example, extended payment terms and security or guarantees provided. The IASB decided that, in most cases, aggregated information about an entity’s supplier finance arrangements will satisfy the information needs of users of financial statements. Amongst other characteristics, IAS 7 explains that a supplier finance arrangement provides the entity with extended payment terms, or the entity's suppliers with early payment terms, compared to the related invoice payment due date.	Like IFRS Accounting Standards, ASU 2022-04 creates Subtopic 405-50, which requires an entity to disclose qualitative and quantitative information about its supplier finance programs. Unlike IFRS Accounting Standards, the characteristics required to qualify as a supplier finance program under US GAAP do not include the entity obtaining extended payment terms under the arrangement. Unlike IFRS Accounting Standards, US GAAP does not require disclosure of: the carrying amount of the outstanding financial liabilities that are part of the programs for which suppliers have already received payment from the finance provider or intermediary; or the range of payment due dates for both outstanding financial liabilities that are part of the programs and trade payables that are not.
KPMG resources: Article Lease liability in a sale-and-leaseback Article Lease accounting: IFRS® Standards vs US GAAP Article Classifying liabilities as current or noncurrent Article Current/noncurrent debt classification: IFRS® Standards vs US GAAP Article: Disclosure of supplier finance arrangements Podcast: Supplier finance programs

Amendments to existing standards

New IFRS Accounting Standards requirements

Comparison to US GAAP

Lease Liability in a Sale-and-Leaseback (Amendments to IFRS 16, Leases) requires a seller-lessee to account for variable lease payments that arise in a sale-and-leaseback transaction as follows.

On initial recognition, include variable lease payments when measuring a lease liability arising from a sale-and-leaseback transaction.
After initial recognition, apply the general requirements for subsequent accounting of the lease liability such that no gain or loss relating to the retained right of use is recognized.

Seller-lessees are required to reassess and potentially restate sale-and-leaseback transactions entered into since the implementation of IFRS 16 in 2019.

Unlike IFRS Accounting Standards, US GAAP does not include variable lease payments in the measurement of a lease liability arising from a sale-and-leaseback transaction.

Accounting for sale-and-leaseback transactions under US GAAP overall differs significantly from IFRS Accounting Standards; therefore, dual reporters may need to separately track the accounting for these transactions.

Classification of Liabilities as Current or Non-current and Non-current Liabilities with Covenants (Amendments to IAS 1, Presentation of Financial Statements), published in 2020 and 2022 respectively, clarify that the classification of liabilities as current or noncurrent is based solely on a entity’s right to defer settlement for at least 12 months at the reporting date. The right needs to exist at the reporting date and must have substance.

Only covenants with which a entity must comply on or before the reporting date may affect this right. Covenants to be complied with after the reporting date do not affect the classification of a liability as current or noncurrent at the reporting date. However, disclosure about covenants is now required to help users understand the risk that those liabilities could become repayable within 12 months after the reporting date.

The amendments also clarify that the transfer of a entity’s own equity instruments is regarded as settlement of a liability. If a liability has any conversion options, they generally affect its classification as current or noncurrent, unless these conversion options are recognized as equity under IAS 32, Financial Instruments: Presentation.

The current and noncurrent classification of liabilities was not converged between IFRS Accounting Standards and US GAAP before the amendments to IAS 1. We expect differences will still exist once the amendments are effective. In April 2021, the FASB removed from its technical agenda a project intended to simplify US GAAP.

Like IFRS Accounting Standards, US GAAP requires disclosure of information to help users understand the risk that those liabilities could become repayable after the reporting date, e.g. adverse consequences of expected covenant violation. However, unlike the IAS 1 amendments, there is for example no requirement to disclose potential non-compliance with future covenants as if those were to be assessed at the reporting date.

Supplier Finance Arrangements (Amendment to IAS 7, Statement of Cash Flows and IFRS 7, Financial Instruments: Disclosures) requires an entity to disclose qualitative and quantitative information about its supplier finance arrangements⁴, such as terms and conditions – including, for example, extended payment terms and security or guarantees provided.

The IASB decided that, in most cases, aggregated information about an entity’s supplier finance arrangements will satisfy the information needs of users of financial statements.

Amongst other characteristics, IAS 7 explains that a supplier finance arrangement provides the entity with extended payment terms, or the entity's suppliers with early payment terms, compared to the related invoice payment due date.

Like IFRS Accounting Standards, ASU 2022-04 creates Subtopic 405-50, which requires an entity to disclose qualitative and quantitative information about its supplier finance programs.

Unlike IFRS Accounting Standards, the characteristics required to qualify as a supplier finance program under US GAAP do not include the entity obtaining extended payment terms under the arrangement.

Unlike IFRS Accounting Standards, US GAAP does not require disclosure of:

the carrying amount of the outstanding financial liabilities that are part of the programs for which suppliers have already received payment from the finance provider or intermediary; or
the range of payment due dates for both outstanding financial liabilities that are part of the programs and trade payables that are not.

KPMG resources:

Article Lease liability in a sale-and-leaseback
Article Lease accounting: IFRS® Standards vs US GAAP
Article Classifying liabilities as current or noncurrent
Article Current/noncurrent debt classification: IFRS® Standards vs US GAAP
Article: Disclosure of supplier finance arrangements
Podcast: Supplier finance programs

Effective January 1, 2025¹

Amendments to existing standards
New IFRS Accounting Standards requirements	Comparison to US GAAP
Lack of exchangeability (Amendment to IAS 21, The Effects of Changes in Foreign Exchange Rates) applies when one currency cannot be exchanged into another. This may occur, for example, because of government imposed controls on capital imports and exports, or the volume of foreign currency transactions that can be undertaken at an official exchange rate is limited. The amendments clarify when a currency is considered exchangeable into another currency and how an entity estimates a spot rate for currencies that lack exchangeability. The amendments introduce new disclosures to help financial statement users assess the impact of using an estimated exchange rate.	Under Topic 830 (foreign exchange), where exchangeability is temporarily lacking at the transaction date or balance sheet date, an entity applies the first subsequent exchange rate available. However, where the lack of exchangeability is not temporary, the guidance broadly requires an entity to consider the propriety of consolidation, combination, or equity method of accounting for foreign operations with significant non-exchangeable currencies. Therefore, as compared to IAS 21, the guidance is broader, and differences may arise in practice. However, both standards require adequate disclosures.
KPMG resources: Article Lack of exchangeability

Amendments to existing standards

New IFRS Accounting Standards requirements

Comparison to US GAAP

Lack of exchangeability (Amendment to IAS 21, The Effects of Changes in Foreign Exchange Rates) applies when one currency cannot be exchanged into another. This may occur, for example, because of government imposed controls on capital imports and exports, or the volume of foreign currency transactions that can be undertaken at an official exchange rate is limited. The amendments clarify when a currency is considered exchangeable into another currency and how an entity estimates a spot rate for currencies that lack exchangeability. The amendments introduce new disclosures to help financial statement users assess the impact of using an estimated exchange rate.

Under Topic 830 (foreign exchange), where exchangeability is temporarily lacking at the transaction date or balance sheet date, an entity applies the first subsequent exchange rate available. However, where the lack of exchangeability is not temporary, the guidance broadly requires an entity to consider the propriety of consolidation, combination, or equity method of accounting for foreign operations with significant non-exchangeable currencies. Therefore, as compared to IAS 21, the guidance is broader, and differences may arise in practice.

However, both standards require adequate disclosures.

KPMG resources:

Article Lack of exchangeability

On the Radar

Soon to be issued IFRS 18 to address presentation of financial statements

To help improve comparability and transparency of companies’ performance reporting, the IASB is expected to publish IFRS 18, a new IFRS Accounting Standard, in 2024. Effective in 2027, IFRS 18 will replace IAS 1 Presentation of Financial Statements and set out presentation and disclosure requirements for financial statements. The changes, which mostly impact the income statement, include the requirement to:

classify items of income and expense into categories (i.e. operating, investing and financing); and

present subtotals for operating profit or loss and profit or loss before financing and income tax.

IFRS 18 also provides enhanced requirements for aggregation and disaggregation of expenses, introduces new disclosure requirements of management-defined performance measures and includes a limited changes to the statement of cash flows.

Amendments to the classification and measurement of financial Instruments

The IASB is in the process of finalizing narrow-scope amendments to IFRS 9 Financial Instruments and IFRS 7 Financial Instruments: Disclosures. The amendments are specifically around when financial liabilities settled via electronic payment systems may be considered extinguished, and how contractual cash flow characteristics of financial assets (including those with environmental, social and governance (ESG)-linked features) are assessed. They also include additions and updates to certain disclosure requirements and are expected to be finalized in 2024.

Footnotes

Effective dates are for annual periods beginning on or after the stated date. Early adoption is permitted unless otherwise stated.
ASU 2018-12, Targeted improvements to the accounting for long-duration contracts issued by insurance companies,is not aligned with the requirements of IFRS 17. For SEC filers, excluding those eligible to be ‘smaller reporting companies’, the ASU is already effective. For all other entities, including ‘smaller reporting companies’, the effective date is January 1, 2024.
IFRS Practice Statement 2: Making Materiality Judgments
These arrangements may also be referred to as ‘reverse factoring’ or ‘supply chain financing’ arrangements.

Some or all of the services described herein may not be permissible for KPMG audit clients and their affiliates or related entities.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.