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IFRS in focus: New guidance and issues shaping 2026 reporting · PwC's accounting podcast

• 0:00
  SPEAKER_00: Thought Leadership from PWC's National Office.
• 0:07
  SPEAKER_03: Hello, and welcome to PWC's Accounting Podcast.
• 0:10
  SPEAKER_03: I'm Heather Horn.
• 0:12
  SPEAKER_03: In today's episode, we're talking about IFRS accounting and reporting.
• 0:16
  SPEAKER_03: We'll discuss topical issues to consider, new IFRS accounting requirements, we'll provide standard setting updates, and finally, we'll preview what's ahead for preparers in 2026.
• 0:31
  SPEAKER_03: Joining me for today's conversation, I'm so happy to welcome Martin Boucher, PWC's IFRS corporate accounting leader, and Herda Berger, a director on PWC's Global Assurance Quality Corporate Reporting Services team.
• 0:45
  SPEAKER_03: Welcome to both of you.
• 0:46
  SPEAKER_03: So nice to be here in London with you.
• 0:48
  SPEAKER_03: Our guests bring a wealth of financial accounting experience and contribute to the firm's global views on a range of financial reporting matters.
• 0:56
  SPEAKER_03: Thanks both.
• 0:56
  SPEAKER_03: So, Herda, with all of that, can you give an overview of what we're covered today?
• 1:01
  SPEAKER_03: Sure, Heather.
• 1:02
  SPEAKER_02: And firstly, thanks for having us on the podcast today.
• 1:06
  SPEAKER_02: Now, as you mentioned, there's some topical areas, and I think all of these most people probably have heard from or read about in the news.
• 1:14
  SPEAKER_02: So we're referring to the accounting considerations for geopolitical conflicts, tariffs, which is obviously top of mind over the last 12 months, as well as private capital transactions, and I think closely related to that transactions in the AI ecosystem.
• 1:31
  SPEAKER_02: Then you mentioned amendments and new IFRS accounting standards.
• 1:35
  SPEAKER_02: So we'll look a little bit at what is ahead for 2026 and 2027 reporters.
• 1:41
  SPEAKER_02: And then lastly, um, I think Martin will give us a bit of an update on some of the standard setting projects that the ISB is currently working on.
• 1:50
  SPEAKER_03: All right, so definitely a lot to cover.
• 1:52
  SPEAKER_03: Very exciting.
• 1:53
  SPEAKER_03: So jumping into things then, let's start with geopolitical.
• 1:58
  SPEAKER_03: And obviously, I think that's top of news and top of mind for many reporters, um, given the pervasive economic impacts.
• 2:05
  SPEAKER_03: So, Herda, just staying on that, can you give us an idea of some of the things companies should be considering when they're thinking about the conflicts in the Middle East?
• 2:15
  SPEAKER_02: Yes, unfortunately, Heather, like you mentioned, geopolitical conflicts is not new.
• 2:20
  SPEAKER_02: Um, we actually do have a global in-depth publication that actually looks at a lot of the considerations that preparers need to look at when they are faced with these conflicts.
• 2:32
  SPEAKER_02: I think we can probably take a whole day and talk about it.
• 2:35
  SPEAKER_02: So we'll try and touch on some of the highlights today.
• 2:38
  SPEAKER_02: Um, but maybe before we go into the accounting considerations, let's maybe step kind of back a little bit and just briefly mention some of the financial implications because I think that will help to put the accounting kind of piece a bit more in context.
• 2:53
  SPEAKER_02: Now, if we talk about financial implications and the current Middle East conflict, we can probably not start that conversation without mentioning oil and gas prices.
• 3:04
  SPEAKER_02: Um, the disruption in the Strait of Hour Moors, and then also kind of damage to some of the energy facilities in the region has led to a significant surge in oil and gas prices.
• 3:15
  SPEAKER_02: Probably Asia and Europe saw kind of most of the impact initially, but I think we can now say it's much more widespread across the globe.
• 3:23
  SPEAKER_02: Similarly, the disruption in the Strait obviously impacted freight costs maritime, but then also there was also air freight problems and disruptions.
• 3:33
  SPEAKER_02: So I think that had an impact on freight costs, um, which also obviously impact insurance related to those goods.
• 3:41
  SPEAKER_02: And then immediately after the kind of conflict started, we saw, you know, kind of a significant losses on equity markets, especially in Korea and in Japan.
• 3:54
  SPEAKER_02: And I think all of this, you know, kind of heightened the risk of a global recession.
• 3:59
  SPEAKER_02: So, you know, there's, you know, that goes with higher interest rates, higher inflation, and unfortunately, um lower growth rates.
• 4:07
  SPEAKER_03: All right.
• 4:08
  SPEAKER_03: And I've probably given the topic be remiss not to mention we're recording this on April 21st.
• 4:13
  SPEAKER_03: So some of the specifics heard it just mentioned, maybe we'll have shifted uh when we're releasing this or when people are listening.
• 4:22
  SPEAKER_03: But I think from an accounting implications, it, I mean, things are not going to return to normal immediately anyway.
• 4:29
  SPEAKER_03: And even I was thinking you made the comment about disruptions in air freight.
• 4:33
  SPEAKER_03: And now we're even seeing potentially that there's going to be a shortage of fuel.
• 4:38
  SPEAKER_03: Um, so you know, this potentially more to come as well.
• 4:41
  SPEAKER_03: So when we're thinking about all of that, I think some of the implications may be difficult to exactly pinpoint.
• 4:48
  SPEAKER_03: And I think they will continue to emerge over time.
• 4:51
  SPEAKER_03: But what are some of the things you're you are suggesting people focus on right now when it comes to thinking about the financial statements?
• 4:59
  SPEAKER_02: So, Heather, you're right.
• 5:01
  SPEAKER_02: Some of those impacts, I think, you know, is will develop over time.
• 5:06
  SPEAKER_02: But mainly what I would start with, and maybe it's because I work with financial instruments, I will start with financial instruments.
• 5:13
  SPEAKER_02: And if we think about this, the starting point for me would be ECL models or expected credit loss models.
• 5:20
  SPEAKER_02: So I think the increase or all the kind of financial implications we've mentioned does increase credit risk and there might be a decrease in liquidity in the market.
• 5:30
  SPEAKER_02: So that's definitely a trigger point to go and re-look at your ECL models.
• 5:35
  SPEAKER_02: Ivory's nine is also a forward-looking standard.
• 5:38
  SPEAKER_02: So, you know, expected kind of cash flow models.
• 5:41
  SPEAKER_02: So again, it's looking at your scenarios and looking whether those scenarios are adequate, um, you know, reflect the current situation.
• 5:49
  SPEAKER_02: Um, and again, that's something that for me you obviously look at kind of at period end, but also in your kind of it's forward-looking.
• 5:56
  SPEAKER_02: So you can't just look at what's happening now and in a single scenario.
• 6:00
  SPEAKER_02: And then I think IFRS9 is also very contract-based.
• 6:04
  SPEAKER_02: Um, and uh, Martin can probably talk us a little bit through force major clauses.
• 6:10
  SPEAKER_02: But I think because IFRS9 is contract-based, you also need to go and have a look at your contracts.
• 6:15
  SPEAKER_02: Um, you may have things like cross-default clauses, which means that other liabilities may be go into default, and then that causes you to, you know, for instance, if you have a bond to immediately repay the principal in interest.
• 6:27
  SPEAKER_02: So it can be quite wide-ranging.
• 6:29
  SPEAKER_02: And I think sometimes the detail is in those contracts and you may forget about what's actually sitting in the details.
• 6:36
  SPEAKER_02: And then maybe lastly, from a financial instrument point of view, if you have existing hedges, it's also a good um reminder to go and have a look if they are still kind of highly probable and if and and whether you can still continue with hedge accounting.
• 6:51
  SPEAKER_03: And I think I would be again remiss if I didn't mention that even though you have financial instruments, you did not save financial institutions.
• 6:59
  SPEAKER_03: And so these are considerations for any companies that are impacted by these models.
• 7:04
  SPEAKER_03: So much broader than just from a financial institution's point of view.
• 7:08
  SPEAKER_03: Definitely.
• 7:10
  SPEAKER_02: And then I think also much broader, you also need to look at your non-financial assets.
• 7:14
  SPEAKER_02: Um, and specifically, we started with ECL models.
• 7:17
  SPEAKER_02: So if you now think about a non-financial asset, you need to kind of think about impairment indicators.
• 7:23
  SPEAKER_02: So damage to infrastructure, you know, supply chain disruptions, increased costs.
• 7:28
  SPEAKER_02: Um, that's all things that may trigger an indicator for impairment.
• 7:34
  SPEAKER_02: And when you then consider any kind of recoverable amounts for your assets, it's also important you can, you know, you can either look at a single scenario or um an expected cash flow approach.
• 7:45
  SPEAKER_02: And it probably the latter is better in this kind of case because then you can, you know, in your expected cash flows, include scenarios related to the conflict.
• 7:56
  SPEAKER_02: And then I think we've mentioned to you earlier about kind of damage to infrastructure and things like and freight costs.
• 8:03
  SPEAKER_02: So all of that can have an impact on your net realize realizable value of inventory, and it could also impact the useful lives of property and equipment, and most companies have those quite widespread.
• 8:16
  SPEAKER_03: And then Martin, I know you may not have started with financial assets, but I'm sure you agree with the points that Herta made there.
• 8:23
  SPEAKER_03: But what other, you know, what other areas would you suggest that companies should be focused on?
• 8:28
  SPEAKER_01: Yeah, for sure.
• 8:29
  SPEAKER_01: And so building what Herta has covered, if I start with fair value measurement, which under our IFRS accounting standards may apply typically, again, to financial instruments.
• 8:38
  SPEAKER_01: So these are the more direct implications.
• 8:41
  SPEAKER_01: So you have equity investments, they're measured at fair value, there is market volatility.
• 8:46
  SPEAKER_01: But you may also have it for say investment properties when they're measured at fair value.
• 8:50
  SPEAKER_01: But as a general statement, when it comes to fair value measurement, when it is required or elected, there might be direct implications, such as the market volatility.
• 9:00
  SPEAKER_01: There might be implications on assumptions used in a fair value model.
• 9:05
  SPEAKER_01: And so if I use a couple of examples, one where you have a multiple of earnings, the multiples themselves may be changing to reflect the increased risk or the uncertainties associated with a particular crisis.
• 9:19
  SPEAKER_01: Another example might be a discounted cash flow where you need a discount rate.
• 9:24
  SPEAKER_01: And that discount rate is typically built by reference to various components.
• 9:28
  SPEAKER_01: It could be a risk-free rate, a cost of borrowing, and these elements may also be impacted by the current situation to reflect again the risks and the uncertainties.
• 9:39
  SPEAKER_01: And so, again, some of the impacts are more direct, more obvious, some of them are indirect as they will be touching on the inputs to fair value measurement.
• 9:48
  SPEAKER_01: And other considerations in the context of geopolitical uh events, such as we are experiencing, force measures.
• 9:54
  SPEAKER_01: So Herda did allude to it earlier, which would be contract-specific in a defined term, usually, but in our context today, I'm wrecking reference to extreme events, typically outside of the control of the parties to the arrangement, and they would lead to releasing one or both of the parties from specific rights and obligations.
• 10:15
  SPEAKER_01: And we know that in the current crisis, some of these clauses have been activated.
• 10:20
  SPEAKER_01: Now, the implication themselves would also be contract dependent, but clearly this is something of relevance for some of these arrangements.
• 10:28
  SPEAKER_01: Other considerations could be on revenue recognition.
• 10:32
  SPEAKER_01: So, do you need to modify particular revenue contracts?
• 10:35
  SPEAKER_01: Are there changes to the rights and obligations in the context of these crises?
• 10:41
  SPEAKER_01: Other impacts might be on insurance coverage.
• 10:44
  SPEAKER_01: So are you still insured?
• 10:45
  SPEAKER_01: Do you need to make claims?
• 10:46
  SPEAKER_01: Are your premiums going to change in the context of these uh crises?
• 10:51
  SPEAKER_01: And then the impacts may range as well from going concerned, risk on liquidity, but that there is a standback test as well that remains relevant, and that is on disclosure.
• 11:01
  SPEAKER_01: And so, in the context of the changes to your calculation measurement, you may have to adjust your disclosure as well.
• 11:08
  SPEAKER_01: And typically we would think of it in two main considerations: the first one being highlighting the changes to significant sources of estimation uncertainty.
• 11:19
  SPEAKER_01: So, in the measurement of particular items, do you have different, bigger measurement uncertainty?
• 11:27
  SPEAKER_01: And the second piece is on significant judgments.
• 11:30
  SPEAKER_01: So, did you need to make new judgments, different judgments in the context of these crises?
• 11:36
  SPEAKER_03: And I guess, Martin, if I'm thinking about when you mentioned, for example, the force majeure or the fact that you may no longer have insurance coverage potentially.
• 11:45
  SPEAKER_03: I mean, those are also matters that you may need to consider for disclosure, even if you didn't, for example, have an accounting impact in this period.
• 11:54
  SPEAKER_01: Absolutely, because ultimately the users, the investors looking to the financial statements would like to better understand the implications on the entities.
• 12:03
  SPEAKER_01: And to your point, you're right.
• 12:04
  SPEAKER_01: These are forward-looking impacts, but they are activated in the context of a today event.
• 12:10
  SPEAKER_01: And so, yes, that will be relevant.
• 12:12
  SPEAKER_03: Okay.
• 12:12
  SPEAKER_03: So definitely a lot to think about.
• 12:14
  SPEAKER_03: And equally, we have a lot to think about on the next topic I want to talk about, which is tariffs.
• 12:18
  SPEAKER_03: And I mean, this is something that regular listeners to the podcast, we've had ongoing discussions of the implications under U.S.
• 12:25
  SPEAKER_03: GAP.
• 12:25
  SPEAKER_03: So we thought it was important to also talk about the IFRS accounting standards.
• 12:29
  SPEAKER_03: But specifically, obviously, Martin, in 2025, there was clearly a lot of trade tension between different companies, different tariffs, fatalitary tariffs, and everything else.
• 12:40
  SPEAKER_03: I think cutting through all that, what's critical for listeners of this podcast is that in February, the U.S.
• 12:47
  SPEAKER_03: Supreme Court ruled that those 2025 import tariffs imposed by the US under the International Emergency Economic Powers Act were implemented without statutory authority.
• 12:58
  SPEAKER_03: So that happened in uh February of 2026.
• 13:01
  SPEAKER_03: And I know some of those impacts are still becoming more clear, but what are some of the things uh companies should be thinking about right now?
• 13:10
  SPEAKER_01: Yes.
• 13:10
  SPEAKER_01: And so this is a fairly complex uh piece of accounting.
• 13:14
  SPEAKER_01: And so I want to be careful in describing both the events and the accounting implications, and perhaps two observations to kick off.
• 13:21
  SPEAKER_01: The first one is that the US Supreme Court decision was specific and limited to those IEEEPA tariffs.
• 13:29
  SPEAKER_01: And so it does not impact other tariffs.
• 13:31
  SPEAKER_01: These other tariffs that were imposed under different authorities or statutes do remain uh in force.
• 13:37
  SPEAKER_01: The second one is that the US Supreme Court decision, while establishing that the statutory was not present, what it did not do, the decision is highlight how the importer records would be able to get their money back.
• 13:52
  SPEAKER_01: And so that piece was not part of the uh particular decision.
• 13:57
  SPEAKER_01: And when it comes to who should be or could be impacted, there are essentially two main groups.
• 14:02
  SPEAKER_01: The first one would be those directly impacted, so the importer of records that incurred and paid the tariffs in the first place, and the second group would be across the value chain.
• 14:13
  SPEAKER_01: And so we've seen various where suppliers, customers dealing with the importer record would have had modifications or some form of representation to accommodate the pricing adjustment.
• 14:28
  SPEAKER_01: And so these parties as well could see an impact from the decision made by the US Supreme Court.
• 14:35
  SPEAKER_01: And now the key question for accounting is going to be whether and when to record a refund.
• 14:42
  SPEAKER_01: And that's a great question.
• 14:44
  SPEAKER_03: And then do you have an answer?
• 14:47
  SPEAKER_01: I have a long answer, and then the long answer starts with determining the point at which the entity has a valid legal right to a refund.
• 14:57
  SPEAKER_01: And that assessment is challenging, and we've explored different models under IFRS accounting standards to best capture this situation, which is pretty unique.
• 15:07
  SPEAKER_01: And so it doesn't fit directly well into any given model.
• 15:11
  SPEAKER_01: And so some of the models were looking to a probability threshold.
• 15:16
  SPEAKER_01: So more likely than not has been sufficient for an asset recognition of the range or end of the spectrum would be a contingent asset model, which implies virtual certainty, which is a very, very high bar.
• 15:31
  SPEAKER_01: And in our view, that last model of contingent asset is a very acceptable model under IFRS.
• 15:37
  SPEAKER_01: And so I just want to be clear on that one.
• 15:40
  SPEAKER_01: And as you touched on earlier in your question, as of the timing of this recording, there does remain various sources of uncertainty associated with the universe of tariffs.
• 15:53
  SPEAKER_01: And so we're discussing the tariffs, but there are subgroups within the tariffs that do not have all the same uh features based on how they've been processed and accepted by U.S.
• 16:03
  SPEAKER_01: Customs and Border Patrol.
• 16:05
  SPEAKER_01: They are also not necessarily daily, but developments since uh the February 2026 Supreme Court decision, ranging from how the U.S.
• 16:14
  SPEAKER_01: Court of International Trade, which has been delegated with the task of ordering to U.S.
• 16:20
  SPEAKER_01: Customs and Border Protection to process these refunds, how the US CBP is also responding to that order.
• 16:28
  SPEAKER_01: And indications are coming to us as well.
• 16:30
  SPEAKER_01: So we've seen announcements about 10 days ago on this, but it is an evolving story.
• 16:36
  SPEAKER_01: Now, in our view, at the end of March, there was a lot of uncertainties that did remain.
• 16:41
  SPEAKER_01: And we would say that it is unlikely that the virtual certainty threshold would have been met then, but this is an evolving story.
• 16:49
  SPEAKER_01: So we would expect preparers, auditors to monitor developments, and this is not a one-off assessment.
• 16:55
  SPEAKER_01: And so for future reporting periods, that assessment will need to carry on.
• 17:00
  SPEAKER_03: So then from a disclosure point of view, are there recommendations in terms of what you would expect or what we're seeing companies disclose in this area?
• 17:09
  SPEAKER_01: Yeah.
• 17:10
  SPEAKER_01: And so to the extent it's relatively recent.
• 17:13
  SPEAKER_01: So there is a limited number of actual filings that have taken place.
• 17:17
  SPEAKER_01: But our expectations and our messages to our teams and clients has been that if it is of material importance to the financial statements, and yes, we would expect disclosure.
• 17:27
  SPEAKER_01: We would expect that disclosure to be factual in the sense that what is factual could be the decision itself, what you know at the time of publishing of the statements regarding the process itself.
• 17:39
  SPEAKER_01: It will be factual to disclose the amount of tariffs that were incurred and paid.
• 17:44
  SPEAKER_01: This is all very factual and will be relevant information in that context.
• 17:48
  SPEAKER_03: And then going back to the point you made earlier, that this is very specific to these IEEE PA tariffs.
• 17:55
  SPEAKER_03: If I understand correctly, there were also a number of other tariffs issued last year that were maybe more negotiated because countries did not want to have tariffs imposed.
• 18:05
  SPEAKER_03: And so those tariffs would be outside of this.
• 18:08
  SPEAKER_03: This is strictly, you need to understand what tariffs were paying, basically.
• 18:13
  SPEAKER_01: Yes, absolutely.
• 18:14
  SPEAKER_01: And this is fundamental because this should not be taken and brought into other tariffs.
• 18:19
  SPEAKER_01: This is unique and specific to tariffs imposed under the IAPA regime.
• 18:24
  SPEAKER_01: Yes.
• 18:24
  SPEAKER_03: All right.
• 18:25
  SPEAKER_03: So definitely will be interesting to see how this continues to unfold, but a very important area for companies it sounds like right now to disclose and to start to make sure they understand potential accounting implications as it moves forward.
• 18:39
  SPEAKER_03: So completely switching gears, let's come back to you, Herda, and uh turn our attention to private capital, because that's also something that we continue to see in the news, the lot of discussion of the role of private capital in the financial markets and otherwise.
• 18:56
  SPEAKER_03: And so, you know, I'd throw that term out, but maybe it would be helpful to rewind a bit and just to say if we're talking about private capital, private capital transactions, what exactly are we referring to there?
• 19:08
  SPEAKER_02: So, Heather, you are absolutely right.
• 19:10
  SPEAKER_02: We are currently seeing quite an increase in these private capital transactions.
• 19:15
  SPEAKER_02: Maybe in in kind of almost plain English or easy kind of terms, it's when an entity that's a non-kind of traditional banking or financial entity provides lending to another entity outside of the normal traditional kind of financial markets.
• 19:33
  SPEAKER_02: And these, I think we, you know, you can hear, you can hear the terms private capital, private credit, private equity.
• 19:39
  SPEAKER_02: Private capital is sort of the kind of broad term to that refers to both private equity transactions where the issuer might have some sort of um ownership interest, or um the more lending transactions that might be referred to as private credit.
• 19:55
  SPEAKER_02: Um, so again, they are very broad ranging from straightforward lending to much, much more complex, very layered um kind of um arrangements.
• 20:07
  SPEAKER_03: All right, so then obviously, because you use the word complex, that means that counting is likely also very complex.
• 20:14
  SPEAKER_03: So again, I think there's a lot of flexibility, which is helpful in these arrangements, but that also adds to that counting complexity.
• 20:22
  SPEAKER_03: Uh so what are some of the things that companies should be thinking about when they're evaluating these types of transactions?
• 20:28
  SPEAKER_02: You're right, Heather.
• 20:30
  SPEAKER_02: Um, these transactions, and I think it's often, I think it's not just straightforward one agreement that you have that set out this arrangement then, but it may be multiple agreements that makes up the arrangement.
• 20:41
  SPEAKER_02: And unfortunately, if your accounting conclusions are wrong, it could lead to things like off-balance sheet um financing or incorrect classification of instruments as either debt or equity.
• 20:55
  SPEAKER_02: Um, but I think a good starting point when you find yourself in this world is to start with determining whether there is control.
• 21:04
  SPEAKER_02: So if we think in IFRS accounting standards, um, it's thinking about whether the reporting entity controls the issuing entity.
• 21:13
  SPEAKER_02: And when we talk about control, we talk about whether you have exposure to um or have rights to variable returns that the entity can then affect.
• 21:24
  SPEAKER_02: And the entity should be able to affect those returns through its power over the entity that it controls.
• 21:31
  SPEAKER_02: Um and kind of those variable returns that I've mentioned, it doesn't just need to be financials, like like dividends.
• 21:39
  SPEAKER_02: It could also be non financial, like cost reductions.
• 21:43
  SPEAKER_02: And obviously, financial is what we probably all used to, but the non financial kind of is is less kind of what you you're used to.
• 21:51
  SPEAKER_02: Um and a lot of these transactions is not just, you know, it's there's special purpose type entities that set up specifically for.
• 22:00
  SPEAKER_02: This and then you find yourself not just an IFRS 10, but you kind of switch to IFRS 12, where you have um structured entities, and when you are looking at, you know, control, you don't just look at voting rights when you look at a structured entity, then you look at what is the contractual arrangement.
• 22:19
  SPEAKER_02: So I keep on referring to contracts and contractual, which hopefully you kind of think that you know there is a lot of um analyzing of what is actually, you know, the the kind of arrangement here if you look through all of all of the contracts.
• 22:34
  SPEAKER_02: If you don't have control, then you kind of need to go and think about whether there's any joint arrangements, which in IFRS accounting standards is accounted for under IFRS 11.
• 22:46
  SPEAKER_02: And again, like with many things in IFRS, there's two ways of thinking about them.
• 22:50
  SPEAKER_02: You could have something like a joint venture where you do equity accounting or a joint operation where you, you know, basically account for the relevant, your reporting entity's share of assets and liabilities and revenue and expenses.
• 23:05
  SPEAKER_02: Um, and again, when you think about whether something is a joint operation or a joint um venture, you're into kind of the weeds of the contractual arrangements.
• 23:15
  SPEAKER_02: So I think you know, it's kind of looking at those contracts, looking at all of them together, because I think a lot of time, unless it's a, like I mentioned, a simple lending arrangement, there's multiple kind of contracts involved here.
• 23:29
  SPEAKER_03: And it sounds like Dan Herder, well, first of all, you have that means you have to be looking at IFRS 10, 11, and 12, potentially.
• 23:36
  SPEAKER_03: But then in addition, these are likely unique or have some unique aspects.
• 23:41
  SPEAKER_03: So even if you've done more than one of these transactions, you need to make sure you're looking at the individual transactions to make sure that you are following this guidance correctly.
• 23:52
  SPEAKER_02: Exactly.
• 23:52
  SPEAKER_02: If we normally tell people what to kind of my advice in these kind of transactions is not just kind of thinking about every contract in the arrangement, but also whatever you've seen in a previous scenario might not be the same here because every entity's facts and circumstances um is different.
• 24:11
  SPEAKER_02: And because of that, I think, you know, the the other two things to maybe highlight about this is if you're not into, you know, not in an IFRS 10, 11, 12 situation, you you could still be in IFRS 9 where you have a debt or an equity instrument.
• 24:27
  SPEAKER_02: And in IFRS 9, it's easy to get things wrong.
• 24:30
  SPEAKER_02: Um, so it's kind of keep your eyes on that.
• 24:34
  SPEAKER_02: But then, like with anything, we talk about disclosures.
• 24:38
  SPEAKER_02: Um, you know, so anything in accounting always have some disclosure um related to it.
• 24:43
  SPEAKER_02: And because these transactions can span many IFRS accounting standards.
• 24:48
  SPEAKER_02: Again, I think you need to have a look at kind of the requirements kind of in like 10, 11, 12, look at what is in the financial instruments disclosures.
• 24:58
  SPEAKER_02: But ultimately, I think it's important that your disclosures are detailed enough and transparent enough to explain to the users the nature of the arrangement, but also the risks associated with it.
• 25:11
  SPEAKER_03: All right, definitely a lot to think about there.
• 25:13
  SPEAKER_03: And now I'll move to another topic where I think we increasingly see um accounting implications, and that's talking about um AI or artificial intelligence.
• 25:23
  SPEAKER_03: And I know specifically because I come from the power and utilities industry, seen a lot of power contracts that you know are related to AI type of arrangements.
• 25:35
  SPEAKER_03: But again, there's much broader implications than that: acquisitions, investments, partnerships, and other types of arrangements related to investments in AI.
• 25:45
  SPEAKER_03: So, what are some of the things that companies should be thinking about when they're entering into these types of arrangements?
• 25:52
  SPEAKER_01: And you're right, these are increasingly popular and the large and complex, and they come with various accounting questions.
• 26:00
  SPEAKER_01: And I think standing back, the the first one, the key one, is to identify the substance of these transactions.
• 26:07
  SPEAKER_01: And that is challenging in that a lot of these transactions will have implications across multiple IFRS accounting standards, so not a single uh piece of impact.
• 26:19
  SPEAKER_01: And if I use a first point of reference, an example, what is the unit of account?
• 26:25
  SPEAKER_01: And we have guidance and various IFRS accounting standards as to when you will take several contracts, several transactions, and treat them as a single economic arrangement.
• 26:36
  SPEAKER_01: And typically you would do that when the arrangements are negotiated concurrently with the same parties in contemplation of one another.
• 26:45
  SPEAKER_01: So this would point you to say this is one big transaction to account for.
• 26:50
  SPEAKER_01: And if I use a simple example on that one, you are making an equity investment in your customer.
• 26:56
  SPEAKER_01: And so you would have at least two transactions here.
• 26:58
  SPEAKER_01: So you have A, an investment, and then B, you will have sales to your customer, depending on what you sell or provide to that customer.
• 27:07
  SPEAKER_01: And on the first one, on the investment, you would need to worry about am I overpaying over and beyond the fair value of the investment?
• 27:16
  SPEAKER_01: And if so, what does the excess represent?
• 27:19
  SPEAKER_01: Everything else being equal, you may say that this is ultimately payment to a customer that would reduce your revenue in the second transaction because you would have combined the two transactions uh together.
• 27:31
  SPEAKER_01: Other considerations will be similar to what Herda has covered.
• 27:34
  SPEAKER_01: So determining the degree of influence you have over your investee, is it a relationship of control, joint control, significant influence, or a financial instrument to you as the investor?
• 27:47
  SPEAKER_01: So clearly a lot of variations on that team.
• 27:50
  SPEAKER_01: Another one that is relevant is some of these arrangements in form are not leases, but for accounting purposes, maybe leases.
• 28:00
  SPEAKER_01: And so clearly this is an accounting test, it's an accounting determination.
• 28:04
  SPEAKER_01: But I guess the point is that it will go beyond how the particular arrangement is labeled or described.
• 28:12
  SPEAKER_01: Another one, again, connecting with what her discuss on private capital is the financing.
• 28:18
  SPEAKER_01: Because they are very large transactions, a lot of the financing will come from, say, non-traditional lenders or investors.
• 28:27
  SPEAKER_01: And these considerations about one, is it debt or is it equity that is very relevant here?
• 28:34
  SPEAKER_01: And the ultimate risk is also one of off-balance sheet financing.
• 28:39
  SPEAKER_01: So is there something that should be on the books that ends up off the books, and that is a risk as these transactions can be complex as well.
• 28:48
  SPEAKER_01: Otherwise, maybe some more traditional uh concerns in the sense that you may be building a particular data center.
• 28:56
  SPEAKER_01: And so you will have to worry about which expenditure can be or should be capitalized, and that might be tangible assets or might be intangible assets if you're also developing, say, software to accompany your AI project.
• 29:10
  SPEAKER_01: And then we get into disclosure, and that could be on related parties.
• 29:15
  SPEAKER_01: A lot of these arrangements have similar parties being involved, and you will need to identify which ones are the related parties, which transactions took place that would warrant disclosure as well.
• 29:27
  SPEAKER_01: And then there is that standback test of assessing if, in a general sense, the disclosure provided in the context of these financial statements will provide to the users of the statements a clear, transparent, comprehensive description of the terms and conditions of these arrangements and the impact on their financial statements.
• 29:48
  SPEAKER_01: And again, more generally, identify those sources of estimation uncertainty, so very similar messaging, as well as those key judgments that have been applied.
• 29:57
  SPEAKER_01: And so this is again a standback test to say when everything else necessarily fails, but you have to look at the result of it all and make sure it is complete and sufficient.
• 30:07
  SPEAKER_03: All right.
• 30:08
  SPEAKER_03: And I know that's just skimming the surface on some of the implications.
• 30:12
  SPEAKER_03: I do want to rewind and have a question for you that I think also would apply her to the transactions you were describing.
• 30:18
  SPEAKER_03: And you started with an example of talking about your investing in your customer.
• 30:24
  SPEAKER_03: And so there's two transactions there.
• 30:26
  SPEAKER_03: And for this purpose, if you had a pre-existing customer relationship and now you're making the investment today, is the fact those were at a different time then you can automatically say these are separate, or do you still have to consider them?
• 30:42
  SPEAKER_03: And again, I'm getting, I know too complex, and Martin is smiling at me, but I at least wanted to briefly touch on that question.
• 30:49
  SPEAKER_01: No, that that is fair.
• 30:51
  SPEAKER_01: I mean, the the the good news is that what I described earlier would have been the more obvious indicator is that your unit of account is a single unit of account.
• 30:59
  SPEAKER_01: I think you're right.
• 31:00
  SPEAKER_01: If there's a significant timing difference, you could disconnect the two, but I would still challenge if somehow the investment you're making is not at fair value, this may point to something else.
• 31:13
  SPEAKER_01: Yes.
• 31:13
  SPEAKER_01: So finding that something else would remain a challenge.
• 31:17
  SPEAKER_01: Now, the challenge on the challenge is what is fair value?
• 31:20
  SPEAKER_01: Right.
• 31:21
  SPEAKER_01: So these are not necessarily actively traded investees.
• 31:24
  SPEAKER_01: And so there might be a range of acceptable determination for that fair value.
• 31:28
  SPEAKER_01: And if you fit within the range, then maybe there is no excess.
• 31:31
  SPEAKER_01: But your question is very good and very fair in that the the greater the time difference, then the more room you create to distinguish these transactions.
• 31:40
  SPEAKER_03: But really, your point then is that if you have more than one relationship, you have to at least consider is a relationship.
• 31:47
  SPEAKER_03: And clearly, if they were entered into at the same time, then you would need to be thinking about them together.
• 31:54
  SPEAKER_03: Absolutely.
• 31:54
  SPEAKER_03: And Herta, the reason I made me also think of what you were talking about is because you also mentioned multiple arrangements.
• 32:01
  SPEAKER_03: And were you mostly in your examples then contemplating when it was multiple arrangements at the same time?
• 32:08
  SPEAKER_03: Or what do you typically see in these types of transactions?
• 32:12
  SPEAKER_02: That's right, Heather.
• 32:14
  SPEAKER_02: I think in most of these we see multiple arrangements.
• 32:17
  SPEAKER_02: Um, so kind of that you need to look at together to determine what is the ultimate accounting.
• 32:23
  SPEAKER_03: So again, obviously there's a lot more to this, but at least wanted to ask that one question.
• 32:28
  SPEAKER_03: And then again, if people are dealing with this, there's there's more to think about.
• 32:32
  SPEAKER_03: So we've talked about some very complex areas of accounting.
• 32:37
  SPEAKER_03: Now I think it makes sense to move on to new and amended IFRES accounting standards.
• 32:42
  SPEAKER_03: Um, so companies can be thinking about this for in the preparation of their financial statements.
• 32:46
  SPEAKER_03: So maybe Herta, I'll turn to you and can which ones would you highlight?
• 32:50
  SPEAKER_02: So I think Heather, there's almost, I would put it into two buckets.
• 32:54
  SPEAKER_02: Um, one kind of new amended amendment that's applicable to 2026 reporters.
• 33:00
  SPEAKER_02: And then if we look at 2027, there's two new IFRS accounting standards and also a smaller, more niche amendment.
• 33:08
  SPEAKER_02: So if we start with periods starting um on or after 1 January 2026, there is amendments and very targeted, but amendments to IFRS 9 and then obviously IFRS 7 because it relates to the disclosures.
• 33:23
  SPEAKER_02: Um, and these, I think the most kind of common one that will impact most entities relates to the classification and measurement in IFRS 9 and specifically the date of recognition and derecognition of certain financial assets and liabilities.
• 33:39
  SPEAKER_02: Now it's really only impacting where you have payments that's made through kind of traditional kind of checks, or where you still kind of write an actual physical check, or your older electronic payment systems where it takes a couple of days for the transaction to complete.
• 33:56
  SPEAKER_02: So if I use an example, there is if I have entity A that um has an obligation to pay entity B and it uses an electronic payment system that takes, for instance, three days to complete the transaction.
• 34:10
  SPEAKER_02: If entity A makes the payment to entity B, say a day before its financial year end, you cannot at the and it say it takes three days.
• 34:20
  SPEAKER_02: So the money is only in entity A B's bank account a day after the financial year end of entity A.
• 34:28
  SPEAKER_02: Entity A cannot then go and de-recognize that liability to that it owes to entity B at its financial year end.
• 34:36
  SPEAKER_02: The transaction, or you can only derecognize and complete the transaction once the money is in entities B's bank account.
• 34:43
  SPEAKER_02: And that obviously will impact things, you know, like bank reconciliation because, you know, we we all know outstanding checks or checks in transit kind of um concepts is not relevant.
• 34:55
  SPEAKER_02: Again, there is for some of these electronic systems and payment methods, there is an exception.
• 35:00
  SPEAKER_02: Um, but that, you know, kind of I won't go into detail here, but you do need to go do an assessment whether you can apply that assessment.
• 35:08
  SPEAKER_02: And there is some disclosure requirements around it.
• 35:11
  SPEAKER_02: But I would say whenever you have these type of payments, say systems that take a couple of days to finalise or you still use check payments, definitely something to look at if you're an IFRS reporter.
• 35:22
  SPEAKER_03: All right, a lot to think about there if you're in these circumstances.
• 35:26
  SPEAKER_02: And the only other thing that I there's a couple of other targeted amendments, but I think the only other one to highlight relates to what I would call contracts referencing nature-dependent electricity.
• 35:37
  SPEAKER_02: So that's a type of contract where you are exposed to variability in the amount of electricity because it's dependent on nature.
• 35:45
  SPEAKER_02: So for instance, the weather.
• 35:47
  SPEAKER_02: Um and then IFRS9 had some targeted amendments related to these types of contracts when you look at the own use criteria and hedging requirements.
• 35:56
  SPEAKER_02: Um, so when you have these contracts, it's a good idea to just have a look at the amendments and the additional disclosure requirements.
• 36:03
  SPEAKER_03: And I think for regular podcast listeners, I'll just say these nature-related contracts would be what we are normally calling renewables, so wind, solar.
• 36:12
  SPEAKER_03: So it's very uh timely that they made these amendments to that.
• 36:16
  SPEAKER_03: I guess then if we look ahead to 2027, I think everyone wants to talk about IFRS 18.
• 36:22
  SPEAKER_03: Uh so what would you share there?
• 36:24
  SPEAKER_02: So probably the 2027 amendments is much more widespread.
• 36:29
  SPEAKER_02: And I think we're all excited about IFRS 18, mainly because one, it's probably the new standard that has the most wide-reaching impact since the 20 years we we have IFRS or have adopted IFRS accounting standards.
• 36:45
  SPEAKER_02: So IFRS 18, and you had us previously, or kind of one of our team on your podcast, it basically replaces IS1 and deals with presentation in your financial statements.
• 36:57
  SPEAKER_02: So there's a lot of discussion around classification in the statement of profit and loss, because there's certain predefined categories and subtotals.
• 37:07
  SPEAKER_02: Um, there's also a lot of discussion, there's a new introduction of what we call MPMs or management performance measures, which may bring in some of your old kind of traditional KPIs or kind of performance measures that were sitting outside of the financials now into the financials with additional disclosures.
• 37:26
  SPEAKER_02: Um that's just a couple of the highlights, but I think it's probably most entities, and we we're starting to get a lot more questions on these as entities are trying to kind of unravel the requirements.
• 37:37
  SPEAKER_02: Um and these range from, you know, obviously across the broad financial institutions, the normal kind of corporates as well.
• 37:44
  SPEAKER_03: Yeah, maybe we'll have to do a follow-up to that um previous podcast to talk about more specifically some of IFRS 18.
• 37:52
  SPEAKER_03: And then how about IFRS 19?
• 37:54
  SPEAKER_02: So IFS19 is a bit more um niche and not as widespread, but it it will, for certain eligible subsidiaries, so that's kind of subsidiaries that don't have public accountability, and they somewhere have a parent company or an ultimate parent company that has public accountability and and and prepares consolidated IFRS financial statements, they will be able to have reduced disclosure requirements.
• 38:21
  SPEAKER_02: So they will apply the measurement and recognition requirements that's in all of the other IFRS accounting standards, but then some of the disclosure requirements will then be less because they can look at IFRS 19.
• 38:33
  SPEAKER_02: Um, but again, as I said, that is a kind of a smaller group of entities, but still um I think if you you are eligible and want to, it brings a lot of relief.
• 38:43
  SPEAKER_03: All right, very helpful.
• 38:44
  SPEAKER_03: And then Martin, I know there's a number of projects going on.
• 38:48
  SPEAKER_03: Um, one in particular that's near and dear to me, coming from power and utilities industry.
• 38:52
  SPEAKER_03: But um, can you give us a quick summary and then which ones would you focus on?
• 38:57
  SPEAKER_01: Absolutely.
• 38:58
  SPEAKER_01: And you're right.
• 38:58
  SPEAKER_01: So the International Accounting Standards Board has a full work plan as a bit of a pipeline of projects undergo right now, and they range in nature.
• 39:07
  SPEAKER_01: So they range from financial instruments with characteristics of equity to risk mitigation accounting to equity method accounting.
• 39:16
  SPEAKER_01: And I'll focus on two projects.
• 39:19
  SPEAKER_01: So the first one will be on a fair value option for investments and associates and joint ventures, and the second one, you are right, on rate-regulated activities.
• 39:29
  SPEAKER_01: So going to the fair value option, so that is a proposal right now to extend what is a current election in that particular uh standard.
• 39:40
  SPEAKER_01: And the proposal is made in the context of IFRS 18 that Herda just covered.
• 39:45
  SPEAKER_01: And the proposal is to allow entities that under IFRS 18 would have a main business activity of investing in certain assets, including associates and joint ventures.
• 39:57
  SPEAKER_01: And so for those entities, the proposal will be this should be allowed to measure the investments in associates and joint ventures at fair value, as opposed to the equity method of accounting.
• 40:07
  SPEAKER_01: And so this is a better alignment with the IFRS 18 requirement.
• 40:11
  SPEAKER_01: Our response has been provided to the IESP.
• 40:15
  SPEAKER_01: We are supportive of the change, and we are going as far as saying as well that we will be supportive as well of even broader application of that election.
• 40:24
  SPEAKER_01: So allow all entities that would so desire to apply the fair value option.
• 40:29
  SPEAKER_01: But our first message remains one of this is useful in the context of the upcoming application of IFRS 18, and that should be done quickly.
• 40:37
  SPEAKER_03: Well, yeah, so that was going to be my follow-up question.
• 40:40
  SPEAKER_03: So it's well, it's the end of April.
• 40:42
  SPEAKER_03: And do we think that this could get done in time to apply then for the adoption of IFRS 18?
• 40:48
  SPEAKER_01: The short answer is yes.
• 40:50
  SPEAKER_01: And that is very much why our own response is splitting the two proposals and saying you must do this ahead of the adoption of IFRS 18 application and then focus on the rest later on.
• 41:02
  SPEAKER_03: All right.
• 41:02
  SPEAKER_03: Very interesting.
• 41:04
  SPEAKER_03: It'll be interesting to see what happens and if they can fast track that activity.
• 41:09
  SPEAKER_01: Well, what is useful at least is that this is the stated intent behind the proposal.
• 41:14
  SPEAKER_01: So it's very much made in the context of the upcoming adoption.
• 41:17
  SPEAKER_01: So the ISP is very well aware of the time pressure on them.
• 41:21
  SPEAKER_01: And so then moving on to the uh the second project I wanted to cover on rate-regulated activity.
• 41:27
  SPEAKER_01: So we are expecting the final standard to come out next month in May 2026.
• 41:33
  SPEAKER_01: We expect that standard to be effective from the 1st of January 2029 onwards.
• 41:39
  SPEAKER_01: It should be called IFRS20.
• 41:42
  SPEAKER_01: And this is an all-encompassing standard.
• 41:45
  SPEAKER_01: And so it should be capturing of scope, recognition, measurement, presentation, and disclosure for those entities in scope.
• 41:53
  SPEAKER_01: And so you would expect utilities, energy, transportation type entities, when they are subject to regulation, they will be able to apply this new standard.
• 42:03
  SPEAKER_01: This will supersede an existing IFRS, which is called IFRS 14, on regulatory deferral accounts.
• 42:10
  SPEAKER_01: And so the new standard will be very, very targeted and on point for those entities that are subject to regulation to allow for recognition of regulatory assets and liabilities, regulatory income and expenses in the context of providing users that are statements of impacts of the regulation on the activities.
• 42:31
  SPEAKER_01: So both the performance and the financial position of these entities.
• 42:34
  SPEAKER_01: So this is good news.
• 42:36
  SPEAKER_01: This is a long time in the making.
• 42:38
  SPEAKER_03: That's what I was thinking.
• 42:39
  SPEAKER_03: Culmination of a very, very long time.
• 42:41
  SPEAKER_01: But we're looking forward to next month to see the final result.
• 42:44
  SPEAKER_03: All right, very exciting.
• 42:46
  SPEAKER_03: So definitely a lot going on, both um just from a broader perspective of outside impacts on the financial statements and then changes in accounting as well.
• 42:56
  SPEAKER_03: Uh so I always like to end with what advice would you give?
• 42:59
  SPEAKER_03: Now, given the number of topics we talked about, you could pick a topic if you don't want to give broad-ranging advice, but maybe you heard us starting with you.
• 43:07
  SPEAKER_03: Um, if you're talking um to preparers, what would you say in dealing with this level of complexity right now?
• 43:14
  SPEAKER_02: Um, I think maybe, you know, firstly, stand back and think about the substance of any of these arrangements and not just dive in and kind of look at, you know, get lost in the weeds, would probably be my first advice.
• 43:29
  SPEAKER_02: And then maybe secondly, talking to about all these new standards is it's a while away to 2026, 2027, 2029.
• 43:37
  SPEAKER_02: Um, it's always good to start earlier um to work through what it means for you rather than later.
• 43:43
  SPEAKER_02: And IFRS also requires you to do disclosures about significant impacts ahead.
• 43:48
  SPEAKER_02: So I would I would say that would be my second piece of advice.
• 43:51
  SPEAKER_02: Excellent.
• 43:52
  SPEAKER_02: And Martin?
• 43:53
  SPEAKER_01: Yeah, I think I think it would pick disclosure as well.
• 43:56
  SPEAKER_01: So you you touched on expected impact of new accounting standards, but I think the the theme of disclosure was pervasive throughout our conversation.
• 44:04
  SPEAKER_01: And so you you have complex arrangements, you have uncertain positions, you are making judgments.
• 44:10
  SPEAKER_01: This would likely require disclosure.
• 44:13
  SPEAKER_01: So being transparent about the implications to you and what you have done about these uncertainties and that complexity, I think will be extremely useful.
• 44:21
  SPEAKER_01: And that's in a nice way indicating that for some of the items we've discussed.
• 44:26
  SPEAKER_01: So, for example, tariffs, the impact might differ from one entity to the next.
• 44:29
  SPEAKER_01: And so having appropriate tailor disclosure will be most useful for user those statements to understand what's been done by by you as the preparer in your specific circumstances.
• 44:40
  SPEAKER_03: All right.
• 44:40
  SPEAKER_03: Well, excellent advice from both of you and appreciate all the insight.
• 44:44
  SPEAKER_03: Thanks so much for joining me.
• 44:45
  SPEAKER_03: And I'm looking forward to having you back as all of this continues to evolve.
• 44:48
  SPEAKER_01: Thank you.
• 44:49
  SPEAKER_01: Thank you.
• 44:50
  SPEAKER_03: That's our show for today.
• 44:52
  SPEAKER_03: Tune in next week for more fresh episodes.
• 44:55
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• 44:58
  SPEAKER_03: Follow the PWC Accounting Podcast wherever you listen to your podcasts.
• 45:03
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• 45:12
  SPEAKER_03: From thought leadership at PwC, I'm Heather Horn.
• 45:17
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