Q2 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 contracts.² 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 contracts.²

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 Judgements), continues the IASB’s clarifications on applying the concept of materiality. These amendments help companies provide useful accounting policy disclosures by: requiring companies 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 that relate 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, 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 companies 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 a company 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 companies 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 companies 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, companies 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 (AMT) because it is a separate but parallel system for a company to pay a minimum level of tax. Therefore, companies 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: Classification of debt with covenants Article: Applying materiality when preparing financial statements Article: Accounting policy or estimate? Article: Recognising deferred tax on leases Hot Topic: Global Minimum 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 Judgements), continues the IASB’s clarifications on applying the concept of materiality. These amendments help companies provide useful accounting policy disclosures by:

requiring companies 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 that relate 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, 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 companies 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 a company 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 companies 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 companies 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, companies 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 (AMT) because it is a separate but parallel system for a company to pay a minimum level of tax. Therefore, companies 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: Classification of debt with covenants
Article: Applying materiality when preparing financial statements
Article: Accounting policy or estimate?
Article: Recognising deferred tax on leases
Hot Topic: Global Minimum 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 company’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 company 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 company’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 bring US GAAP closer to IFRS Accounting Standards. 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 programs, such as terms and conditions – including, for example, extended payment terms and security or guarantees provided. 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 that 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 company’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 company 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 company’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 bring US GAAP closer to IFRS Accounting Standards.

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 programs, such as terms and conditions – including, for example, extended payment terms and security or guarantees provided.

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 that 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

On the Radar

IFRS Sustainability Disclosures Standards 1 and 2 expected in June 2023

The ISSB is expected to release IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures by the end of June. IFRS S1 and S2 will have an effective date of January 1, 2024, subject to adoption by local jurisdictions. Companies may use transition options, including relief from disclosing comparative information and Scope 3 greenhouse gas emissions, in first year of reporting. Further, the ISSB agreed a relief that would allow companies to adopt a ‘climate-first’ approach. Under the relief, companies will have the option of reporting only on climate-related risks and opportunities in the first year of application while still claiming compliance with IFRS Sustainability Disclosures Standards.

IFRS S1 and S2 are potentially relevant for all companies regardless of the framework applied in preparing the financial statements (i.e. not solely IFRS Accounting Standards).

KPMG resources:

Climate change financial resource center – resource center on the financial reporting impacts of climate

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 effective date of the ASU is January 1, 2022. For all other entities, including ‘smaller reporting companies’, the effective date is January 1, 2024.
IFRS Practice Statement 2: Making Materiality Judgements

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Effective January 1, 2023¹

Effective January 1, 2024¹

On the Radar

IFRS Sustainability Disclosures Standards 1 and 2 expected in June 2023

KPMG resources:

Sustainability reporting page – latest standard-setting developments

Climate change financial resource center – resource center on the financial reporting impacts of climate

Footnotes

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Q2 2023 new IFRS® Accounting Standards and amendments: Are you ready?

Effective January 1, 20231

Effective January 1, 20241

On the Radar

IFRS Sustainability Disclosures Standards 1 and 2 expected in June 2023

KPMG resources:

Sustainability reporting page – latest standard-setting developments

Climate change financial resource center – resource center on the financial reporting impacts of climate

Footnotes

KPMG Executive Education

Explore more

Meet our team

Subscribe to the IFRS® Perspectives Newsletter

Headline

Effective January 1, 2023¹

Effective January 1, 2024¹