Q4 2024 new IFRS® Accounting Standards and amendments: Are you ready?

From the IFRS Institute – December 6, 2024

Authors: Valerie Boissou and Paulina Kumah

In 2024, the International Accounting Standards Board (IASB) introduced two significant standards – IFRS 18 Presentation and Disclosure in Financial Statements, and IFRS 19 Subsidiaries without Public Accountability: Disclosures – which are effective in 2027. It also is about to release narrow-scope amendments to IFRS 9 for power purchase agreements, which will be effective in 2026. As the year draws to a close, IFRS Accounting Standards preparers must be prepared to implement amendments related to debt with covenants, sale-and-leaseback transactions, and supplier finance arrangements, all effective in 2024, as well as the amendments affecting foreign exchange translations, effective in 2025.

Our semi-annual outlook is a quick aid to help preparers in the US keep track of coming changes to IFRS Accounting Standards and assess the relevance to their financial statements.

The following summaries highlight new authoritative guidance issued by the IASB, provide a high-level comparison to US GAAP, and identify resources for further reading. The content is organized by effective dates¹:

Effective January 1, 2024

Effective January 1, 2025

Effective January 1, 2026

Effective January 1, 2027

As a reminder, to be in compliance with IFRS Accounting Standards, companies also need to timely implement all IFRS Interpretations Committee Agenda Decisions. Read the KPMG IFRS Perspectives article for a summary of 2024 Agenda Decisions.

Lastly, in On the radar, we highlight the proposed amendments to IAS 37 around the timing and amount of provisions, and IAS 28. See also the IFRS Foundation work plan for other IASB projects that are currently in progress.

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 an entity’s right to defer settlement for at least 12 months after the reporting date. The right needs to exist at the reporting date and must have substance.

Only covenants with which an entity must comply on or before the reporting date 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 an entity’s own equity instruments is regarded as settlement of a liability, in certain circumstances. If a liability has any equity conversion options, they generally affect its classification as current or noncurrent (e.g. if the conversion option is bifurcated as an embedded derivative from the host debt), 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 because, unlike IAS 1, US GAAP factors in other elements in the classification assessment – e.g. the intent and ability of the debtor to refinance the obligation on a long-term basis, and certain subsequent events such as covenant breaches and related waivers.

Further, under US GAAP, the classification as current or noncurrent is not based on whether the conversion option is separated as an embedded derivative from the host debt.

Refer to KPMG Article, Current/noncurrent debt classification: IFRS^® Standards vs US GAAP for further discussion on the differences that exist.

Supplier Finance Arrangements (Amendments to IAS 7, Statement of Cash Flows and IFRS 7, Financial Instruments: Disclosures) requires an entity (the buyer) to disclose qualitative and quantitative information about its supplier finance arrangements², 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, US GAAP requires an entity (the buyer) to disclose qualitative and quantitative information about its supplier finance programs.

However, the characteristics required to qualify as a supplier finance program under US GAAP are different from those under IAS 7. For example, they do not include the entity obtaining extended payment terms under the arrangement.

In addition, 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 a limitation on the volume of foreign currency transactions that can be undertaken at an official exchange rate. 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.	Where the lack of exchangeability is not temporary, Topic 830 (foreign currency matters) explicitly requires an entity to consider the propriety of consolidation, combination, or equity method of accounting for foreign operations with significant non-exchangeable currencies, unlike IFRS Accounting Standards. Also, there is no concept of estimating exchange rates under US GAAP, however, the lack of exchangeability must be disclosed.
KPMG resources: Article: Lack of exchangeability

Effective January 1, 2026¹

Amendments to existing standards
New IFRS Accounting Standards requirements	Comparison to US GAAP
Amendments to the Classification and Measurement of Financial Instruments (Amendments to IFRS 9, Financial Instruments and IFRS 7, Financial Instruments: Disclosures) clarify financial assets and financial liabilities are recognized and derecognized at settlement date except for regular way purchases or sales of financial assets and financial liabilities meeting conditions for new exception. The new exception permits companies to elect to derecognize certain financial liabilities settled via electronic payment systems earlier than the settlement date. They also provide guidelines to assess contractual cash flow characteristics of financial assets, which apply to all contingent cash flows, including those arising from environmental, social, and governance (ESG)-linked features. Additionally, these amendments introduce new disclosure requirements and update others.	Under Topic 405, financial liabilities are considered extinguished once the debtor has settled the debt or is legally released from being the primary obligor. There are no specific considerations to assess the timing of debt extinguishment when payments are made via electronic payment systems. Further, US GAAP does not address the timing of the recognition of financial asset settlements. Further, the classification of financial assets under US GAAP is primarily based on management’s intent for holding the assets. Any contingent cash flows, including those arising from ESG-linked features are evaluated for potential bifurcation as embedded derivatives
Coming soon: Power Purchase Agreements (PPAs) (Amendments to IFRS 9 and IFRS 7) address the application of ‘own use’ and hedge accounting requirements for agreements which meet specified criteria. If a PPA qualifies for the ‘own use’ exemption, it is accounted for as an executory contract rather than as a derivative. In contrast, if a PPA does not qualify for the ‘own use’ exemption, it is accounted for as a derivative to which hedge accounting considerations may apply. The amendments apply to contracts that reference electricity generated from nature dependent sources and for which cash flows vary based on the amount of electricity generated by a reference production facility. New disclosures have also been introduced.	Like IFRS Accounting Standards, under US GAAP, PPAs that meet the definition of a derivative are eligible for the normal purchase normal sale (NPNS) scope exception from being accounted for as a derivative under Topic 815 Derivatives and Hedging. Like IFRS Accounting Standards, if the NPNS scope exception is elected for an eligible PPA, it is accounted for as an executory contract. To the extent a PPA is accounted for as a derivative, the requirements and the mechanics of applying hedge accounting differ from IFRS Accounting Standards.
KPMG resources: Article: Settlement by electronic payments Article: Classification of financial assets Article: Own use scope exemption under IFRS® Accounting Standards

Effective January 1, 2027¹

IFRS 18, Presentation and Disclosure in Financial Statements
New IFRS Accounting Standards requirements	Comparison to US GAAP
IFRS 18 replaces IAS 1, which sets out presentation and base disclosure requirements for financial statements. The changes, which mostly affect the income statement, include the requirement to classify income and expenses into three new categories – operating, investing and financing – and present subtotals for operating profit or loss and profit or loss before financing and income taxes. Further, operating expenses are presented directly on the face of the income statement – classified either by nature (e.g. employee compensation), by function (e.g. cost of sales) or using a mixed presentation. Expenses presented by function require more detailed disclosures about their nature. IFRS 18 also provides enhanced guidance for aggregation and disaggregation of information in the financial statements, introduces new disclosure requirements for management-defined performance measures (MPMs)* and eliminates classification options for interest and dividends in the statement of cash flows. *Non-GAAP measures that meet the definition of MPMs will be subject to the disclosure requirements.	US GAAP generally has no requirements to classify income and expenses by specific category, or present subtotals for profit or loss. SEC regulations prescribe expense classification requirements for certain specialized industries. Non-GAAP measures are generally prohibited from inclusion in the financial statements. Therefore, presentation and disclosure differences are expected to continue to arise in practice when IFRS 18 comes into effect. The FASB has issued a proposal that would require income statement expenses to be disaggregated into certain natural expense categories in the notes. As proposed, the new US GAAP disclosures would be similar in spirit to certain IFRS 18 disaggregation requirements but may be more cumbersome and would apply only to public business entities.
KPMG resources: Article: How companies communicate financial performance is changing Talkbook: Presentation and disclosure in the financial statements First Impressions: Presentation and disclosure – IFRS 18 Defining Issues: FASB proposes income statement disaggregation disclosures

IFRS 19, Subsidiaries without Public Accountability: Disclosures
New IFRS Accounting Standards requirements	Comparison to US GAAP
IFRS 19 is a voluntary standard that applies to entities without public accountability, but whose parents prepare consolidated financial statements under IFRS Accounting Standards. For in-scope companies, IFRS 19 simplifies disclosures on various topics, including leases, exchange rates, income taxes, statement of cash flows, etc. If elected, IFRS 19 is expected to reduce the cost of preparing in-scope financial statements while maintaining the usefulness of those financial statements for stakeholders.	Under US GAAP, private companies can elect to apply Private Company Alternatives, aimed at reducing complexity and costs in financial reporting for in-scope companies. This includes the option to amortize goodwill over a set period, the ability to combine similar intangible assets, a simplified approach to evaluating variable interest entities, a simpler approach to lease accounting, and alternative methods for estimating fair value in certain cases. There is no specific alternative focused solely on reducing disclosures; however, certain US GAAP disclosure requirements only apply to public entities. The entities eligible to elect Private Company Alternatives under US GAAP compared to IFRS 19, as well as the results of applying each, may differ.
KPMG resources: Article: Reducing disclosures for subsidiaries

Updates to IAS 28 and the equity method of accounting

The IASB recently issued an Exposure Draft that proposes amendments to the equity method in IAS 28 for investments in associates and joint ventures³. The IASB anticipates that the proposed changes will reduce diversity in practice. Such diversity occurs today due to IAS 28's lack of clear requirements or inconsistencies with other IFRS Accounting Standards.

For example, the proposals aim to bring consistency in the measurement of the cost of an associate or joint venture by addressing the purchase of the initial ownership interest and any additional interests, as well as partial disposals. The proposals would also require additional disclosures, including a reconciliation between the opening and closing carrying amount of investments in associates and joint ventures.

Updates to the guidance on provisions in IAS 37

Effective since 1999, IAS 37, the one-stop standard for accounting for provisions under IFRS Accounting Standards is being put to the test with a recent uptick in climate-related accounting matters. Some of them – such as those relating to emission schemes and climate-related commitments – are being addressed by the IFRS Interpretations Committee. In 2022, an Agenda Decision⁴ explored whether measures to encourage reductions in vehicle carbon emissions give rise to an obligation requiring a liability under IAS 37. In 2024, another Agenda Decision⁵ sets out a two-step approach to first assess if the commitments a company makes to reduce or offset its future greenhouse gas emissions create a constructive obligation, and second if that constructive obligation results in a liability under IAS 37. It highlights that setting or announcing a commitment, on its own, does not trigger recognition of a liability, even if a public announcement has created a valid expectation and resulted in a constructive obligation.

Meanwhile, the IASB has released proposed amendments to IAS 37⁶, which would provide new guidance on determining when to recognize a provision and clarify which costs to include and which discount rate to use in measuring a provision. Under the proposals, some provisions could be recognized earlier, progressively⁷, and in some cases at a larger amount. See KPMG article, Changes to provisions on the horizon, to understand the potential changes and their impact on your company’s provisions.

Due to the broad reach of IAS 37, preparers and users of financial statements under IFRS Accounting Standards should consider the proposal and provide their feedback to the IASB by March 12, 2025.

Footnotes

1. Effective dates are for annual periods beginning on or after the stated date. Early adoption is permitted unless otherwise stated.

2. These arrangements may also be referred to as ‘reverse factoring’ or ‘supply chain financing’ arrangements.

3. See IASB Equity Method project page.

4. June 2022 Agenda Decision on negative low emission vehicle credits.

5. March 2024 Agenda Decision on climate-related commitments.

6. See IASB Provisions – Targeted Improvements project page.

7. Under the proposals, if a company obtains economic benefits or takes action over time, then the present obligation would arise over time.

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Partner, Dept. of Professional Practice, KPMG US

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Paulina Kumah

Manager Advisory, Accounting Advisory Services, KPMG US

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