IASB meeting summary - October 2008 - Deloitte Touche Tohmatsu

Our summary of the October 2008 IASB meeting is set out below, as follows:

meeting highlights for Australian constituents
summary of the topics discussed:

The detailed Deloitte observer notes from the meeting can be accessed on our IAS Plus website.

Top | Meeting highlights for Australian constituents | Projects progressing towards the issue of a new/revised Standard or other pronouncement | Projects progressing towards the issue of an exposure draft | Projects progressing towards the issue of a discussion paper | Other topics

Meeting highlights for Australian constituents

the IASB's response to the credit crisis became more urgent with the issue of amendments to IAS 39 to permit reclassifications of certain financial instruments and an exposure draft of proposed amendments to IFRS 7 (more analysis of these developments can be found in Accounting alert 2008/14). In addition, a final document resulting from the IASB's expert advisory panel on measuring and disclosing the fair value of financial instruments in markets that are no longer active is expected to be issued by the end of October
the IASB reconsidered its proposals to amend the definition of a derivative to delete the reference to 'non-financial variables specific to a party to the contract' and decided not to proceed with the amendment at this time as an annual improvement. Instead, proposals on how to proceed with this issue will be considered at a future meeting, which may involve including this issue in the fundamental review of IAS 39
in its consolidation project, the IASB decided that in assessing whether an entity controls another at the reporting date, options that represent a current legal right and which the holder can exercise should be considered in that assessment - this is a significant change from the original proposals in the discussion paper but is largely consistent with current practice.

Top | Meeting highlights for Australian constituents | Projects progressing towards the issue of a new/revised Standard or other pronouncement | Projects progressing toward the issue of an exposure draft | Other topics

Summary of topics discussed

Projects progressing towards the issue of a new/revised Standard or other pronouncement

Topic

High-level overview of discussion and key decisions

More information

Reclassification of financial instruments

(fast-track amendments to allow classification of certain financial instruments)

The Board discussed a possible ad hoc amendment to IAS 39 to allow reclassifications from 'held for trading'. The Board decided:

not to provide guidance on impairment
to set 1 July 2008 as effective date of the amendments
not to explain the meaning of 'rare circumstances'
to include additional disclosures.

The amendments were published on 13 October 2008.

The Board discussed whether entities in jurisdictions which require the endorsement of this amendment by local law, should be able to apply retrospective reclassification after 1 November 2008 where local endorsement occurs after this date. The Board concluded that this was not acceptable.

Agenda paper 12: IAS 39 Financial Instruments: Recognition and Measurement Reclassifications out of the held for trading part of the Fair Value through profit or loss (FVTPL) category (PDF 35kb)

Accounting alert 2008/14

IFRS for private entities (formerly IFRS for SMEs)

(project to develop an IFRS designed to meet the financial reporting needs of entities that (a) do not have public accountability and (b) publish general purpose financial statements for external users. IFRS expected to be issued in Q4 2008)

The Board continued its redeliberations on the IFRS for Private Entities. At this session the less contentious issues were discussed, as follows:

there will be a 'temporary control'-exemption
purchased options would not be an eligible hedging instrument
guidance on straight-lining lease expenses in an operating lease will be clarified with regard to rental increases designed to compensate the lessor for expected inflation
the amendments to IAS 32 on puttable instruments and obligations arising on liquidation will be included.

Outstanding issues will be brought back to the next meeting.

Agenda paper 5: International Financial Reporting Standard for Private Entities (formerly IFRS for SMEs): Redeliberation - Outstanding Issues (PDF 63kb)

IAS Plus project page

IASB project page

Annual improvements process 2007

(proposals from previous annual improvements processes that were not finalised and are in the process of being reconsidered)

The IASB reconsidered the 2008 annual improvements proposal to modify the definition of a derivative by removing the reference to 'non-financial variables specific to a party to a contract'.

The Board decided not to pursue the amendment, but asked the staff to propose alternative ways of addressing the issue, perhaps as part of the IASB's comprehensive financial instruments project.

Agenda paper 8: ED Annual Improvements: Comment analysis - IAS 39 definition of a derivative (question 30) (PDF 33kb)

IAS Plus project page

IASB project page

Group cash-settled share-based payment transactions

(project to amend IFRS 2 and IFRIC 11 to provide guidance for cash-settled share-based payment in group situations)

Board discussed whether cash-settled share-based payments were even in the scope of IFRS 2, with the alternatives of IAS 19 and IAS 39 being considered. No conclusions were reached.

Agenda paper 14: ED of Proposed Amendments to IFRS 2 and IFRIC 11 - Group cash-settled share-based payment transactions: Session overview (PDF 21kb)

Agenda paper 14A: ED of Proposed Amendments to IFRS 2 and IFRIC 11 - Group cash-settled share-based payment transactions: Comment analysis (PDF 115kb)

Agenda paper 14B: ED of Proposed Amendments to IFRS 2 and IFRIC 11 - Group cash-settled share-based payment transactions: Proposed scope of IFRS 2 (Question 1a of the ED) (PDF 57kb)

Agenda paper 14C: ED of Proposed Amendments to IFRS 2 and IFRIC 11 - Group cash-settled share-based payment transactions: Proposed classification for accounting (Question 1b of the ED) (PDF 90kb)

Agenda paper 14D: ED of Proposed Amendments to IFRS 2 and IFRIC 11 - Group cash-settled share-based payment transactions: Extracts from the ED of proposed amendments (PDF 35kb)

IASB project page

IAS Plus project page

Projects progressing towards the issue of an exposure draft

Topic

High-level overview of discussion and key decisions

More information

Derecognition

(project to develop a new IFRS for derecognition of financial instruments and possibly all assets)

The Board discussed the staff proposal on derecognition. The approach taken by the staff created some discussion. The indicative vote on the approach to be taken when a transferee lacks practical ability to transfer an asset was in favour of the staff recommendation (no practicability to transfer = no control for the transferee = no derecognition for the transferor). This topic will be discussed at the Joint Board meeting next week.

Agenda paper 7: Derecognition of Financial Assets: Cover note (PDF 50kb)

Agenda paper 7: Derecognition of Financial Assets: Slides (PDF 274kb)

Agenda paper 7A: Derecognition of Financial Assets: Proposed Derecognition model (PDF 103kb)

Agenda paper 7B: Derecognition of Financial Assets: Lack of Practical Ability to Transfer - Now What? (PDF 78kb)

Agenda paper 7C: Derecognition of Financial Assets: Application of Flowcharts to Transactions and Comparison to IAS 39 and FAS 140 ED (PDF 75kb)

Agenda paper 7D: Derecognition of Financial Assets: Project timetable (PDF 20kb)

IASB project page

IAS Plus project page

Consolidation

(project to develop a new IFRS on consolidation - an ED is expected in Q4/2008)

The Board held an additional Board meeting on 2 October 2008 where the forthcoming ED on consolidation was discussed. At this meeting, the Board discussed an updated version of the staff draft ED incorporating comments from that meeting and other comments received.

Much of the discussion focussed on the wording of the ED, including the definition of 'control' and the meaning of 'benefits'.

The Board also decided that in assessing whether an entity controls another at the reporting date, options that represent a current legal right and which the holder can exercise should be considered in that assessment.

Agenda paper 2: Consolidation: IASB Staff draft of Consolidation ED (PDF 123kb)

Meeting notes from the extra IASB meeting on 2 October 2008

IASB project page

IAS Plus project page

Liabilities and equity

(project to develop an IFRSs providing guidance on how to distinguish between equity and liability)

The Board discussed a possible starting point for developing an ED on this topic. In order to meet the timeframe it was necessary to reduce, at the Joint Board meeting, the number of possible candidates.

Most Board members expressed support for the 'perpetual approach', which would classify an instrument as equity if it (a) lacks a settlement requirement and (b) entitles the holder to a share of the entity's net assets in liquidation.

Agenda paper 2: Financial Instruments with Characteristics of Equity: Cover note (PDF 18kb)

Agenda paper 2A: Financial Instruments with Characteristics of Equity: Comment letter analysis (PDF 74kb)

Agenda paper 11: Financial Instruments with Characteristics of Equity: Selecting an approach (PDF 88kb)

IASB project page

IAS Plus project page

Annual improvements process 2009

(minor amendments to IFRSs exposed in an annual omnibus IFRS, ED expected to be issued in August 2009)

The Board decided to propose an amendment to IAS 39 to clarify that a floating rate instrument is any instrument whose cash flows vary with an (observable) market variable. It also decided that in determining the effective interest rate for such a floating rate an entity should not include expectations about future cash flows.

Agenda paper 6: IAS 39 Financial Instruments: Recognition and Measurement - Application of the Effective Interest Rate Method (PDF, 338KB)

IASB project page

Proposed amendments to disclosure requirements

(project to amend IFRS to expand the disclosure requirements with regard to liquidity risk and off-balance sheet items in response to the credit crisis)

The Board held an additional Board meeting on 2 October 2008. The Board decided to issue an exposure draft amending IFRS 7 Financial Instruments: Disclosures with regard to liquidity risk and fair value disclosures.

The changes would clarify the scope of what has to be included in the maturity analysis for financial liabilities and change the basis of the maturity analysis. The proposed amendments to the fair value disclosures would require entities to report fair values in accordance with a three level hierarchy (comparable to US GAAP) and require additional reconciliations for fair values determined by using unobservable market data.

The exposure draft of proposed amendments to IFRS 7 was released on 15 October 2008.

Agenda paper 1: Disclosures: IFRS 7 Financial Instruments: Disclosures, Proposed amendments - Improving Disclosures about Financial Instruments (PDF 274kb)

Agenda paper 3: Consolidation: Off-balance sheet risk: Proposed amendments to Disclosure requirements (PDF 71kb)

Meeting notes from the extra IASB meeting on 2 October 2008

Accounting alert 2008/14

Fair value measurement

(project to establish a single source of guidance for all fair value measurements required or permitted by existing Standards, to clarify the definition of fair value and enhance disclosures about fair value)

The Board discussed whether pricing conventions, particularly a mid-market price convention, would be acceptable. The Board agreed to add such guidance and that it would be applicable to all levels within the hierarchy with some cautionary language.

Agenda paper 9: Fair Value Measurement: Bid-ask spreads (PDF, 43KB)

IAS Plus project page

IASB project page

Insurance contracts

(project to develop a standard on accounting for insurance contracts)

IASB staff led an education session that discussed a list of measurement attributes identified by the project staff as 'viable candidates' for selection in the case of insurance contracts (the 'current exit model', three variants of the 'current fulfilment model' and an 'unearned premium model'). The purpose of the discussion was to identify those candidates for which the Board needed or wanted further information.

Board members requested more information from the staff, in particular they wanted the staff to reflect the consistency (or lack of consistency) of the candidates with the Framework, existing IFRS and other projects (particularly the revenue recognition project).

Board members also noted that the answers developed by the staff needed to consider what might happen if the premium received was treated as a deposit rather than revenue.

Agenda paper 3: Insurance Contracts - education session: Cover note (PDF, 25KB)

Agenda paper 3A: Insurance Contracts - education session: Overview of comments on the measurement attribute (PDF, 40KB)

Agenda paper 3B: Insurance Contracts - education session: Candidate measurement approaches (PDF, 103KB)

Agenda paper 3C: Insurance Contracts - education session: Candidate measurement approaches - tabular comparison (PDF, 45KB)

Agenda paper 3D: Insurance Contracts - education session: Candidate measurement approaches - example (PDF, 78KB)

IAS Plus project page

IASB project page

Other topics

Topic	High-level overview of discussion and key decisions	More information
Technical Plan (discussion of the content and progress of the IASB's agenda)	The Board received an update on the technical plan to be discussed again at the Joint Board meeting. An updated version of the work plan will be available shortly after the Joint Board meeting.	Agenda paper 10: IASB Work Plan - Directors' comments (PDF 35kb) Agenda paper 10A: IASB Work Plan (PDF 186kb) Agenda paper 10B: IFRIC issues being considered by the IFRIC (PDF 49kb) IAS Plus project page IASB project page
Expert advisory panel on valuing financial instruments in inactive markets (the expert advisory panel is supposed to support the IASB in its fair value measurement guidance and financial instruments projects)	Staff of the IASB updated the Board on the recent developments at the panel. It noted that the (non-mandatory) guidance might be included in future revisions to IFRS 7. It also informed the Board that staff is in the process of finalising the document. Any final version will be clear about its authoritative status.	IASB Expert Advisory Panel project page IAS Plus project page on fair value measurement IAS Plus project page on financial instruments' reporting IASB project page on fair value measurement IASB project page on financial instruments' reporting
US Consolidation amendments: education session	A FASB staff member made a presentation of the proposed amendments to FASB Interpretation 46(R) Consolidation of Variable Interest Entities. The FASB has proposed amendments to the guidance in FIN 46(R) for determining whether an enterprise must consolidate a Special-Purpose Entity (SPE), including those previously considered qualifying SPEs ('Q-SPEs'). Much of the discussion focussed on the determination of the 'primary beneficiary' and the proposal that the test in FIN 46(R) be amended such that the test be primarily a qualitative one rather than a quantitative one. Board members asked for clarification of these proposals, in particular whether the IASB staff's draft consolidation exposure draft was consistent (or as near as possibly consistent) with what the FASB had proposed. Several Board members were concerned about the effect of a put option in the special purpose entity. They noted that although when established the likelihood that the put would be exercised were assessed to be remote, much of the stress in the structured vehicle environment currently has been caused by those puts being exercised. Thus, there is a concern that the presence of a put option in the SPE might defeat derecognition and hence the SPE would always be consolidated.	Agenda paper 4: Education session: Amendments to FASB Interpretation 46(R) - overview (PDF 522kb) IASB project page IAS Plus project page
EFRAG meeting (liaison with EFRAG representatives to discuss various topics of interest	The IASB and EFRAG representatives discussed the credit crisis, debt/equity distinction, financial statement presentation, IASCF constitution review and an update on Proactive Accounting Activities in Europe (PAAinE).	Meeting of IASB with EFRAG: Agenda (PDF 19kb)

About this summary

Please recognise that Board decisions are tentative and often modified and sometimes reversed at later meetings. Therefore, subsequent events are likely to alter some of the decisions reported in the above summary. We do not update these decision summaries, but individual agenda project pages on IAS Plus are kept up to date as developments occur.