In this alert
IASB delays 'IFRS Mark II'
IASB SME project offers hope for smaller entities
July IASB meeting

IASB delays 'IFRS Mark II'

The International Accounting Standards Board (IASB) has announced that it will not require the application of new International Financial Reporting Standards (IFRSs) under development or major amendments to existing standards before 1 January 2009.  In addition, the IASB intends to allow a minimum of one year between the date of the publication of wholly new IFRSs or major amendments to existing IFRSs and the date when implementation is required.

Good news right?  The answer to this question is probably “Yes, but within some provisos”.  Why?  There is no doubt that giving entities longer to prepare for the implementation of new Standards is a good idea.  However, there is a sting in the tail because existing IFRSs require detailed disclosure of the impact of Standards that have been issued but which are not yet effective.  These requirements include “known or reasonably estimable information relevant to assessing the possible impact that application of the new IFRS will have on the entity financial report in the period of initial application”.

Corporate Australia has already experienced the difficulties that surrounded very similar disclosures required on the transition to Australian Equivalents to IFRS (A-IFRS).  The wholesale move to adopt IFRS in Australia required numerous disclosures well before implementation and even a re-write of the original proposals that led to ‘AASB 1047’ because of concern over their implementation.

And yet, these same requirements are effectively required under A-IFRS (and IFRS) for all new Standards.  It means that the extra implementation time available may not be quite as long as what it appears to be.  Listed entities in particular will need to consider what their peers are doing to ensure that they are giving best practice disclosure.  The need to keep the market informed will necessitate an early consideration of all new Standards and proposals.  There may even be benefit in early adopting some of the new requirements before 2009.

There are a diverse range of topics that the IASB is considering and most will affect many entities – almost an 'IFRS Mark II'.  Some of the major areas where new standards or amendments might be expected to apply from 2009 include:

• business combinations
• consolidations
• liabilities (provisions)
• segment reporting
• income taxes.

In addition, there are other projects including impairment, revenue recognition, insurance contracts and various amendments.

There’s another proviso too.  The above policy won’t apply for ‘urgent’ or ‘minor’ amendments to IFRS.  The IASB already has plans to issue an exposure draft in October 2007 for a series of amendments that will apply from 1 January 2008.

Whilst we welcome the IASB’s common sense proposals, entities need to be wary of deferring consideration of new developments.

IASB SME project offers hope for smaller entities

Australia is one of the few countries in the world to require ‘blanket’ application of IFRS to all entities.  The application of standards designed for major corporates listed on the world’s stock exchanges can cause difficulties for other entities because, among other things, there is a lot of complexity and little in the way of guidance on issues that these entities might encounter.

However, an often little known IASB project surrounding the accounting for ‘Small and Medium Sized Entities’ (SMEs) has a lot of potential to make IFRS a little easier for many Australian entities. 

The SME project aims to provide ‘IFRS Lite’ for those entities that do not have public accountability, in the form of an ‘SME Standard’ that eligible entities would apply instead of ‘full blown’ IFRS.  For instance, some of tentative decisions made about the SME project by the IASB at its July meeting include:

• easier hedge accounting for ‘everyday’ hedges such as interest rate risks, FX exposure – possibility without the need to measure ineffectiveness
• a smaller number of financial instrument categories and simpler measurement approaches
• measuring income taxes using an ‘timing difference’ approach.

Whilst the AASB is yet to announce its plans in relation to the project, this project will be viewed positively by many as a way to relieve some of the difficulties that smaller entities commonly encounter in applying IFRS.  With the current uproar in Australia over the proposed change to the definition of ‘general purpose financial statements’ by the IASB, this may also serve as a backup plan for the AASB if an alternate solution to the differential reporting dilemma cannot be found.

Having said that, there are some downsides and uncertainties:

• as noted above, it is unknown at this stage how the proposals would be implemented in the Australian context (if at all)
• it is unclear how these proposals might interact with the ‘reporting entity’ concept (in the event that it can be retained, even if modified)
• the SME Standard is likely to require a lot more disclosure than a non-reporting entity might ordinarily provide under the current system
• by the time the SME Standard is issued, Australia will be many years past its transition to A-IFRS, meaning that the ‘full blown’ IFRS cost and time burden on smaller entities would have already been incurred.

July IASB meeting

The International Accounting Standards Board met in London on 18 – 21 July, when it discussed:

• business combinations II
• insurance
• accounting standards for small and medium-sized entities
• IAS 37 redeliberations
• proposed amendments to IFRS 2
• conceptual framework
• revenue recognition
• short-term convergence: segment reporting
• short-term convergence: joint ventures
• consolidations (including special purpose entities)
• financial statement presentation
• update on IFRIC activities
• employee benefits (pensions)
• process for non-urgent, minor amendments to standards
• leasing
• IAS 24 Related Party Disclosures

Deloitte observers attend IASB meetings and produce detailed observer notes.  Access the notes on IAS plus.

Links
IASB announcement “IASB takes steps to assist adoption of IFRSs and reinforce consultation - No new IFRSs effective until 2009”
IASB meeting held 18-21 July 2006 – Deloitte observer notes 
IASB meeting held 18-21 July 2006 – IASB Update
IASB workplan