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Monthly roundup - March 2010

Staying on top of developments

In this edition:

Monthly highlight: Liability accounting set for a shake up 

The IASB’s project to replace IAS 37 Provisions, Contingent Liabilities and Contingent Assets, is getting closer to its fruition. After issuing a limited scope exposure draft on the measurement of liabilities in January, the IASB released a ‘working draft’ of the new IFRS in February so constituents can understand the forthcoming standard as a whole.

The liabilities project has been a long-running and contentious project which, together with other IASB projects, promises an overhaul in accounting for liabilities: changing the scope, recognition criteria (removing the ’probable’ criterion) and be more directive in the way in which liabilities are measured.

Example impacts include:

  • Recognising liabilities for certain obligations, even if payment is not probable, e.g. certain legal cases launched against the entity where an obligation is considered to exist
  • Inclusion of hypothetical third-party margins in measuring certain liabilities, even if the entity intends to fulfil the obligation itself, e.g. decommissioning costs to be undertaken by the entity itself might be measured by reference to the amount that would be paid to a third party to undertake the decommissioning. This may lead to a ‘gain’ in the period when the decommissioning is actually undertaken
  • Some ‘provisions’ being accounted for under for other projects, e.g. warranties and refunds (revenue deferral under revenue recognition project), certain guarantees (may fall within insurance or financial instruments projects), and onerous leases (impairment of ‘right of use’ asset under the leases project).

At its March meeting, the IASB decided to extend the comment period for the measurement ED to 19 May 2010 to give respondents more time to understand the recognition requirements of the standard that will replace IAS 37 before they finalise their comments on the revised measurement proposals. The IASB is not specifically requesting comments on the wider proposals, particularly the recognition requirements, but has indicated a willingness to accept comments on those proposals.

The IASB is of the view that much of concern about the IASB’s proposals is unfounded, especially the recognition of a liability where an unfavourable outcome is unlikely. For instance, in a recent series of IASB webcasts, the view was put forward that under the proposals, an entity with a court action against it might conclude that an obligation does not exist if the probability of a unfavourable outcome is low. The specific example given was a court case against the entity with a 30% chance of an unfavourable outcome, 70% change of a favourable outcome – the view was expressed that the entity may, depending upon the facts and circumstances, conclude there is no present obligation and so no liability to recognise, even if the entity intends to enter settlement negotiations to avoid a ‘nuisance action’. Given the ongoing uncertainty around these types of situations, it will be interesting to see how the final Standard expresses the guidance around these requirements.

The accounting landscape undergoes a significant overhaul as the shape of the next wave of IFRS continues to develop. The scale of changes warrants careful monitoring and forward planning.

More information: IAS Plus Update 10-03, IASB Working draft (PDF 243kb), IASB press release, IAS Plus project summary, IASB project page (with access to webcast recordings)

New pronouncements

(A listing of new accounting standards, interpretations, exposure drafts, discussion papers and similar documents issued during the month by the AASB and IASB/IFRIC, along with other IFRS-related documents by other bodies that may be of interest and related links to Deloitte publications and alerts. See also our What’s new in the December 2009 financial reporting cycle summary)

International Accounting Standards Board (IASB)
Pronouncement Key dates More information

ED/2010/2 Conceptual Framework for Financial Reporting - The Reporting Entity

This ED forms part of the multi-phased joint IASB and US Financial Accounting Standard Board (FASB) project to develop a common conceptual framework.

The ED proposes to define the boundaries of the ‘reporting entity’, i.e. which entities, parts of entities, or groups of entities should prepare financial statements. This is different to the ‘reporting entity’ concept used in Australia which determines how an entity reports. (The AASB’s differential reporting proposals would see the concept of ‘special purpose financial statements’ eliminated for those entities preparing financial statements in accordance with Australian Accounting Standards.)

Comments close to the IASB on 31 July 2010 (AASB by 21 June 2010, see below)

Exposure draft

IAS Plus Update Newsletter (PDF 69kb)

US Heads Up Newsletter (PDF 95kb)

Project update (FASB)

IASB Editorial corrections*

Minor corrections and changes to IFRIC 19 and Bound Volume 2010, Bound Volume 2009, IFRS for SMEs, IFRS 9 and IAS 24.

These amendments effectively have immediate effect

IASB Editorial corrections (posted 23 March 2010)

IASB Editorial corrections (posted 4 March 2010)

* equivalent pronouncement not yet issued by AASB

Australian Accounting Standards Board (AASB)
Pronouncement Key dates More information

ED 192 Conceptual Framework for Financial Reporting: The Reporting Entity

Australian equivalent to IASB ED/2010/2 above.

The AASB has indicated the IASB proposals may not necessarily be appropriate for the not-for-profit and public sector. The AASB’s preliminary view is that, until such time as the IASB considers the applicability of any new or revised concepts to other types of entities, it may be necessary to limit the applicability of those new or revised concepts to for-profit-entities.

Comments close to the AASB by 21 June 2010 (IASB on 31 July 2010, see above)

ED 193 (PDF 278kb)

IAS Plus Update Newsletter (PDF 69kb)

US Heads Up Newsletter (PDF 95kb)

Project update (FASB)

Standard setter meetings

(A listing of meetings of various standard setters during the month or where documents were issued during the month in respect of the previous month’s meetings, with links to our analysis, agenda papers and so on)

Meeting Highlights More information
IASB March meetings (3, 11, 15-24 March)
(included two special meetings and joint meetings with the FASB)

Highlights include:

  • Rapid finalisation of a number of standards and exposure drafts expected in the near future
  • Extension of the comment period on ED/2010/01 Measurement of Liabilities in IAS 37 to 19 May 2010
  • Agreeing to an ‘ability’ view in assessing ‘de-facto’ control over an investee and confirming judgement required when considering whether potential voting rights
  • Initial scope discussion on the IASB’s reactivated income tax project.

Australian meeting summary

Deloitte observer notes: meeting 3 March, meeting 11 March, meeting 15-24 March.

IFRIC meeting 3-4 March 2010 IFRIC progressed its discussion on accounting for stripping costs by mining companies, continued its newfound role of considering annual improvements on behalf of the IASB, and discussed a number of agenda decisions.

IAS Plus Update 10-05

Deloitte observer notes

AASB meeting 17-18 March 2010
(included a joint meeting with NZ FRSB)
The AASB and FRSB continued development of a joint exposure draft designed to converge Australian and New Zealand accounting standards as applied by for-profit entities. The AASB agreed to consider a change to the consolidation exemptions in AASB 127 Consolidated and Separate Financial Statements.

Accounting alert 2010/03

AASB Action alert (PDF 69kb)

New Deloitte publications

(Key IFRS-related and other publications issued by Deloitte during the month, not covered elsewhere. You can find full details and back issues of our various publications by following these links: Accounting alerts, IAS Plus publications and IAS Plus Update Newsletters)

IFRS publications
Other publications of interest
Deloitte comment letters

Other developments

(A brief listing of other financial reporting developments during the month. A full summary of all IFRS-related developments can be found in our March historical summary on IAS Plus)

  • On 5 March 2010, the Chairman of the Financial Reporting Council, Mr Jeffrey Lucy AM, released a Treasury consultation paper Audit Quality in Australia: A Strategic Review (consultation paper)
  • The IASB has announced that a special joint IASB-FASB meeting has been scheduled at the IASB's offices in London on Thursday 8 April 2010
  • The IASB has published the first issue of the IFRS for SMEs Update newsletter – a regular staff summary of news relating to the International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs) (newsletter)
  • On 5 March 2010 Deloitte hosted a live webcast between The Hundred Group of Finance Directors in the United Kingdom and the IASB on the future of accounting for liabilities under IFRSs (recording)
  • The Financial Reporting Faculty of the Institute of Chartered Accountants in England and Wales (ICAEW) has published Developments in New Reporting Models (full report [PDF 580kb), abstract [PDF 54kb])
  • The International Valuation Standards Council has published an updated Guidance Note 4 on the valuation of intangible assets (IVSC Press Release, PDF 14kb)
  • The ASX has issued Companies Update 02/10 providing guidelines for ASX Listed Entities concerning their obligations regarding the operation of the ASX Exchange Traded Options market (update)


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