Monthly roundup - March 2010

In this edition:

• Monthly highlight: Liability accounting set for a shake up
• New pronouncements
• Standard-setter meetings
• New Deloitte publications
• Other developments

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)

* equivalent pronouncement not yet issued by AASB

Australian Accounting Standards Board (AASB)

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)

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

• Issue 12 of the Insurance Accounting Newsletter (PDF 130b) – focuses on the discussions the joint IASB-FASB meetings of 10 February and 18 February
• Deloitte (United Kingdom) has published iGAAP Newsletter March 2010 (PDF 165kb)

Other publications of interest

• IFRS Insights Newsletter for March-April 2010 (PDF 404kb) from Deloitte & Touche LLP (United States).
• March 2010 edition of EITF Snapshot (PDF 113kb) - summarises the 18 March 2010 meeting of FASB's Emerging Issues Task Force (from Deloitte & Touche LLP (United States))
• United States Heads Up publication FASB Issues Guidance on ASC 815 Scope Exception for Embedded Credit Derivatives

Deloitte comment letters

• Deloitte comment letter (25kb) on IASB Exposure Draft 2009/6 Management Commentary

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)