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  • IFRS implementation issues
    asset IFRS 11 Joint arrangements The IASB considered papers analysing issues the Interpretations Committee had considered relating to joint arrangements and the measurement of previously held interests The IASB were being asked to approve for inclusion in the Annual Improvements Cycle 2015 2017 two proposed amendments to IFRS The first would amend IFRS 3 see Agenda Paper 12C to clarify that previously held interests should be remeasured to fair value when control is obtained over a joint operation that meets the definition of a business The second would amend IFRS 11 see Agenda Paper 12D to clarify that when an investor participates in a joint operation but steps up to have joint control of the operation the previously held interests in the related assets and liabilities would not be remeasured The third scenario considered was the case of an entity that has control of a business but enters into a transaction that results in the entity losing control but retaining joint control of or being a party to a joint operation The IASB was asked whether the Interpretations committee should continue its related deliberations or postpone these until the completion of the research project into the equity method see Agenda Paper 12E IASB discussion and decisions On the issue of remeasurement of previously held interests when control over a joint operation is acquired see Agenda Paper 12C some board members expressed a concern that any amendment issued may be affected by the outcome of discussions around the definition of a business the transaction investigated by the Interpretations Committee was one where control was attained over an entity that constituted a business As a result the staff rephrased the questions posed to the Board The Board agreed with the proposal to amend IFRS 3 with prospective application of the requirements with early adoption permitted but any amendment would be grouped with and conditional on any other amendments relating to the definition of a business Furthermore it was clarified that the crossing of the control boundary was vitally important in triggering transactions that would lead to remeasurements of previously held interests The discussion then focussed on the issue of remeasurement of previously held interests where there is a change of interests transaction resulting in joint control see Agenda Paper 12D The Board agreed with the proposal to amend IFRS 11 with prospective application of the requirements with early adoption permitted However any amendment would be packaged with other amendments made relating to the definition of a business the example transaction investigated in the paper involved an entity attaining joint control over an entity that constituted a business as assessing the amendments together would lead to a greater understanding of all of the related issues Finally the issue of remeasurement of previously held interests where control is lost see Agenda Paper 12E was considered The Board agreed that the Interpretations Committee that further discussions should be postponed In light of the deferral of decisions relating to IAS 28 During the discussion the message

    Original URL path: http://www.iasplus.com/en/meeting-notes/iasb/2015/october/ifrs-implementation-issues (2016-02-10)
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  • Goodwill and impairment
    could be simplified Several IASB members expressed concerns about making major changes to the Standard given the fact that none of the arguments being put forward now were new and given the mixed views on the most appropriate accounting for goodwill Some IASB members thought that one of the biggest flaws in the impairment test today was the inability to hold management accountable Often companies acquire a business and integrate it into their existing business Visibility is lost as the acquired goodwill is tested in a CGU alongside existing goodwill As a result investors find it difficult to assess what was acquired and whether the assumptions made at the time of the acquisition played out as expected The issue of whether impairment losses were being recognised too late under the current impairment model was also highlighted Some believed that a combination of impairment and amortisation would provide a better approach It was suggested that when management pays consideration in excess of the fair value of the net assets acquired they should be required to demonstrate what the excess purchase price was being attributed to and over what horizon they expected to earn the excess returns i e take a more forward looking approach This would determine the period over which goodwill should be amortised If these assumptions are not holding it could indicate that impairment was appropriate One IASB member expressed strong views for taking an approach that was a combination of direct immediate write off and accounting for the separate components of goodwill noting that discipline and rigour was the most important issue that needed to be addressed He believed that a self policing mechanism should be introduced whereby management would be incentivised to prove the existence of what they had purchased and estimate correctly the finite life of those assets and anything that could not be proven would be directly written off There was support for the staff performing further outreach with respect to the needs of investors in this area It was suggested that if the IASB had a better understanding of what investors were trying to get from the impairment information this could help not only in the debate about impairment versus amortisation but also indicate whether the IASB needed to take a step back and look at other presentation and or disclosure tools that could help provide this information An IASB member suggested that the staff could explore further whether the form of consideration was important noting that management tended to be much more savvy when paying cash or using debt than when using shares of the acquirer to fund the acquisition Big overpayments and subsequent write offs tended to be more prevalent in situations where there were equity payments The IASB member further noted that it was hard for investors to prevent management using the equity of the company to pay for an acquisition and that in situations where acquisitions were paid for other than in cash debt instruments there should be more stringent

    Original URL path: http://www.iasplus.com/en/meeting-notes/iasb/2015/october/goodwill-and-impairment (2016-02-10)
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  • Definition of a business
    related to IFRS 3 were added to IASB s research agenda At their joint meeting in September the IASB and FASB discussed their respective projects related to their Business Combinations Standards and how the boards could work together on these projects At this meeting the IASB started its discussions of two of these projects 1 definition of a business and 2 goodwill and impairment Definition of a business Agenda Paper 13 The purpose of this session was for the IASB to agree whether and how to amend IFRS 3 and to decide how to proceed The FASB also has a project on this topic and plans to issue an exposure draft soon The staff recommended that the IASB should propose changes to IFRS 3 that are the same as the amendments proposed by the FASB and issue an exposure draft rather than a discussion paper The aim of the project is not to develop new or substantially amended concepts but to improve the drafting of the existing definition of a business and the related application guidance IASB Discussion After a very brief discussion where a few IASB members clarified their understanding of several points all IASB members agreed with the staff recommendations to propose changes to IFRS 3 that are the same as the amendments proposed by the FASB and to issue an Exposure Draft rather than a Discussion Paper One Board member asked if these proposals would address the matters discussed by the IFRS Interpretations Committee The Board agreed that it would be helpful to keep the Committee informed of its decisions Related Topics Projects Post implementation review IFRS 3 Quick links Access to the agenda papers for the meeting on the IASB website Related news IASB updates work plan 22 Jan 2016 Summary of the CMAC November 2015

    Original URL path: http://www.iasplus.com/en/meeting-notes/iasb/2015/october/definition-of-a-business (2016-02-10)
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  • Insurance contracts: IFRS 9 and IFRS 4 - first session
    adjustment in the profit or loss or the OCI sections of the SOCI or both The Staff noted that if the overlay adjustment is included as a separate line item in profit or loss it would be presented after the shadow accounting adjustment In response to comments made by two IASB members the Staff agreed that the single line item could be included in profit or loss and in OCI IASB members voted eight in favour and five against the Staff recommendation Disclosure When an entity applies an overlay adjustment it should disclose this fact and the financial assets to which the overlay adjustment relates the entity s policy for determining the financial assets for which an overlay adjustment is made an explanation of the amount of the total overlay adjustment in each period in a way that enables users of the financial statements to understand how it is derived and the effect of the overlay adjustment on each line item in profit or loss One Board member questioned whether it would be better to provide disclosure relating to assets that have been transferred which is similar to the profit on disposal The Staff confirmed that this could be dealt with during the drafting of the new Standard IASB Board members voted nine in favour and four against the Staff recommendation Different effective dates of IFRS 9 and the new insurance contracts Standard The deferral approach Agenda Paper 14C This paper discusses deferring the effective date of IFRS 9 for entities that issue contracts that are within the scope of IFRS 4 until the new insurance contracts Standard is applied Deferral would be permitted not required therefore an entity could instead adopt the overlay approach or could adopt IFRS 9 and not apply either the overlay approach or the deferral approach The Staff recommendations set out below were conditional on the IASB deciding to choose the deferral approach as their preferred approach to address the decoupling of the effective dates of IFRS 9 and the new insurance contracts Standard Deferral at the reporting entity level Under the Staff recommendation for the deferral approach deferral of the effective date of IFRS 9 would be permitted for an entity that issues contracts in the scope of IFRS 4 if that activity is predominant for the reporting entity and it would apply to all financial assets held by that reporting entity An entity would be required to initially assess whether insurance activities are predominant based on the level of gross liabilities arising from contracts within the scope of IFRS 4 but no quantitative threshold for the assessment of predominance would be set A reassessment of whether insurance activities are predominant will be required if there is a demonstrable change in the corporate structure of the entity and if the entity concludes that insurance activities are no longer predominant In the event that predominance is lost the entity will be required to apply IFRS 9 from the beginning of the next annual reporting period and to disclose the facts surrounding the reason why it is no longer eligible for deferral An entity that has already applied IFRS 9 is not permitted to revert to applying IAS 39 through the deferral approach There was general support for the proposed approach but some concerns were expressed about the predominant test The discussion led to the decision that it would need to be clearly defined and that it would need to be a high hurdle as there was a need to exclude banking activities The IASB also agreed that an example of predominant would be helpful but this should not be a bright line The example in the agenda paper referred to a situation where predominance would be achieved when two thirds of the total liabilities would come from contracts under the scope of IFRS and the IASB instructed the Staff that the final text should instead use a higher level to illustrate the example of a reporting entity with a predominance of insurance contracts liabilities IASB Board members voted unanimously in favour of the Staff recommendation Deferral below the reporting entity level The key aspects of the Staff recommendation to reject the application of the deferral approach at a level below the reporting entity are the complexity of the approach due to the transfer of financial assets see below and the result of an inconsistent accounting for financial instruments in consolidated financial statements when financial assets are eligible for the deferral only by certain subsidiaries or alternatively by certain business units those that would have to be defined as carrying insurance activities These features would not apply if the deferral is for the reporting entity and for all its financial assets On the contrary the application below the reporting entity would produce group of financial assets at legal entity or business units if an even lower level was adopted that would need to be related to the insurance contracts in the scope of IFRS 4 The Staff argued that it would still be necessary to assess if the predominance test is passed to elect the use of the deferral approach if the level chosen was that of a subsidiary legal entity Finally the Staff emphasised that the application of criteria to elect financial assets accounting under IAS 39 would have to be made compulsory rather than optional to ensure comparability One IASB member challenged the Staff conclusion and questioned how difficult it really is to identify the underlying assets that back insurance contracts particularly given the proposal in the overlay approach to use a mere designation basis to produce the same accounting effects on profit or loss However when the IASB members voted their support was unanimous in favour of the Staff recommendation Transfers of financial assets where there is deferral below the reporting entity level In the event that the deferral approach is applied to a level below that of the reporting entity transfers of financial assets between parts of the reporting entity to which

    Original URL path: http://www.iasplus.com/en/meeting-notes/iasb/2015/september/insurance-contracts-ifrs-9-and-ifrs-4-first-session (2016-02-10)
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  • Business combinations (including the post-implementation review follow up projects)
    an input and a substantive process and the question was now whether the market participant was capable of running that as a business Referring to the fair value threshold the FASB was proposing an IASB member pointed out that this was a convenient practical expedient and that this should be clearly explained as such in the Basis for Conclusions Another IASB member questioned the IASB staff as to whether there were any plans for the IASB to look at the alignment of asset accounting and business combination accounting The IASB Director of Implementation Activities responded noting that this was part of the feedback the IASB had received in the PIR and that the IASB staff had identified this as something that should be done in the medium to longer term He noted that for IFRS one of the key differences between asset accounting and business combinations accounting was to do with deferred tax and the application or not of the initial recognition exception when an asset was acquired that had a temporary difference on day 1 and noted that this needed to be looked at first He added that the IASB had a separate research project on income tax accounting and that the staff would be looking to see how this could be progressed first All thirteen IASB members present agreed that the IASB staff should bring a paper to a future meeting with an analysis of the issues that had already been agreed by the FASB to enable the IASB to make decisions for progressing to an Exposure Draft Goodwill and Impairment The IASB Senior Technical Manager introduced the IASB agenda paper on this topic She explained that the agenda paper provided a high level summary of how the staff proposed to address the research project and noted that the IASB staff were proposing to cover the three interrelated topics on the research agenda identification and measurement of intangible assets subsequent accounting for goodwill and improving the current impairment model in IAS 36 in three steps She noted that the staff recommended that the IASB worked towards a Discussion Paper that covered all of the three topics together because the staff believed that the interrelationship between the three topics made it difficult to develop proposals for one topic without understanding the effects on the other topics She noted that the staff believed that there were a number of approaches that could be taken to address the issues some of which had not yet been discussed by the IASB such as the direct write off of goodwill or considering addressing components of goodwill Accordingly she noted that the IASB staff believed that working towards issuing a Discussion Paper was important in order to obtain detailed feedback on the interaction of the approaches particularly if the IASB was to consider some of the new approaches She further noted that given the work that had been performed in the PIR and by the FASB and other organisations she believed that a Discussion Paper could be developed within 12 months The FASB Project Lead provided a summary of the status of the FASB s progress to date on the projects on accounting for identifiable intangible assets in a business combination and accounting for goodwill With respect to accounting for identifiable intangible assets in a business combination she noted that the FASB staff had presented views to the board in January 2014 with options for accounting for acquired intangible assets as set out in paragraphs 19 through 21 of agenda paper 13D and that the FASB was still considering those options and no decisions had yet been made With respect to accounting for goodwill she reminded the boards that in response to concerns raised about the cost and complexity of the impairment model in FASB Statement No 142 at the time it was issued the FASB had addressed those concerns to an extent by introducing a qualitative screen allowing companies to perform a qualitative analysis which if passed removed the need for companies to perform the full quantitative analysis However she noted that this approach had yet to be fully embraced by preparers In relation to moving forward in this area she noted that mixed views had been received from both users and preparers as to what the best model was and accordingly noted that it was difficult for the FASB to figure out what the best approach to take was She noted that four alternatives had been presented to the FASB as set out in agenda paper 13E and that no decisions had yet been made There was discussion amongst the IASB members and staff as to whether a Discussion Paper was needed and what would be explored in a Discussion Paper that was not known today It was observed that the FASB plan was to go straight to an Exposure Draft With respect to the IASB potentially looking at the different components of goodwill a FASB member noted that the FASB had received consistent feedback about the lack of relevance of goodwill and accounting for it He noted that everyone agreed that goodwill was comprised of various components but questioned given its apparent lack of relevancy whether there would be any value in breaking goodwill down any further One IASB member suggested the IASB could further explore View C direct write off and suggested an approach whereby preparers would be required to prove the discernible element of goodwill and amortise based on definite life and for the portion unable to be proven be required to write this off either directly to equity or via P L Several FASB members expressed disappointment at the IASB staff s recommendation to go down the Discussion Paper route as this would be a much longer route than going straight to an Exposure Draft They pointed out that the FASB had been waiting for over a year to understand what the IASB was going to do for convergence purposes and that it would be difficult for the

    Original URL path: http://www.iasplus.com/en/meeting-notes/iasb/2015/september/business-combinations (2016-02-10)
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  • Revenue from contracts with customers
    the IASB staff believed the transition requirements were clear and therefore recommended that the IASB not propose any related amendments to IFRS 15 He highlighted that the FASB had tentatively decided to clarify that a completed contract is one for which all or substantially all of the revenue was recognised under previous revenue Standards and to amend the modified retrospective transition method to permit entities to apply the new requirements to all contracts including completed contracts at the date of initial application of Topic 606 There was discussion around the issue of divergence if the IASB did not propose similar amendments to those proposed by the FASB The IASB Vice Chairman reminded the IASB members that the IASB had set a high hurdle for making changes and noted that he agreed with the IASB staff that this did not meet that hurdle It was acknowledged that although this was a converged Standard the IASB and FASB came from different starting points and that inevitably transition would be different It was also highlighted that this difference would only result in divergence on transition that would wash out and not create a permanent difference One IASB member expressed a preference for the FASB s approach noting that he did not like the way completed contract was construed and that the FASB s approach eliminated potential structuring opportunities He further noted that he did not believe that the potential disadvantages that making amendments would have on companies early adopting IFRS 15 and using the modified retrospective approach outweighed the benefits of being aligned with the FASB on the issue Another IASB member stressed the importance of sending the message that the IASB s hurdle for making changes was a very high one and agreed that these issues did not meet that hurdle A further IASB member noted that it was important that people understood that there could be situations where an entity had a contract that had been completed under current IFRS but there was some unrecognised revenue And further if the entity concluded that the contract was not a completed contract under IFRS 15 then the entity was required to apply IFRS 15 to the whole contract not just the unrecognised portion She further highlighted that in situations where entities had a large population of contracts that were complete but the revenue not recognised those entities should think carefully about whether taking the modified retrospective approach would be appropriate and provide useful information to investors For example in situations where the run off from the completed contracts had the potential to distort revenue trends this should be a consideration in deciding between using the modified retrospective approach or the full retrospective approach Twelve of the thirteen IASB members present agreed with the staff recommendation not to undertake standard setting regarding the issues discussed All thirteen IASB members present agreed with the staff analysis of the transition requirements in Appendix C of IFRS 15 Related Topics Projects Revenue recognition Standards IFRS 15 Revenue

    Original URL path: http://www.iasplus.com/en/meeting-notes/iasb/2015/september/revenue (2016-02-10)
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  • Research programme
    FASB education session Business combinations including the post implementation review follow up projects Insurance contracts IFRS 9 and IFRS 4 second session Disclosure initiative Principles of disclosure Financial instruments with characteristics of equity Present value measurements Discount rates Insurance contracts second session Info Research programme Date recorded 22 Sep 2015 The Director of Research informed the Board that Agenda Paper 8 General Update illustrated the status of the research programme He said that the Request for Views for the 2015 Agenda Consultation introduced a new classification of research projects They will henceforth be categorised in assessment stage development stage and inactive projects On the research project for the primary financial statements he informed the Board that the staff was performing research in the background and that it could take several months until the project would be ready for discussion at the IASB He also said that most of the other projects were likely to result in some output in 2016 so he suggested that by the end of 2015 the IASB should decide the sequencing of those projects He mentioned that the research project on discount rates would have its first Board discussion in this meeting and Board members should think about what form of output they would prefer and how the discount rate project interacted with other projects One Board member expressed concern that income taxes were now classified as an assessment stage project He said that this should be reconsidered as the project comprised many issues which were hard to solve The Director of Research replied that the project was in a very early stage of the assessment phase and that towards the end of 2015 the staff should be able to report back on how to address the issues At this point it would be difficult to

    Original URL path: http://www.iasplus.com/en/meeting-notes/iasb/2015/september/research-programme (2016-02-10)
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  • Conceptual framework - IASB only
    proposal but suggested a greater extension in light of an awareness that some respondents had responded stating would still not be able to respond by the proposed extension date and would need an additional 60 days rather than 30 The Assistant Technical Manager responded to this comment by reiterating that the original comment period was longer than normal before any proposed extension thereto The IASB member then stated that any comments received after the deadline would not be disregarded and so proposed that in order to be more realistic that the deadline was extended by more than the proposed 30 days Another IASB member stated that she did not object to an extension but reiterated that the original comment period was already longer than normal in light of all the reasons for the proposed extension She recommended that if the deadline was extended that the reason provided to support this should be the importance of the Conceptual Framework document and that this extension should not set a precedent Another IASB member stated that she would be comfortable with a 30 day extension but not a 60 day extension An IASB member stated that given the complexity and interrelatedness of the Conceptual Framework with relevant standards respondents in regions that would need to wait for a translated version of the document would have benefited from the comment period being set at 180 days originally He therefore agreed that the extension should be at least 30 days and would consider an additional number of days too Another IASB member stated that he would not be against a 60 day extension The Vice Chairmen called a vote based on the staff s original proposal i e an extension of 30 days to the comment period and eleven members voted in favour of the

    Original URL path: http://www.iasplus.com/en/meeting-notes/iasb/2015/september/cf-iasb-only (2016-02-10)
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