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  • Disclosure initiative — IASB and FASB joint education session
    IFRS can be misleading She said that they were focusing on information presented on the face of the financial statements and that it should be fairly presented in accordance with IFRS and reconciled when necessary The FASB Board member said that under US GAAP non GAAP information had to be presented outside of the financial statements because the financial statements had to be presented under US GAAP he also acknowledged that in the US there were various rules and regulations that dealt with this issue The IASB project manager indicated that since IFRS was being used in different jurisdictions there were different views around this issue One FASB Board member asked about digital reporting he asked whether the IASB view was that information requirements would be inter exchangeable either in paper or online or their view was that digital information would be supplemental The IASB project manager responded that they were working with the objective of making the standards more neutral to communicate the information accordingly it would not matter whether the information was presented on paper or online She also said that cross referencing would be easier in the digital world however moving away information to the company s website could bring other risk such as losing control of the information One FASB Board member commented on the recent FASB decision that materiality would be a legal concept he asked whether a similar concept should be applied under IFRSs to give more flexibility considered that IFRSs were being used in multiple jurisdictions The IASB Chairman said that when IFRS was being used in a particular jurisdiction it was considered that IFRS was the law One IASB Board member pointed out that it also provided more confidence to users because regardless of whether the information would come from it would provide the same information also a user did not need to know the particular regulation of the country where an entity operated She also said that the principle requiring that information should be understandable provided another anchor for what was or not material also she said that IFRS did not conflict with the US Supreme Court decision because it would not cause omission of information One FASB Board member asked about the interaction of non IFRS information with auditing and particularly the impact in the audit opinion He said that entities made different definitions of non IFRS information and it posed a challenge to auditors The IASB project manager responded that they focused on the boundaries of financial statements and the judgements needed to comply with the objectives of IFRS presentation The FASB Board member said that under US GAAP non GAAP information was presented outside of the financial statements The IASB Chairman said that he liked this approached because it was clearer The Chairman then moved the discussion to the FASB presentation The FASB project manager presented the agenda papers 17 B C and D and said that the FASB had taken a similar approach in terms of having

    Original URL path: http://www.iasplus.com/en/meeting-notes/iasb/2015/september/disclosure-initiative-education-session (2016-02-10)
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  • Insurance contracts - first session
    to offer a choice between a cost measurement basis and a current period book yield approach Another Board member stated that he would not change the opening OCI or comparatives as there would have been a change in economic circumstances in the current period However several Board members considered that recognising accumulated gains or losses in profit or loss in the period of change and future periods was preferable despite the added complication A further Board member stated OCI should be amortised over the remaining contract life Following a change to the Staff recommendation such that accumulated gains or losses would be recognised in profit or loss in the period of change and future periods using the same assumptions as applicable to the approach used prior to the change the IASB members voted unanimously in favour of the amended Staff recommendation Modification to the objective for disaggregating changes in market variables between profit or loss and OCI The Staff argued that when there is no economic mismatches between the cash flows from insurance contracts and the items held to fund those cash flows there is merit in considering whether the objective of disaggregating changes in market variables between profit or loss and OCI should be modified to present the insurance investment expense that eliminates accounting mismatches in profit or loss with reference to the accounting bases used for those items irrespective of whether those items are measured using a cost measurement basis in profit or loss Accordingly the difference between the changes in the contract arising from changes in market variables e g changes in the fair value of the underlying items and the insurance investment expense is recognised in OCI Economic mismatches do not exist when the contract is a direct participation contract i e the entity has an obligation to pay the policyholders the fair value of the underlying items and therefore applies the variable fee approach and the entity holds the underlying items either by choice or because it is required to One Board member stated that the advantages of the current period book yield approach are significant but only where there are matched assets He felt that both the current period book yield approach and the effective yield approach an example of a cost measurement basis previously discussed by the IASB should be available as many insurers will use the Fair Value through Profit or Loss for both assets and liabilities Another Board member supported this view and commented that the IASB had created a mixed measurement model therefore it should not impose one method A further Board member stated that more options resulted in more complexity but could provide more useful information for users He questioned whether such added complexity was worthwhile IASB members voted nine in favour and five against the Staff recommendation Insurance Contracts Disaggregating changes arising from changes in market variables in the SOCI Other issues Agenda Paper 2D The first issue for contracts with participation features discussed through this paper was

    Original URL path: http://www.iasplus.com/en/meeting-notes/iasb/2015/september/insurance-contracts-first-session (2016-02-10)
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  • Conceptual framework - joint with FASB (education session)
    could be seen as leasing cash to another party The IASB member then stated that he was confused by the classification proposed of direct and indirect cash flows given the query he had raised A FASB member requested clarity on information provided by IASB staff relating to feedback received relating to the factors to be applied when selecting measurement bases this feedback stated that the factors are too subjective and do not make a link between assets and liabilities The FASB member then enquired whether he would be correct in stating therefore that the type of asset or liability would dictate its measurement base He asked a further question relating to the interplay been relevance and measurement uncertainty He questioned whether there had been discussions around the point where a measure became so uncertain that it became not relevant The IASB Technical Principal responded to the two questions In responding to the first question she stated that respondents had requested further guidance relating to what sorts of measurement bases to apply for different assets and liabilities but they did not want too much guidance i e a prescriptive laundry list of assets and liabilities and the required measurement base as this would be too much standards level detail in the Framework She responded to the second question by stating that a balance would need to be struck and there can be no hard and fast rules written instead judgement would need to be applied The FASB member responded by asking whether the overriding objective is relevance and then it is a matter of the IASB determining how much measurement uncertainty they are comfortable with The IASB Technical Principal agreed with this and cited an example provided in the BCs to the Exposure Draft there are two measurement bases that would provide equal relevance of information the base with the lowest measurement uncertainty should be selected An IASB member stated that there were significant similarities between the Exposure Draft and the outcome of the work performed to date by the FASB staff He then asked the FASB Project Lead whether there was anything identified that would be inconsistent with the IASB Exposure Draft The FASB Project Lead and the IASB Technical Principal concluded that there was general level of agreement but there may be a difference as to when cost based measurements may be used and their perceived relevance The FASB Chairman responded by saying that cost based measures may be relevant at certain times and were not just used when considering the cost benefit thought process The IASB Chairman stated that he was not surprised that the Boards will come to similar outcomes because that similar principles have been used over time by the Boards An IASB member then posed a question regarding paragraph 28 of the paper relating to the relevance of market exit prices for items not intended to be sold the paper states that such measures would not be relevant in such instances He then asked what the FASB staff thought when this issue would be considered further The FASB staff indicated that discussions were at an early stage and no decisions had been made as yet Another IASB member questioned the wording of a paragraph relating to market exit prices The paragraph as worded states that cash flows will be collected The IASB member questioned whether this may be a point of divergence given that the intention of the entity may change relating to an asset and therefore cash flows might be collected rather than will be collected The FASB Chairman indicated that the words used in the paper were not final as yet discussions were ongoing and nothing had been decided as yet Another IASB member discussed the measurement uncertainty issue raised earlier by a FASB member and how the IASB had determined to discuss this as a measurement issue rather than in the qualitative characteristics of information reliability and in the definition of assets and liabilities in the concept of probable cash flows He discussed the thresholds for recognition differences between the Conceptual Framework and at standards level and then asked the FASB members whether they foresaw a discussion regarding recognition thresholds taking place during their Conceptual Framework project A FASB member responded by saying that the word probable used in the previous definitions had been miscommunicated to stakeholders who sought to apply it in the same way as it was applied in other guidance it was intended to mean more than a non zero probability rather than likely to occur Another FASB member highlighted another potential difference between the two Boards final outcomes in that the IASB s treatment of transaction costs as part of the cost of an asset or liability may not be the same conclusion that the FASB get to The discussion then moved to Presentation and the FASB Project Lead provided a brief overview of Agenda Paper 10C stating that the FASB was further along in their discussions relating to Presentation and that decisions had been taken She explained that there were two deficiencies identified in existing Presentation guidance These relate to the line items in which recognised items should be included and how should the line items be grouped and ordered and secondly the complementary nature of financial statements Relating to the first deficiency two broad concepts have been discussed information should be grouped into homogenous groups in line items to provide useful information Line items should be grouped based on factors developed by the FASB She expanded on the second concept and stated that the FASB had tentatively decided that no conceptual basis exists for OCI and that this was intended to be included in the FASB Exposure Draft The IASB Technical Principal discussed how OCI has been dealt with in the Exposure Draft and basic principles have been included relating to how OCI should be used However performance has not been defined as no real conceptual basis could be found to do this Broadly there is

    Original URL path: http://www.iasplus.com/en/meeting-notes/iasb/2015/september/cf-joint (2016-02-10)
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  • Insurance contracts: IFRS 9 and IFRS 4 - second session
    decoupling of effective dates between IFRS 9 and the new insurance contracts Standard The casting vote was exercised when the IASB session on insurance resumed on Wednesday 23 September 2015 To be noted that agenda paper 14 Different effective dates of IFRS 9 and the new insurance contracts Standard A summary of approaches was available in support of this crucial vote In this paper the IASB Staff provided a comparative summary of the overlay approach and the deferral approach and was provided in order to facilitate the understanding and discussion of those approaches Different effective dates of IFRS 9 and the new insurance contracts Standard Due process and permission to ballot Agenda Paper 14E The objective of this paper is to consider the effective date and the expiry date of the proposed amendments to IFRS 4 and to ask the IASB for permission to ballot the Exposure Draft ED to amend IFRS 4 and about any intentions to dissent Due process and permission to ballot The ED to amend IFRS 4 should state that the effective date of the proposed requirements is for annual periods beginning on or after 1 January 2018 and early adoption is permitted if and only if an entity wishes to adopt IFRS 9 early The Staff recommended that the ED should not specify the expiry date of the proposed requirements Following discussion about the need for an expiry date for the proposed requirements the Staff proposal was changed so as to specify an expiry date of 31 December 2020 that would make IFRS 9 mandatorily effective to all insures on 1 January 2021 The IASB decided that the overlay approach will not have an expiry date If the new insurance contract Standard is effective at the latest on 1 January 2020 the expiry date of the proposed requirements will become redundant and IFRS 9 will be effective for all insures at the same time If this scenario materialises it will also abolish the overlay approach IASB members voted unanimously in favour of the amended Staff recommendation One IASB member was absent on the day One Board member stated that she planned to dissent and the Chairman suggested that the absent Board member may also dissent The other IASB members who voted against the deferral indicated that they would not dissent At least nine votes in favour will be needed to amend IFRS 4 Related Topics Projects Different effective dates of IFRS 9 and the new insurance contracts standard Insurance contracts Comprehensive project Related news Reactions to the proposed amendments intended to address concerns about the different effective dates of IFRS 9 and the forthcoming new insurance contracts standard 08 Feb 2016 We comment on the IASB s proposed amendments to IFRS 4 08 Feb 2016 FEE briefing paper on the endorsement of IFRS 9 08 Feb 2016 Summary of the December 2015 ASAF meeting now available 22 Jan 2016 EFRAG draft comment letter on proposed amendments to address concerns about the different effective dates of

    Original URL path: http://www.iasplus.com/en/meeting-notes/iasb/2015/september/insurance-contracts-ifrs-9-and-ifrs-4-second-session (2016-02-10)
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  • Disclosure initiative — Principles of disclosure
    She said that it would be important that entities could explain their rationale for assessing their particular disclosure requirements however she said that it was difficult to determine how prescriptive the standard should be There were several comments raised in relation to the application of judgement For example one Board member referred to the discussions held in Tokyo and said that it was a very effective and candid discussion He said that there were concerns raised on the need to change behaviour in preparers auditors and regulators He said that the current checklist approach could be useful for auditors and regulators but it was not useful for preparers He said that it was necessary to address this divergence and how entities could be able to explain their judgements to auditors and regulators Another Board member said that in his view there was too much emphasis on the need of judgement because it was stated in each paragraph of the draft proposal and it would be important to understand how these requirements would be perceived by auditors and regulators He said that it would be important to find a balance between the summary and additional information requirements One Board member expressed concern as to whether this approach would be applicable in practice he said that the financial statements were a legal document so it would be very difficult to justify in court whether certain information was not disclosed in terms of materiality he also said that entities had a very short time frame to make those decisions given the reporting deadlines and he suggested that the staff test the applicability of this approach in every standard On that regard another Board member pointed out that it would be necessary to have more involvement from the Audit Committee There were also suggestions mentioned to change the wording i One Board member said that in addition to shall consider whether to disclose it would be important to add in order to meet the disclosure objectives ii Another suggestion was to indicate that the disclosure requirements depended on the relative importance of the item iii there was concern related to the fact that it seemed that the wording would be similar for most of the standards so it would not make sense to repeat the same requirements on each standard accordingly it would be more appropriate to cross reference On that point the spokesperson from the NZASB said that it had not yet been decided the location of the requirements and that one possibility would be to have the general requirements in IAS 1 iv another comment was that there should be more explicit requirements about quantitative and qualitative assessments v another suggestion was related to analyse whether the requirements should be different based on applying a cost model vs a fair value model in IAS 16 vi another suggestion related to adding criteria for additional disclosure information situations such us the complexity of the transaction local circumstances which could indicate whether or not

    Original URL path: http://www.iasplus.com/en/meeting-notes/iasb/2015/september/disclosure-initiative-principles-of-disclosure (2016-02-10)
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  • Financial instruments with characteristics of equity
    Manager confirmed that and added that payments of the cumulative preference shares had priority over ordinary shares on liquidation The Technical manager continued by stating that the staff had developed three approaches to improve IAS 32 Approach Alpha focused the distinction between liabilities and equity on features that were relevant to Assessment A This approach was most consistent with the proposed definition of a liability in the Conceptual Framework exposure draft It would however represent a change to IAS 32 with respect to obligations to deliver a variable number of own equity instruments Approach Beta focused the distinction between liabilities and equity on features that were relevant for Assessment B and Y This approach would be the least consistent with the proposed definition of a liability in the Conceptual Framework exposure draft It would require significant changes in both IAS 32 and the Conceptual Framework Approach Gamma focused the distinction between liabilities and equity on features that were relevant for Assessments A B and Y This approach was the most consistent with the current requirements of IAS 32 it might however affect the classification of some obligations to transfer economic resources on liquidation Also the proposed definition of a liability in the Conceptual Framework exposure draft would have to be expanded to include other features He said that the focus on these approaches did not mean that the other features were not relevant One Board member suggested identifying distinct instruments and determining if they were equity or liability under each of the approaches He said that the challenge of the project would be to capture instruments with many features He suggested exploring the features and approaches in a discussion paper He said that the Brazilian regulator would probably prefer Approach Alpha A fellow Board member expressed a preference for Approach Gamma as an obligation to transfer economic resources prior to liquidation or to transfer an amount that was independent of the entity s economic resources would be classified as liability She also liked that share settled instruments were captured by this approach The Technical Manager acknowledged that and said that the specified amount was the determining factor and that under Approach Gamma cumulative preference shares would be classified as liabilities One Board member asked whether staff intended to continue with all three approaches He expressed strong concern about changing existing equity and liability classifications drastically He therefore preferred Approach Gamma but said that exemptions would still be required under this approach e g for the classification of partnership capital Alternatively IAS 32 could be left unchanged and only specific problems e g NCI puts could be addressed separately The Technical Manager acknowledged the comment and replied that a discussion paper should describe more than one approach to ensure that constituents understood that none of the approaches solved all the problems A Board member added that the Board could indicate a preference for Approach Gamma in a discussion paper and discuss the impact on IAS 32 The Technical Director acknowledged that

    Original URL path: http://www.iasplus.com/en/meeting-notes/iasb/2015/september/ias-32 (2016-02-10)
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  • Present value measurements — Discount rates
    replied that the Due Process Handbook was deliberately flexible and that more experience with research papers was needed before the handbook could be amended The Senior Technical Manager introduced the agenda papers by saying that normally a draft research paper would not be presented to the Board at this stage but as this was the first research paper the staff made an exception She said that feedback on the 2011 Agenda Consultation had shown that different standards used different discount rates and that this presented an inconsistency within IFRSs The staff had verified many inconsistencies within the standards In the staff s view some of them were justified e g when different measurement bases were used However the staff identified twelve issues where inconsistencies were not justified in their view Examples included not discounting deferred tax liabilities the lack of a measurement objective in IAS 19 and IAS 37 and the application of an entity perspective in measurement e g in value in use Inconsistent disclosure requirements added to these problems One Board member asked the Senior Technical Manager to consider the discussions of the Emerging Economies Group in this project The Senior Technical Manager said that those discussions were considered in the draft research paper but conceded that they were not included in the agenda paper One Board member expressed discontent about the staff drafting a research paper without Board input For her it was also unclear what the scope of the project was as the agenda paper concerned entity specific current value measurements which would typically be value in use or fulfilment value as well as current entity specific measurements which could also include amortised cost measurements Since the project aimed at cost based present value and current measurement it would be difficult to identify one overarching objective as for example IFRS 13 had She also said that in a potential consultation it should be made clear to constituents that the Board was looking for conceptual input not for example which standard should use a particular discount rate She said otherwise there would be the risk of initiating a volatility focused debate instead of a present value technique focused debate Another Board member welcomed the timing of the project as it overlapped with the project on the Conceptual Framework He said that the findings of the discount rate project should be considered in the Conceptual Framework as well He would therefore like to request views from constituents on how the issues should be addressed The Vice Chairman said that it would be difficult to include findings in the Conceptual Framework as the project would be finalised in 2016 The Board member suggested leaving the deadline for the Conceptual Framework open The Vice Chairman disagreed One Board member added that the Framework examined the relationship between measurement and uncertainty in amounts of cash flows He said the discount rate project should seek to examine the relationship between measurement and uncertainty in timing of cash flows as discounting was related

    Original URL path: http://www.iasplus.com/en/meeting-notes/iasb/2015/september/discount-rates (2016-02-10)
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  • Insurance contracts - second session
    and did not support approach 1 as this did not take into account the shareholders share A further Board member commented that needing to consider the issue was a consequence of previous decisions which resulted in hedged activities appearing to be unhedged and vice versa so an adjustment is needed Two Board members felt that nothing should be done but another member considered that a realistic measure of performance needed to be achieved IASB members voted unanimously in favour of the Staff recommendation When an entity should be permitted to apply approaches to minimise accounting mismatches The Staff noted that recognising changes in the value of guarantees in profit or loss instead of adjusting the CSM will result in a different measurement of the insurance contract and will therefore decrease comparability depending on whether the contract is hedged or not The Staff had considered methods for specifying criteria for when an entity would be permitted to recognise such changes in profit or loss being Method A premised on reflecting the risk management activities similar to the objective for hedge accounting and Method B premised on mitigating anomalies that result from different measurement attributes similar to the objective for the fair value option On balance the Staff recommended method A because they believe that this method is closer to the objective of recognising changes in the value of guarantees in profit or loss Limiting criteria Based on that analysis the Staff recommended that an entity that mitigates the financial market risk from the guarantee using a derivative should be permitted to recognise in profit or loss the changes in the value of the guarantee embedded in an insurance contract determined using fulfilment cash flows only if that mitigation is consistent with the risk management strategy and an economic offset exists between the guarantee and the derivative An entity should not consider accounting measurement differences in assessing the economic offset and credit risk ought not to dominate the economic offset An entity should be required to document its risk management objective and its strategy for using the derivative to mitigate the financial market risk embedded in the insurance contract and to discontinue recognising in profit or loss changes in the value of the guarantee prospectively from the date on which the economic offset does not exist anymore There was general support for the Staff recommendation The IASB members voted unanimously in favour of the Staff recommendation Cumulative effect of recognising changes in the value of the guarantee in profit or loss An entity should disclose as part of the reconciliation of the CSM the cumulative effect of recognising changes in fulfilment cash flows of the guarantee in profit or loss instead of an adjustment to the CSM Several Board members expressed concern with the Staff recommendation as this disclosure could be misleading as the changes do not adjust the CSM The Staff intend to present an amended recommendation for discussion at a future meeting The next steps The IASB is expected to

    Original URL path: http://www.iasplus.com/en/meeting-notes/iasb/2015/september/insurance-contracts-second-session (2016-02-10)
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