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  • IASB meeting — 18–19 November 2015
    received feedback that some intangible assets are costly complex and time consuming to measure at fair value and further that valuations of some intangible assets are subjective and do not result in useful information Accordingly the feedback indicated that the benefit of the information provided to users of financial statements about these intangible assets did not justify the costs of separately recognising them Paper 18A considered four approaches for possible improvement simplification Approach 1 No change to existing requirements Approach 2 subsume some identifiable intangible assets in goodwill for cost benefit reasons Approach 3 only separately recognise those intangible assets for which fair value can be measured reliably and Approach 4 Allow further grouping of intangible assets The staff supported Approach 1 No change to existing requirements not subsuming any identifiable intangible assets in goodwill however recommended that prior to making any decisions the IASB should discuss Approach 2 and in particular whether any customer related intangible assets should be subsumed in goodwill at a joint meeting with the FASB to avoid divergence between the board s converged standards The staff did not recommend the IASB pursued Approaches 3 or 4 any further The staff also suggested that the IASB should work with the FASB to consider whether there is a need to clarify the requirements for customer relationships and also consider whether further guidance or education material could be developed to address other issues The staff further suggested that the IASB also considered several improvements to disclosures a considering the IFRS 13 disclosures for significant intangible assets and b assessing whether the existing disclosure requirements in IFRS 3 are still relevant or justified from a cost benefit perspective and also when considering them against the disclosure objective in IFRS 3 The IASB was not asked to make any decisions at this meeting The session provided the IASB members with an opportunity to have an initial discussion to determine whether they required any additional information before developing their views on which of the approaches to consider further Further in making any decisions as to which approach to take the IASB will need to work with the FASB to avoid divergence and should also consider the interaction this topic has with other areas of accounting for goodwill and impairment Feedback from users At the October 2015 meeting the IASB asked the staff to perform additional work to better understand what information investors wanted to receive about goodwill and impairment and how they currently used the information about goodwill and impairment provided by companies in order to inform the IASB s future discussions Paper 18B summarised the feedback received from various sources and feedback received in the November Capital Markets Advisory Committee CMAC meeting was provided orally to the IASB at the November meeting The IASB was asked whether they required any additional information and whether based on feedback received they thought the staff should consider addressing any disclosures about subsequent performance of the acquired business for example about whether the key targets synergies of the acquisition are met as part of this project IASB discussion Identification and measurement of intangible assets in a business combination There was general agreement amongst the IASB members on the approach proposed by the staff and the need to begin discussions with the FASB as soon as possible One IASB member suggested that if the IASB was to try to make the distinction between identifiable intangible assets that should be subsumed in goodwill and those that should remain independent This could be done on the basis of whether the intangible asset was capable of generating cash flows distinct from the actual reporting entity The IASB member thought that the notion of separability that was introduced in the 2008 amendments to IFRS 3 was a good starting point but that this needed expanding to look at whether the intangible asset was also generating value Another IASB member highlighted from reading paragraphs 37 and 44 in the agenda paper that when deliberating on the 2008 amendments the IASB had considered the concerns raised that some intangible assets were complex and subjective to measure which meant that the information is less useful As the Basis for Conclusions notes the IASB made a conscious decision that separate recognition on the basis of an estimate of fair value rather than subsuming in goodwill provided better information to users of financial statements even if a significant degree of judgement was required to estimate fair value The IASB member noted that they still agreed with that decision and that Approach 3 was definitely out A further IASB member believed that both Approaches 1 and 2 should be given equal weighting at this stage and to avoid making fundamental changes suggested a modified Approach 2 whereby only indefinite life intangibles would be subsumed into goodwill The IASB member further suggested that the loss of information through additional intangible assets being subsumed into goodwill could be mitigated through enhanced qualitative disclosures about goodwill Several IASB members requested more detail on the process the FASB had been through in reaching their current position the FASB s external papers only provide summaries of what was discussed noting that it would be helpful to have this background information prior to having discussions with the FASB In bringing the discussion to a close the IASB Chairman noted that he liked the general approach in the agenda paper but stressed that it was important that the IASB had all the information on the interrelated topics before making any decisions He referred to paragraph 22 f of the agenda paper which stated that Many users have concerns about separately identifying intangibles because of the effect of their amortisation on profits rather than the fact they are recognised separately from goodwill This is because they have concerns that amortising intangible assets that are considered to be continually replaced by the entity e g brands and customer related intangibles results in double counting of expenses This is because an entity will expense both amortisation and the expense incurred to grow new intangible assets or maintain existing ones for example sales and marketing expenses He thought that the users had a point and that what the IASB had previously decided could be conceptually wrong here He directed the staff to look into this issue further With respect to goodwill he noted that to the extent that goodwill resulted from expected synergies his sense was that it was clearly conceptually wrong not to amortise it adding that not amortising goodwill created perverse incentives for entities to grow through acquisitions rather than through organic growth He asked the staff to specifically look at this conceptual issue including the reasons why previous boards decided against amortisation of goodwill He noted that he could imagine a final picture whereby there would be some amortisation of goodwill which could result in different incentives for entities to recognise intangibles vs goodwill in the future He reiterated the comments he had made in previous discussions that the IASB needed to be careful making significant changes to a recently amended Standard and that such changes should only be made where the IASB decided that there were things that were conceptually wrong Feedback from users The IASB Senior Technical Manager provided the IASB with a summary of the feedback received in the November CMAC meeting The CMAC members were asked for their views on goodwill amortisation and how they used the information provided by entities i e whether or not they made any adjustments Responses were mixed and the feedback was not radically different to the feedback received from users in the PIR Some CMAC members supported amortisation of goodwill because they thought it provided useful information about the number of years that management expected to benefit from the investment and best reflected the fact that goodwill was consumed and replaced by internally generated goodwill Other CMAC members thought that conceptually the current impairment test was the right approach even though in practice losses are often recognised late They thought that amortisation would only be arbitrary and could hide some of the information provided by the current impairment test i e whether management had overpaid An IASB member who was also present at the CMAC meeting added that even though there were differing views on impairment and amortisation amongst the CMAC members there was a common desire for information that would assist them in understanding what it was that management thought they were paying for the drivers behind management being willing to pay an additional amount and whether the acquisition had performed better or worse than expected when that price was paid The IASB member further suggested that the staff look at coming up with disclosures that communicated what was paid for and how the entity had performed relative to what management thought they were paying for adding that the challenge would be coming up with something preparers could actually provide and that wasn t too forward looking and outside of what was generally considered the scope of financial statements Insurance contracts 18 Nov 2015 The IASB focused its discussions on the variable fee approach specifically a summary overview of the approach and the decisions reached to date a comparison of the variable fee approach with the general model and whether the two approaches could be viewed as part of a single measurement model and three consequential issues for the variable fee approach arising out of the other tentative decisions The package of papers for the Board discussion focusses on the comparison of the variable fee approach with the general measurement model Agenda Paper 2 provides a summary overview of the approach the Staff proposes for the meeting and the decisions reached to date Agenda Paper 2A compares the variable fee approach with the general model and considers whether the two approaches could be viewed as part of a single measurement model and Agenda Paper 2B considers three consequential issues for the variable fee approach arising out of the other tentative decisions Comparison of the general model and the variable fee approach paper 2A Agenda paper summary Adjusting the contract service margin for the embedded financial guarantees In comparing measurement under the general model with the variable fee approach there are two differences one around the treatment of embedded guarantees and the other around the discount rate used to accrete CSM contract service margin The general model treats changes in embedded guarantees arising from changes in market variables as part of the changes in the underlying items and recognises them in comprehensive income depending on the policy choice either in profit or loss or in both profit or loss and OCI The variable fee approach reflects the sharing of returns with the policyholders through the CSM To the extent that the guarantees are triggered because the returns available for sharing from the underlying items are not sufficient to pay at or above the guarantee the additional benefits to pay the guaranteed returns represent a service to the policyholder Accordingly changes in these guarantees are recognised in the CSM until the CSM is exhausted and then subsequent negative changes are recognised profit or loss The different treatment is intended to reflect the different nature of the direct participating contracts those that meet three criteria to qualify for the variable fee approach The Board was asked to confirm that under the variable fee approach the changes in fulfilment cash flows caused by guarantees embedded in insurance contracts should adjust the CSM before being recognised in profit or loss Discount rate In relation to the CSM the general model uses the locked in discount rates whereas the variable fee approach uses current discount rates The main argument presented in favour of keeping two different accretion mechanisms is that the introduction of current rates for all contracts would be too complex Discretion Lastly the Board was asked to consider explicitly the treatment of discretion in the CSM for participating contracts under the general model Four approaches are considered in the paper analysing what is promised to the policyholder and what is discretionary The proposed definition of the effects of discretion to be recognised in the CSM would be the changes in the expected cash flows other than those changes that offset a change in a market condition Board discussion and tentative decisions Adjusting the contract service margin for the embedded financial guarantees One board member argued that all financial guarantees would be better presented in profit or loss or at least OCI as opposed to CSM Others echoed the staff concerns that recognising financial guarantees in profit or loss created too much complexity The entity would need to split the value of the guarantee from the payment for the guarantee over time The current book yield of the underlying assets decision would also be affected On the other hand to achieve one model measurement and to recognise financial guarantees in CSM for non variable fee contracts would be also problematic because such guarantees are not well defined Many felt that given the stage of the project the need for a practical solution for different types of contracts outweighed the possible cliff effects from having two models The Board approved the Staff recommendation with 12 members voting for and 2 against Discount rate There was some discussion around the term remeasurement used in the question The Board agreed that the term accretion and unlocking at the current rates was more accurate Board members agreed with the staff analysis that for the general model the CSM is a residual that does not reflect the current value of future cash flows because it uses the historical premium charged and not the premium the insurer would have charged at the reporting date for the same unexpired insurance coverage This differs from direct participating contracts where the CSM calculation uses the variable fee approach which uses the underlying assets to calculate the current value of future variable fees expected at each reporting date In addition to accrete and adjust the CSM using current discount rates would result in recalculating the opening balance of CSM at each period The staff and some Board members thought that such catch up adjustments would introduce complexity and are hard to explain as they do not relate to future cash flows Some drew parallel with not remeasuring the margin under IFRS 15 However a number of members argued that unlocking and accreting at current rates is conceptually preferable especially given the long dated nature of the contracts and significant investment margins in the CSM In their view the use of the locked in rates requires historical data retention and creates a liability balance with different parts measured using different rates There was also a debate around which current rate if allowed could be used for accretion the rate used to discount the fulfilment cash flows or a rate that would have been the same as under a variable fee approach The Board members were considering allowing unlocking at current discount rates as an option but found it hard to narrow that option down or tie it to the other accounting policy choices the entity would be given under the new insurance contracts Standard In the end they were swayed by the argument that the tentative decision on accounting policy choice for OCI presentation only affected presentation whereas an accounting policy choice on CSM accretion unlocking would affect measurement and change the carrying amount of the insurance contracts on the statement of financial position The Board approved the staff recommendation not to allow in the general model the use of current discount rates to calculate the unlocking adjustments and the accretion of time value of money on the CSM balance with 10 members voting for and 4 against Discretion This issue generated the most debate of the session The Staff presented an example with four ways of viewing the effect of discretion on participating contracts that do not meet the definition of direct participation and are excluded from the application of the variable fee approach One view was that any cash flows lower than the original expectation subject to minimum guarantee were discretionary view a View b was that the entity promises to pay the return on the assets it holds less a margin subject to a minimum guarantee View c was the entity promises a return based on market conditions less a margin subject to a minimum guarantee and therefore paying a return greater than the market because the underlying assets return was higher is discretionary The final view was based strictly on contractual obligation so that all cash flows above the minimum guarantee were discretionary view d A large part of the discussion focussed on the definitions in views b and c The staff recommended view c to avoid a link to the assets held by the insurer One Board member while agreeing with the recommendation wanted the entity to define at the outset how it views its expected discretionary cash flows At the outset an entity would specify a return it expects to generate from a mix of assets The model would then be re run for the actual returns on that expected mix To the extent an entity pays something different it would have exercised discretion Other Board members preferred view b which was based on the performance of the assets They argued that an insurer would typically exercise its discretion through the asset mix it holds However viewing the insurer s promise of returns as based on the actual assets held would push the contract into the variable fee approach and some other Board members were not comfortable with that outcome Some of those Board members supporting view b were concerned that in the staff paper example view c still showed a CSM balance when the contract was becoming onerous They were also concerned with the degree of variable outcomes produced by view c when the scenario assumptions were changed In particular for

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  • IFRS Interpretations Committee meeting — 10–11 November 2015
    they were currently undertaking a larger project on the equity method of accounting One Committee member said it should be clarified that all of the requirements of IFRS 9 applied to all financial instruments even though IAS 28 items were scoped out of IFRS 9 An observing Board member clarified that the scope exemption was only intended for equity items that gave the entity significant influence Some Committee members suggested ruling out View A Entirely within the scope of IFRS 9 and View C entirely within the scope of IAS 28 to reduce diversity in practice An observing IASB member suggested asking the Board for direction and clarification what was intended to be included in the net investment The Chairman agreed that this was a good way forward and stressed that it should be discussed in a public Board meeting rather than in informal conversations Definition of a business Update on IASB s proposals 10 Nov 2015 The paper for this session set out the proposed amendments to IFRS 3 along with the staff s analysis of how they would address the issues that had been raised to the Interpretations Committee about the definition of a business At its October 2015 meeting the IASB tentatively decided to propose amendments to IFRS 3 Business Combinations related to the definition of a business IFRS 3 and the equivalent FASB requirements are aligned the two boards having developed the requirements in a joint project The amendments being proposed will be the same as those being proposed by the FASB It was observed in that meeting that the IFRS Interpretations Committee had also discussed some issues relating to the definition of a business The IASB asked that the proposed amendments to IFRS 3 be shared with the Interpretations Committee The paper for this session set out the proposed amendments to IFRS 3 along with the staff s analysis of how the amendments would address the issues that had been raised to the Interpretations Committee about the definition of a business The staff concluded that the proposed amendments would help solve the issues that had been raised to the Interpretations Committee The Interpretations Committee were asked whether they agreed with this conclusion and whether they had any comments on the proposed amendments to IFRS 3 Interpretations Committee discussion The general consensus of the Committee members was that overall the proposals would be useful improvements to IFRS 3 and would address the issues that had arisen in practice It was acknowledged that this would always be an area of judgement but that the proposals provided a helpful framework for applying that judgement The Committee members made suggestions for improvements to some of the proposals with Proposal 3 to not consider a set a business if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets attracting the greatest discussion With respect to Proposal 3 there were concerns expressed that this could be tricky to apply in practice One Committee member highlighted the fact that situations might arise where the bulk of the fair value was concentrated in assets that were not part of the primary focus of the business for example in a start up biotech company that happened to own a building and had in process R D IPR D the bulk of the fair value could be in the building rather than in the IPR D in which case an entity might come to a different conclusion under this test Another Committee member observed that it appeared that if an entity was going to determine whether the fair value of the assets acquired was concentrated in a single asset by comparing it to the fair value of the gross assets the entity would be required to do a whole purchase price allocation to get there which seemed to defeat the purpose of then saying it was an asset acquisition The Committee member added that if the other proposals were followed this step would not be necessary as an entity would get to the answer anyway Several Committee members highlighted unit of account issues that could arise under this proposal It was specifically noted that under IFRS today investment property was considered to be a single unit of account including all in place leases and questioned whether under this proposal entities would be required to separate out the value of property and the value of the leases With respect to Proposal 1 it was observed that what was considered a substantive process would create some judgement issues and a Committee member suggested that in addition to the proposed examples some further guidance on this could be helpful Another Committee member noted that it was not clear whether if an entity i e an exploration entity acquired inputs i e tenements and a workforce undertaking drilling and exploration activities that were capable of producing something on the path to the ultimate output but not the ultimate output that would be a business or not With respect to Proposal 4 revising the definition of outputs to focus on goods and services provided to customers a Committee member questioned whether a customer could be internal It was noted that this question had arisen in the joint IASB FASB meeting and confirmed that a customer could be internal In general it was observed that one of the consequences of the amendments was that there would likely be more transactions accounted for as asset acquisitions and one Committee member noted that the tension between what securities commissions regarded as business acquisitions versus the answer one would arrive at under IFRS would be exacerbated With respect to the examples one Committee member noted that it was helpful to have examples that fell on both sides of the line and while this was an area where judgement was needed the answers in the examples would be where most entities should get to which should result in more harmonised application of the guidance by both US and IFRS preparers Another Committee member suggested that it would be helpful to include examples from the upstream extractive and financial services industries because there were a number of issues in practice in this area coming from these industries No decisions were made at this meeting The Interpretations Committee s comments will be reported back to the IASB at its December 2015 meeting IAS 2 Prepayments in long term supply contracts 10 Nov 2015 This session discussed the comments letters received The Interpretations Committee received three comment letters Two of the submitters urged the Interpretations Committee to add this issue to its agenda mainly to address an uncertainty Background tentative agenda decision The IFRS Interpretations Committee has been considering whether a purchaser should accrete interest on long term prepayments for the purchase of inventory The original request arose in relation to long term supply contracts for raw materials for which the purchaser agrees to make prepayments to the supplier Recognising interest income would increase the cost of inventories and ultimately the cost of sales In July 2015 the Interpretations Committee concluded that the issue should not be added to the agenda It did so on the grounds that its outreach gleaned very little information about the extent of the problem or whether there was diversity in practice The Interpretations Committee issued a tentative agenda decision which stated that if a long term supply contract contains a significant financing component that financing component should be recognised separately Comment letter analysis The purpose of this session is to discuss the comments letters received The Interpretations Committee received three comment letters Two of the submitters urged the Interpretations Committee to add this issue to its agenda mainly to address an uncertainty The staff recommendation is to finalise the agenda decision on the grounds that the comment letters did not provide additional information and that the original conclusion of the Interpretations Committee remains valid Discussion The majority of the Interpretation Committee members approved the staff recommendation During the discussion it was agreed to amend the wording of the agenda decision by removing a reference to raw materials so as to make the wording more generic to long term supply contracts The support was based on the fact that those transactions depend on specific facts and circumstances which made it difficult to specify and analyse Some Interpretation Committee members raised a concern that the agenda decision implied that a long term supply contract always includes a financing component Other concerns raised related to the fact that the identification of financing components should be explored more fully and disagreement with making a reference to IFRS 15 in the agenda decision because the transaction under analysis was based on the point of view of the purchaser and not the seller IAS 20 Recoverable cash payments 10 Nov 2015 This session addressed a request to clarify whether cash payments made by a government to assist an entity finance a research and development project should be accounted for as a liability i e a forgivable loan as defined in IAS 20 or as revenue i e a government grant as defined in IAS 20 when received New issue Accounting for recoverable cash payments The Interpretations Committee received a request to clarify whether cash payments made by a government to assist an entity finance a research and development project should be accounted for as a liability i e a forgivable loan as defined in IAS 20 or as revenue i e a government grant as defined in IAS 20 when received In the scenario presented the cash payments were repayable to the government if the entity decided to exploit and commercialise the results of the research phase of the R D project The submitter cited current divergence in practice Staff recommendation Having performed analysis and outreach on the issue the staff considered there was sufficient guidance in IAS 20 and other Standards to assist an entity in determining the appropriate treatment for the cash payments and that diversity in practice was limited The staff highlighted that the appropriate accounting would depend on the specific terms and conditions of the cash payment received and included in the paper a list of factors that an entity should consider in determining the appropriate accounting for the cash payment These factors were also set out in the tentative agenda decision and related to a whether the assistance gave the government ownership in the entity and if it did not whether it was a loan at favourable terms The staff concluded that for the scenario considered the payment was likely to be a forgivable loan in the first instance The staff recommended that the issue was not taken onto the Interpretations Committee s agenda and proposed wording for a tentative agenda decision The Interpretations Committee was asked whether they agreed with the conclusion of the staff and with the wording in the tentative agenda decision Interpretations Committee discussion and decision There was general agreement amongst the Committee members on the proposed direction the IASB staff had taken on this issue with observations made that the facts and circumstances and terms and conditions of these transactions vary greatly judgement is required in determining the appropriate accounting treatment and that predominant practice is to account for them as forgivable loans Commenting on the staff view in paragraph 45 of the agenda paper that this loan should be accounted for under IFRS 9 until there is reasonable assurance that the R D project will not be successful and the entity will abandon the project and meet the terms for forgiveness for all or a portion of the loan several Committee members questioned what reasonable assurance meant and at what stage this would be achieved It was observed that determining whether there was reasonable assurance would be a matter of judgement and a Committee member suggested including this point in the agenda decision to make it clear that this was not at a specific point in any arrangement The ESMA representative present supported this edit adding that this was a key element in the analysis and therefore worth mentioning in the agenda decision The point was also raised that if a loan was being accounted for under IFRS 9 one would need to meet the derecognition criteria in IFRS 9 to move away from accounting for the liability under IFRS 9 Several Committee members observed that the agenda decision picked up some peripheral issues around government participation and below market rate loans and noted that these were considerations that would need to be applied in any circumstances and did not address the question actually asked They expressed concern that inclusion of these issues could result in more questions rather than contributing to the solution and suggested that these items were removed and that the agenda decision focused solely on whether there was a forgivable loan or not The Interpretations Committee tentatively agreed to move forward with the agenda decision subject to the edits being made as discussed above IAS 12 Income tax consequences of interest payments on and issuing costs of financial instruments that are classified as equity 10 Nov 2015 This session addressed a request to clarify the accounting for the income tax consequences income tax consequences of interest payments to holders of equity instruments and the costs of issuing such instruments New issue Accounting for income tax consequences of interest payments on and issuing costs of financial instruments that are classified as equity The Interpretations Committee has received a request to clarify the accounting for the income tax consequences income tax consequences of interest payments to holders of equity instruments and the costs of issuing such instruments In general IAS 12 requires that the tax consequences follow the primary transaction or event Accordingly if an item is recognised directly in equity the deferred tax that relates to that item is also recognised directly in equity However IAS 12 52B states that the income tax consequences of dividends are recognised in profit or loss unless the dividends relates to transactions recognised outside of profit or loss or a business combination The submitter is seeking clarity as to whether instruments such as perpetual bonds that provide interest payments at the discretion of the entity which are deductible for tax purposes by the entity should be recognised and therefore presented in profit or loss or directly in equity They are also seeking the same clarity for issue costs of this type of instrument Staff recommendation The staff recommendation to the Committee is that the issue not be added to its agenda The staff believe that a conclusion can be reached drawing on existing principles in IAS 12 Most of the staff analysis relates to the interest payments The tax accounting for the costs of issuing the instrument seem less contentious with the recommendation being that the tax consequences be recognised directly in equity consistently with the presentation of the transactions that create those income tax consequences Staff paper paragraph 48 b On the interest payments the staff argue that whereas dividends are generally distributed from retained earnings interest payments on equity instruments are not associated with anything other than the interest payments themselves and therefore the income tax consequences are not linked to past transactions or events sic Staff paper paragraph 31 By implication the staff have concluded that these discretionary interest payments are not distributions Staff paper paragraph 29 On this basis the staff conclude that that IAS 12 52B would not apply to these interest payments and that consequently the related income tax consequences should be presented directly in equity Committee discussion and decision The Committee believe that there is a disconnect in IAS 12 between the requirement to have the deferred tax consequences follow the accounting for the related item and the exception in IAS 12 52B for distributions Some members of the Committee disagreed with the staff analysis that this was not a distribution and also highlighted that in some jurisdictions dividends are the subject of a solvency test rather than a reference to retained earnings Ultimately the conflict can only be resolved through an interpretation of or a narrow scope amendment to IAS 12 The issue will be brought back when the Committee next has a face to face meeting in March 2016 IAS 36 Recoverable amount and carrying amount of a cash generating unit 10 Nov 2015 This session addressed a request to clarify the application of paragraph 78 of IAS 36 which sets out the requirements when it is necessary to consider recognised liabilities to determine the recoverable amount of a CGU New issue Recoverable amount and carrying amount of a cash generating unit CGU The Interpretations Committee received a request to clarify the application of paragraph 78 of IAS 36 which sets out the requirements when it is necessary to consider recognised liabilities to determine the recoverable amount of a CGU The submitter stated that the approach in paragraph 78 for making a CGU s carrying amount comparable with its recoverable amount by deducting the carrying amount of the liability from both the CGU s carrying amount and from its value in use VIU produced a null result and believed that this could not be the intention of the Standard The submitter also asserted that it did not seem to be appropriate to deduct the carrying amount of the liability from the VIU of the CGU because the approach used to measure the present value of a liability was different from the approach used to measure the present value of a CGU s VIU The submitter proposed an alternative approach Staff recommendation The staff disagreed with the submitter because they believed that the approach in paragraph 78 was intentional and was the consequence of applying IAS 36 s approach for assessing impairment The staff observed that when a CGU s fair value less costs of disposal FVLCD considered a recognised liability paragraph 78 required adjusting

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  • IASB meeting — 20–22 October 2015
    and credit type schemes to highlight similarities and differences that would need to be considered in developing accounting requirements The staff used the definitions of assets and liabilities as proposed in the Conceptual Framework ED to analyse the examples in the agenda paper Some members questioned whether it would not be better to wait until the Conceptual Framework project had been completed so as not to require updates to any models proposed should these definitions change However the overall feeling of members was that the PPM project was one that was to be used to test the proposed definitions and therefore the project could and should run concurrently to the Conceptual Framework project Whether and when an entity has a present obligation a liability by participating in a scheme was discussed at length Board members were asked to consider whether the present obligation occurs when the participant becomes party to the scheme and has no practical ability to avoid emissions or because emission happens over time the obligation arises as this occurs or the obligation only exists once the participant has emitted more pollutants than its allocated allowances A few board members focused on the consideration of practical ability to avoid the obligation and others highlighted that existing IFRS standards and interpretations if consulted would provide contrasting views these include IFRS 2 IAS 19 IAS 12 and IFRIC 21 In response to these queries the staff once more emphasised the need to develop new principle based models that could apply in a number of scenarios The discussion then turned to the accounting treatment of the allowances granted to the participant Primarily whether these would constitute assets of the participant whether they can be recognised as such and what type of assets they are The staff noted that previous IASB projects had suggested that the allowances were similar to intangible assets If the allowances are assets initial recognition poses a number of questions Recognising them initially at cost would mean an asset of zero Recognising them initially at fair value requires consideration of whether the resulting credit is an immediate gain or a liability On the basis of the underlying economics of the transactions there was agreement that a large gain on initial recognition is counter intuitive because the participant is not better off at this stage and reporting a gain would not provide useful information to investors One approach proposed by the Project Lead was that if a liability was recognised initially it could be replaced by a liability for emitting as the emissions occur It was broadly agreed that the measurement basis for any liability recognised should be consistent with that of any asset recognised Finally the Project Lead directed discussions to situations where a participant expects to emit more than it is allowed to or expects to emit less than its allowed level These issues too would require identification of when to recognise such excess or shortfall should this be over the period or when there is supportable evidence of the emission levels As the period over which schemes operate may be a number of years this may be problematic Presentation considerations Throughout the discussion presentation and disclosure was highlighted briefly by the staff and IASB Discussions of net or gross presentations were limited but a concern was raised by a member that the net basis would not allow users to determine how big a polluter the participant in question was this may be a key consideration for investors Another member highlighted that given the overall objective of the schemes was to reduce pollution many entities may make additional investment in measures to reduce pollution He questioned whether the effects of such investment would have linked disclosure to the effects of the schemes Update on Impairment Transition Group 21 Oct 2015 In this session the IASB received a summary of the activities of the Transition Resource Group for Impairment of Financial Instruments the ITG In addition staff provided information about an issue raised at the September ITG meeting relating to the measurement of expected credit losses for revolving credit facilities Revolving credit facilities Agenda paper 20 The issue raised by the submitter concerned the application of the impairment requirements to a portfolio of revolving credit facilities It related to how an entity should estimate future drawdowns on undrawn lines of credit when an entity has a history of allowing customers to exceed their contractually set credit limits on their overdrafts and other revolving credit facilities such as credit cards In particular it was discussed whether the potential exposure at default that is used to determine expected credit losses should include potential exposures beyond the contractual credit limit The staff had analysed that it would not be appropriate to extend the specific exception relating to the contractual commitment period to the contractual credit limit The ITG confirmed that IFRS 9 does not permit an entity to increase the amount of the exposure beyond the contractually committed amount Consequently amounts in excess of the maximum contractually agreed credit limits are not taken into account The staff is not proposing any further action and asked if the Board members had any views on the issue As anticipated the Board discussion focused on expected credit losses for revolving credit facilities The Board generally supported the view established by the ITG Diverging from this view would take behaviour into account which was not intended by the Board when drafting IFRS 9 even when this behaviour occurred between the balance sheet date and the date of authorisation for issue of the financial statements IAS 10 is clear on this point No decisions were made Financial instruments with characteristics of equity 21 Oct 2015 In this session the IASB discussed the challenges with accounting for derivatives on own equity and how IAS 32 addresses those challenges The agenda paper introduces the topic by examining why the topic is relevant It then continues with a definition and types of derivatives on own equity As a next step the paper considers the relevant requirements of IAS 32 especially the fixed for fixed condition and the redemption obligation requirements It concludes with a proposal of potential ways forward In this session the IASB discussed the challenges with accounting for derivatives on own equity and how IAS 32 addresses those challenges The agenda paper introduces the topic by examining why the topic is relevant It then continues with a definition and types of derivatives on own equity As a next step the paper considers the relevant requirements of IAS 32 especially the fixed for fixed condition and the redemption obligation requirements It concludes with a proposal of potential ways forward In prior sessions the staff had identified relevant features that influence whether a non derivative claim meets the definition of a financial liability or of equity Those features include timing of required transfer of economic resources amount of economic resources required to settle a claim type of resource required to be transferred and priority of the claim on liquidation In this session the Board focused on the timing and the amount The IASB was not asked to make any decisions at this point however the staff wanted to highlight the consequences of the approaches they are developing the conceptual challenges of the fixed for fixed condition and application challenges One example in the agenda paper is a forward contract for the receipt of a fixed amount of cash in exchange for the delivery of a fixed number of ordinary shares The staff had analysed that the instrument consists of a receivable for cash that would meet the definition of a financial asset and an obligation to deliver a fixed number of equity instruments that would meet the definition of equity For instruments where the asset leg does not meet the fixed for fixed condition the entire instrument is a financial liability This means that changes in the equity leg would be recognised as income and expense To overcome this challenge the staff proposed to either componentise derivatives in finer detail or to require all derivatives on own equity to be classified as financial assets or financial liabilities including those that actually meet the fixed for fixed condition However the IASB should first consider the challenges for some other types of derivatives before deciding whether the staff should develop an alternative to the fixed for fixed condition IASB discussion This was an education session for the Board and the papers did not ask for any Board decisions As suggested by the agenda paper the Board spent most of the time discussing the fixed for fixed condition In general many Board members acknowledged the simplifying nature of the condition and warned that an alternative approach might add complexity Some Board members suggested refining the fixed for fixed condition rather than developing a new approach Several Board members expressed a desire to include instruments that are denominated in a foreign currency in the condition Componentising would be very difficult for instruments where the asset leg and the equity leg were interdependent e g share options A componentising approach would therefore have to be considered very thoroughly One Board member proposed using componentisation only under very special circumstances whilst another Board member would only use componentising for presenting performance One Board member asked to reconsider the basic ownership approach However this approach was rejected by several Board members as remeasurement was the main criticism raised by constituents and under the basic ownership approach everything would be remeasured One Board member struggled to apply the approaches developed by staff to fixed for fixed instruments The Board member said that whilst the approaches worked well with obligations they would not work with instruments with both rights and obligations This was especially true when the entity issued the instrument and therefore had a right to receive cash Two Board members stressed that the project should aim at expanding sections of equity in the balance sheet and in the statement of changes in equity i e thinking about having categories of equity A fellow Board member suggested focusing on the diluting effect of derivatives and to introduce disclosures to that effect The Board did not discuss the redemption obligation requirements in IAS 32 Disclosure initiative 21 Oct 2015 The session addresses two aspects of the Disclosure Initiative short term amendments to IAS 7 Statement of Cash Flows and the broader Principles of Disclosure project Expand this entry to view a summary of the staff recommendations Amendments to IAS 7 The IASB has been considering the feedback on its proposals to amend IAS 7 Liabilities reconciliation see Agenda papers 11B and 11C In September the IASB decided to finalise the amendments requiring an entity to present a reconciliation of liabilities At this meeting the staff is recommending that the effective date of the amendments to be 1 January 2017 The IASB is also being asked to confirm that it is satisfied with the due process steps it has taken Restrictions on cash see Agenda papers 11B and 11C In September the IASB asked the staff for additional analysis before deciding whether or finalise the amendments requiring information to be disclosed about restrictions that affect the decisions of an entity to use cash and cash equivalents The staff have concluded that they have not been able to solve the concerns raised in September because the proposed amendments deal only with cash and cash equivalents and not with other liquid assets for which the matters are equally relevant The staff are recommending that that further research be undertaken but that this research be undertaken as part of the Principles of Disclosure project and that the proposed amendment should not be finalised in its current form Nevertheless the staff have provided the IASB with proposed revised wording should it decide to finalise the proposal rather than follow the staff recommendation If the IASB does decide to finalise the amendment it will be asked to confirm that it is satisfied with the due process steps it has taken Principles of Disclosure Discussion Paper See Agenda Paper 11A In relation to the broader Principles of disclosure Discussion Paper DP the staff have set out the due process steps completed so far are recommending that the IASB give the staff permission to move to the more formal review and approval of the discussion paper balloting The staff are confirming that the DP will cover a Content of a general disclosure standard b Components of financial statements c improvements to the principles of disclosure d Disclosure of accounting policies e Non IFRS information f drafting disclosure requirement and g implications of the improvement proposals The staff are recommending that the DP be open for comment for 120 days Disclosure initiative 21 Oct 2015 The session addressed two aspects of the Disclosure Initiative short term amendments to IAS 7 Statement of Cash Flows and the broader Principles of Disclosure project Restrictions on cash see Agenda Papers 11B In September the IASB asked the staff for additional analysis before deciding whether or not to finalise the amendments requiring information to be disclosed about restrictions that affect the decisions of an entity to use cash and cash equivalents The staff had concluded that they had not been able to solve the concerns raised in September because the proposed amendments dealt only with cash and cash equivalents and not with other liquid assets for which the matters were equally relevant The staff recommended that further research be undertaken but that this research would be undertaken as part of the Principles of Disclosure project and that the proposed amendment should not be finalised in its current form Nevertheless the staff provided the IASB with proposed revised wording should it decided to finalise the proposal rather than follow the staff recommendation If the IASB decided to finalise the amendment it would be asked to confirm that it was satisfied with the due process steps it has taken IASB discussion and decision The Board approved the staff recommendation to undertake further testing and separate this project from the amendments to IAS 7 related to a reconciliation of liabilities The Board also decided that the staff would analyse the liquidity project more broadly and would consider the feedback to be obtained from the agenda consultation The staff would also analyse the research performed by the FASB on this area During the discussion several Board members raised concerns about the lack of clarity of the proposed wording to amend IAS 7 see paragraph 9 of the agenda paper The concerns were related to i the wording was not operational ii it was not clear what type of costs should be considered because every single transaction carried costs iii the analysis did not focus on causes and effects regarding cash disincentives and iv a more extended fatal flaw process was needed Several Board members were concerned making continual changes to IAS 1 or IAS 7 The Board therefore agreed that before deciding when or how to complete the project they will assess the feedback they receive on the Agenda Consultation Request for Views That feedback will be discussed by the Board in the first half of 2016 Principles of Disclosure Discussion Paper See Agenda Paper 11A In relation to the broader principles of disclosure Discussion Paper DP the staff set out the due process steps completed so far and recommended that the IASB gave the staff permission to move to the more formal review and approval of the discussion paper balloting The staff confirmed that the DP would cover a Content of a general disclosure standard b Components of financial statements c improvements to the principles of disclosure d Disclosure of accounting policies e Non IFRS information f drafting disclosure requirement and g implications of the improvement proposals The staff recommended that the DP be open for comment for 120 days IASB discussion and decision The Board approved the staff recommendations with the amendment that the comment period would be of 150 days instead of 120 as originally suggested The change was due to concerns expressed by some Board members during the discussion due to i the importance of the project and ii the additional work that would be required to translate the document for non English speaking countries During the discussion the staff gave an indication as to the approximate extent of the document saying that it could be approximately 120 pages in length Amendments to IAS 7 The IASB considered the feedback on its proposals to amend IAS 7 Liabilities reconciliation see Agenda paper 11C In September the IASB decided to finalise the amendments requiring an entity to present a reconciliation of liabilities At this meeting the staff recommended that the effective date of the amendments to be 1 January 2017 The IASB was also asked to confirm that it was satisfied with the due process steps it had taken IASB discussion and decision The majority of Board members approved the staff recommendations with the exception of the transition provisions Given concerns raised during the discussion that 2017 would be too early to implement the requirement to present comparative information the Board decided that the transition provisions would not require comparative information in the year of implementation There were two Board members that indicated that they would dissent They expressed concerns related to i the information would not be useful because it would provide incomplete information ii there had not been a proper cost and benefit analysis particularly because entities would be required to implement the amendments in 2017 and then update their information system to adapt to the changes introduced by IFRS 9 and IFRS 15 in 2018 and one year later by the changes introduced by the new lease standard and iii the interaction between cash and liquidity assessment was not being addressed Insurance contracts 21 Oct 2015 The 2013 exposure draft proposed a mirroring approach to the measurement and presentation of contracts that meet specified criteria In this session the staff asked the IASB to decide whether that approach should be retained in the proposed IFRS on insurance contracts Classification and measurement of financial assets on transition paper 2A Agenda paper summary The Board was provided with an analysis of the choices available to entities initially applying IFRS 9 with or without the overlay approach before adopting the new insurance standard The recommendation on transition is to permit entities to reassess the business model for financial assets designated as related to contracts within the scope of the new IFRS 4 The scope of financial assets qualifying for reassessment of the business model should be consistent with the designation approach under the Overlay approach tentatively agreed by the IASB in its September meeting see IASB Staff Agenda paper 14B Insurance Contracts IFRS 9 and IFRS 4 Different effective dates of IFRS 9 and the new insurance contracts Standard The Overlay Approach paragraphs 10 16 The proposals would apply to assets held to fund insurance contracts based on expected level of claims and expenses and surplus assets held in case of unexpected increases in insurance liabilities However they would not apply to other financial assets held by an entity for a purpose clearly other than issuing insurance contracts Similarly on transition the entities would be permitted to designate and de designate equity investments between FVO and equity presentation elections The staff paper also sets out the extensive disclosure proposals both qualitative explaining the application of transitional relief taken by entities and the reasons for the reassessments and re designations and quantitative showing granular amounts by line items affected IASB discussion and decisions There was some discussion about whether the reassessment was similar to a change of business model The Board members asked the Staff to clarify in drafting that the re assessment of the business model does not imply that the model itself has changed with meaning specified in IFRS 9 but rather in light of the new Standard and new circumstances an entity would have arrived at different classifications designations It was also highlighted that the reassessment or re designations are optional These proposals were approved unanimously The Board also approved unanimously the Staff proposal that the reassessment would be based on facts and circumstances existing on initial application of the new insurance Standard that is the beginning of the latest period presented with new classifications designations applying retrospectively Any resulting changes would adjust opening retained earnings and accumulated OCI Some Board members wanted to emphasise the need to explain the reasons for re assessments and re designations Others argued that this information implied some necessary conditions when these conditions were not explicitly stated After a brief discussion the Board approved the staff recommendation Restatement of comparative information on initial application of the new insurance contracts Standard paper 2B Agenda paper summary The completed version of IFRS 9 does not require restatement of comparative information for the initial application of the classification and measurement requirements but permits it only if it is possible to do so without the use of hindsight On the contrary the revised Insurance ED proposed to require retrospective restatement of comparative information about insurance contracts permitting a simplified approach where full application was impractical This intention was tentatively confirmed in the October 2014 meeting with proposals to further simplify the simplified approach and to allow a fair value approach if the simplified approach would also be impracticable IASB discussion and decisions After a brief discussion the Board members agreed to reconfirm once more the intention to require for all entities the restatement of comparative information about insurance contracts However the Board tentatively decided for entities already applying IFRS 9 on initial application of the new insurance Standard to permit but not require the restatement of comparatives for financial assets only if it is possible without the use of hindsight only when those entities use any transitional reliefs under the insurance contracts Standard to reassess its business model for managing financial assets to re designate financial assets under FVO or OCI presentation election for equity investments The mirroring approach paper 2C Agenda paper summary The 2013 revised Insurance ED proposed a mirroring approach to the measurement and presentation of contracts that meet specified criteria In this session the staff asked the IASB to decide whether that approach should be retained in the proposed insurance contracts Standard The staff paper explains that although there was sympathy for the intention of removing mismatches the specific proposal was widely criticised It was viewed as being too complex and potentially inconsistent for some participating contracts The variable fee approach was developed in response to these concerns The staff recommendation was that the mirroring approach should not be permitted or required in the proposed insurance contracts Standard They note however that some mutual insurers might be concerned about that recommendation IASB discussion and decisions There was a unanimous agreement to abandon the mirroring approach for the reasons set out in the paper The discussion considered entities with potentially no equity including mutual entities and the possible presentation of financial statements available to them but the Board members felt this was outside the scope of the insurance project Presentation and disclosure paper 2D Agenda paper summary The paper summarised the impacts on disclosure of all the redeliberations and developments since publishing the 2013 revised Insurance ED In particular it considered the IASB decision to introduce the variable fee approach for contracts with direct participating features the modification of the presentation of interest expense in OCI and the impact of the publication of the revenue standard IFRS 15 IASB discussion and decisions There was a lively discussion on the various disclosure requirements their usefulness to users the comparability across and within entities and the difficulty of producing them The Staff clarified that an entity would need to keep track of and disclose the movement in the financial assets designated as related to insurance contracts at the date of transition when that entity had made the election for those insurance contracts to disaggregate between profit or loss and OCI their interest expense and it also used the simplified approach at transition setting to zero the accumulated balance of OCI for those insurance contracts The Board agreed to confirm the 2013 revised Insurance ED proposals for presentation of insurance contract line items in the financial statements The Board members considered the need to present separately insurance contracts measured using different methods Some felt that the measurement simply reflects different features of the contracts and therefore presenting them in one line would still give comparable information Others argued that the contracts profitability may unfold differently over time Overall the Board members felt that the reference to the IAS 1 requirement to present separately items of different nature or with different features should be emphasised more strongly There was a lively debate on the onerousness and the usefulness of the Staff proposed need to provide two CSM roll forward calculations with and without the guarantee for entities using the variable approach In the end the Staff proposed a re worded disclosure which was agreed The re worded requirement would read as follows If entity uses the variable approach and recognises changes in the guarantee in profit or loss it should be required to disclose the amount of guarantee recognised in profit or loss for the period The Board re confirmed 2013 revised Insurance ED proposals and all subsequent tentative decisions subject to changes made at this meeting The Board agreed to delete the reconciliation of insurance revenue to premium received in the period because there is already information about premiums written and premiums collected in the period but not premiums due In discussing the interest expense analysis some members questioned whether there is a default view current rate versus locked in The Staff reconfirmed that there was no default position Others questioned whether for entities choosing to present all changes in profit or loss there should be some way to distinguish investing from underwriting activities However the proposal was felt unnecessary as the OCI presentation was never really achieving that split in the first place To recap the disclosures required for the time value of money would be If an entity chooses to disaggregate interest expense into an amount presented in profit or loss and an amount presented in OCI it should be required to disclose an explanation of the method used to calculate the cost information presented in profit or loss Additionally entities using the simplified approach at transition to measure the accumulated balance of OCI at zero should be required to designate financial assets as relating to contracts within the scope of the new insurance contracts Standard at the date of transition to disclose at the date of transition and in each subsequent reporting period a reconciliation from the opening to closing balance of the accumulated balance of OCI for those financial assets Entities should be required to disclose changes in the fulfilment cash flows that adjust the contractual service margin an explanation of when the remaining contractual service margin is expected to be recognised in profit or loss either on a quantitative basis using the appropriate time bands or by using qualitative information and the amounts in the financial statements determined at transition using simplified approaches both on transition and in subsequent periods any practical expedients that an entity used The entity would not be required to reconcile revenue recognised in profit or loss in the period to premiums received in the period paragraph 79 of the 2013 revised Insurance ED and disclose an analysis of the total interest expense between profit or loss and OCI tentative decision from March 2015 Insurance and IFRS 9 21 Oct 2015 In September the IASB decided after the Chairman had exercised a casting vote to propose a package of temporary measures in relation to the application of the new financial instruments Standard IFRS 9 before the new insurance contracts Standard comes into effect At this meeting the IASB discussed how those measures would apply to first time adopters and set the comment period In September the IASB decided after the Chairman had exercised a casting vote to propose a package of temporary measures in relation to the application of the new financial instruments Standard IFRS 9 before the new insurance contracts Standard comes into effect At this meeting the IASB discussed how those measures would apply to first time adopters and set the comment period Re cap The package of proposed temporary measures if confirmed would amend IFRS 4 to permit a reporting entity whose activities are predominantly insurance a temporary exemption from applying IFRS 9 until the earliest of the entity s adoption of the new insurance contracts Standard or 1 January 2021 the Deferral Approach and to give entities issuing insurance contracts that implement IFRS 9 the option to remove from profit or loss some of the accounting mismatches and temporary volatility that could occur before the new insurance contracts Standard is implemented the Overlay Approach First time adopters The staff recommendation was that first time adopters be prohibited from using either of the approaches in the temporary package They argued that it is unlikely to be relevant to first time adopters and because they are not already applying IFRS the arguments about comparability being undermined are not relevant Comment period The staff recommendation was that the IASB exposes the proposed temporary measures for 60 days on the grounds that it is urgent and narrow in scope If the IASB support the recommendation the staff expect to be able to publish the exposure draft in December 2015 and with the goal of finalising the package in the third quarter of 2016 IASB discussion and decisions Comment period In considering the comment letter period the Board agree with the Staff recommendation that the matter is both narrow in scope and urgent and agreed to a comment period of 60 days The due process requires for the comment letter period to be a minimum of 120 days unless the matter is narrow in scope and urgent in which case it can be not less than 30 days This decision would now need to be approved by Due Process Oversight Committee First time adopters The IASB agreed with the Staff recommendation to prohibit deferral and overlay approaches to implementation of IFRS 9 for first time adopters see paper 14B This is on the grounds that both the deferral approach and the overlay approach require information resulting from applying IAS 39 in part or in full which in itself would be a new requirement for first time adopters Accordingly both approaches are considered not to be relevant to first time adopters and prohibiting them is consistent with the principles of IFRS 1 of applying the current versions of IFRSs and enhancing comparability within entity over time Next steps and timing Next steps Expected timetable ED is published to amend IFRS 4 December 2015 60 day comment period ends February 2016 Redeliberations on the ED proposals Second Quarter of 2016 Amendments to IFRS 4 issued Third Quarter of 2016 IFRS implementation issues 22 Oct 2015 The IASB was provided with the regular update on the most recent IFRS Interpretations Committee meeting The staff briefly summarised IFRIC Update The item that attracted the most Board discussion was the issue of additional variable payments in IAS 16 and IAS 38 A Board member urged the Interpretation Committee to be cautious when making conclusions as it is important that any conclusions reached should not be out of sync with the decisions made by the Board in other projects faced with similar issues IAS 23 Borrowing costs The IASB were asked to approve for inclusion in the Annual Improvements Cycle 2015 2017 a proposal to amend IAS 23 That amendment would clarify that borrowings made specifically to finance construction of a qualifying asset become part of the pool of general borrowings once the construction of the specific qualifying asset is completed see Agenda Paper 12A IASB discussion and decisions All Board members agreed with the proposed amendment to IAS 23 being published as an Annual Improvement Further they agreed that the amendment be applied prospectively with early application permitted During the some Board members raised general concerns regarding the appropriateness of capitalising borrowing costs One Board member stated that he would have preferred it if borrowings made to fund a specific asset were not pooled with general borrowings unless the related asset had been sold as the funding effectively attaches to that 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 to be conveyed to the Interpretations Committee by the staff was clarified is crossing the control threshold a sufficiently clear transaction that can be distinguished from other transactions where interests change or are they conceptually too closely related Furthermore it was re emphasised that decisions relating to any amendments to IAS 28 are of vital importance to certain jurisdictions Goodwill and impairment 22 Oct 2015 Following the post implementation review PIR of IFRS 3

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  • IASB meeting — 21–24 September 2015
    example fair value measurement benefits plans inventory and income taxes He then opened the discussion to the Boards One IASB Board member asked whether there was a conflict in presenting certain information outside the financial statements when sometimes that information was necessary to understand the financial statements He said that for example in some jurisdictions the MD A section was presented separately from the financial statements One FASB Board member responded that there were rules and regulations that what information should be presented with the financial statements as a package and to be issued at the same time He said that it was also important that the financial statements should stand on its own because otherwise it could not be audited One IASB Board member asked about the negative consequences that could result from disclosure as discussed in agenda paper 17C The FASB project manager responded that the discussions were ongoing and they were considering examples such as potential legal harm competitive issues and reputational risk One IASB Board member asked about the FASB project regarding disclosures on fair value measurement She said that in terms of disclosure there had been convergence between US GAAP and IFRS accordingly it would be appropriate to set up a process in place to work together on future changes One IASB Board member said that it would be important for the IASB to clarify the differences on the concept of materiality between IFRS and US GAAP because there could be a potential issue in terms that users could consider that IFRS information was not as reliable as US GAAP The IASB Chairman closed the discussion Insurance contracts first session 23 Sep 2015 The IASB discussed the mechanics of the disaggregation of changes in an insurance liability due to changes in market variables between profit or loss and other comprehensive income OCI Insurance Contracts Disaggregating changes arising from changes in market variables in the statement of comprehensive income SCI Background and objective Agenda Papers 2A and 2B In March 2014 the IASB tentatively decided that for contracts without participation features the entity may choose as its accounting policy choice to disaggregate changes in discount rate between profit or loss and Other Comprehensive Income OCI If so the presentation of interest expense in the SCI should be determined using the discount rate locked in at inception for the profit or loss account and accordingly the difference between that insurance investment expense determined using a cost and the one determined using a current discount rate is presented in OCI The papers address this presentation approach when it applies to contracts with participation features including the practical mechanics whether different requirements are needed for some specific participating contracts in which there are no economic mismatches between the contract and the items held whether such disaggregation between profit or loss and OCI should be an accounting policy choice and finally whether there should be simplified transitional arrangements for the determination of the accumulated balance of OCI when retrospective application is impracticable Changes in estimates of cash flows arising from changes in market variables The entity shall present changes in estimates of the amount of cash flows that result from changes in market variables in the SCI consistently with the changes in discount rates The Staff expressed the view that it was necessary to present changes in future cash flows and future discount rates both in profit or loss or both in OCI The rationale for this position is that for participating contracts the cash flows inherently integrate the effect of market and insurance risks and the time value of money measures the risk sharing of those market variables between the insurer and the policyholder The Staff believed that it would be an improvement if the new insurance contracts Standard establishes a clear principle on how they should be presented when the split of the effect of time value of money between profit or loss and OCI is adopted IASB members voted twelve in favour and two against the Staff recommendations Objective of disaggregating changes arising from changes in market variables The objective of disaggregating changes in the insurance contract arising from changes in market variables between profit or loss and OCI is to present an insurance investment expense in profit or loss using a cost measurement basis Accordingly the difference between presenting an insurance investment expense in profit or loss using a cost measurement basis and current measurement basis is recognised in OCI and these amounts reverse The Standard should not specify detailed mechanics for the determination of the insurance investment expense using a cost measurement basis There was general support for focussing on the objective One Board member expressed the view that trying to enforce particular methods could penalise entities in some jurisdictions Another Board member stated that there needs to be consistency and comparability in the context of a cost measure in profit or loss The Staff confirmed that an objective for allocating the amounts over the life of the liabilities could be included in the Application Guidance and examples The IASB members voted unanimously in favour of the Staff recommendation Insurance Contracts Disaggregating changes arising from changes in market variables in the SOCI Modification of the objective for contracts with no economic mismatches Agenda Paper 2C An inherent feature of a cost measurement basis is that accounting mismatches are more likely to arise Eliminating accounting mismatches in profit or loss when applying a cost measurement basis in profit or loss could be simpler to achieve when there are no economic mismatches Consideration was therefore given to whether the IASB wishes to modify the objective of disaggregating changes in market variables between profit or loss and OCI for a subset of contracts in which there is no economic mismatch In such cases accounting mismatches could be eliminated in profit or loss by presenting an insurance investment expense or income that exactly matches the gains or losses presented in profit or loss arising from items held to economically match those insurance contracts cash flows This approach would be defined as the current period book yield approach Changing approaches As the IASB has decided to modify the objective of disaggregating changes in market variables between profit or loss and OCI for contracts in which economic mismatches do not exist if an entity is required to change between the cost measurement approach e g the effective yield approach and the current period book yield approach and vice versa it shall not restate the opening accumulated balance of OCI it shall not recognise in profit or loss the accumulated balance of OCI on the date of the change or in future periods i e accumulated OCI remains in equity it shall not restate prior period comparatives and it shall only disclose in the period in which the change of approach occurred what is the reason for the change the effect of the change on each financial statement line item affected and the value of the contracts that no longer qualify for the current period book yield approach but previously qualified and vice versa One Board member preferred 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 when changes in the insurance contract should be disaggregated between profit or loss and OCI i e whether to extend to contracts with participation features the accounting policy choice to present the insurance investment expense in profit or loss using either a cost measurement basis or a current measurement basis The second issue was the possibility to introduce simplified requirements for the determination of the accumulated insurance investment expense using a cost measurement basis for the insurance contract when the entity applies the requirements for the first time i e on transition Such simplifications may be needed because an entity that chooses as its accounting policy choice to disaggregate changes in market variables between profit or loss and OCI would be required to determine the insurance investment expense reflecting a cost measurement basis and accumulated balance of OCI retrospectively if practicable Hence the question arises of what to do if this is not practicable Accounting policy choice The IASB should extend to contracts with participating feature its previous decisions for contracts without participation features that an entity shall a choose as its accounting policy either to disaggregate changes in market variables between profit or loss and OCI by presenting an insurance investment expense in profit or loss using a cost measurement basis Accordingly the difference in the insurance investment expense presented using a cost measurement basis or a current measurement basis is presented in OCI or to present the insurance investment expense in profit or loss using a current measurement basis b apply that accounting policy to groups of similar contracts taking into consideration the portfolio in which the contracts are included the assets that the entity holds and how those assets are accounted for and c apply the requirements in IAS 8 Accounting Policies Changes in Accounting Estimates and Errors to any changes in that accounting policy IASB members voted thirteen in favour of and one against the Staff recommendation Following the modification in the objective of disaggregating changes arising from changes in market variables between profit or loss and OCI when there are no economic mismatches between the cash flows from insurance contracts and those from the items held an entity should instead choose as its accounting policy either to disaggregate changes in market variables between profit or loss and OCI by presenting an insurance investment expense in profit or loss using that modified objective The difference in the insurance investment expense presented using that modified objective and a current measurement basis is presented in OCI The alternative to that would be to present the insurance investment expense in profit or loss using a current measurement basis IASB members voted unanimously in favour of the Staff recommendation Simplified transition requirements for the accumulated balance of OCI When retrospective application is impracticable the approach for determining the accumulated balance of OCI created by the insurance investment expense prior to the transition date for contracts in which changes in market variables affects the amount of cash flows will be set as follows for contracts for which the objective is to present an insurance investment expense using a cost measurement basis in profit or loss i e those applying an effective yield approach an entity should assume that the earliest market variable assumptions that should be considered are those that occur when the entity first applies the new Standard the transition date Accordingly the date when the entity first applies the new Standard the accumulated balance of OCI for the insurance contract is zero following the modification in the objective of disaggregating changes arising from changes in market variables between profit or loss and OCI an entity applying the current period book yield approach should assume that the insurance investment expense or income is equal and opposite in amount of the accumulated gain loss presented in equity for the relevant underlying items the entity holds Accordingly an entity should assume that the accumulated balance of OCI is determined by disaggregating changes in market variables between profit or loss and OCI by presenting an insurance investment expense in profit or loss using that modified objective The difference in the insurance investment expense presented using that modified objective and a current measurement basis is presented in OCI As recommended before the alternative to this treatment is to present the insurance investment expense in profit or loss using a current measurement basis IASB members voted thirteen in favour of and one against the Staff recommendation Conceptual framework joint with FASB education session 23 Sep 2015 The IASB Technical Principal introduced the session and stated that the focus of the session would be on Measurement and Presentation She stated that both she and the FASB Project Lead would discuss the work conducted by both sets of staff starting with Measurement before considering Presentation before requesting questions and comments from both Boards The IASB Technical Principal commented on the different approaches taken by the two Boards in their respective Conceptual Framework projects noting that the IASB has chosen not to adopt a phased approach and to instead produce a complete set of proposals on a revised Conceptual Framework the Exposure Draft released earlier in 2015 evidenced this She went on to state that the FASB has adopted a phased approach to their Conceptual Framework project The FASB Project Lead outlined the approach taken by the FASB and explained why Measurement and Presentation had been selected as part of the first phase these reasons are that the FASB believe these areas are in the current FASB Conceptual Framework the most deficient and the concepts relating to Presentation will be useful when discussing Measurement The IASB Technical Principal provided a brief overview of the Measurement proposals contained in the Conceptual Framework Exposure Draft these were discussed in Agenda Paper 10A She indicated that the primary focus of the paper was on describing the different measurement bases and the different information that each of these bases provide and the advantages and disadvantages of these bases She explained the two broad categories of measurement bases namely adjusted historical cost based measures and current value updated information at the balance sheet or measurement date She discussed two further categorisations namely bases which are based on market participant assumptions fair value and those based on entity specific assumptions value for use The IASB Technical Principal then briefly discussed the factors that had been identified to be used when selecting an appropriate measurement base and described how the concepts of relevance and faithful representation would need to be considered as well as the enhancing characteristics When considering relevance the information that arises from a particular measurement base provided in the statement of financial position as well as the information relating to financial performance must be considered Furthermore she discussed how the manner in which an asset or liability impacts on future cash flows and whether this would impact on the measurement base to be applied for different items The business activities conducted by the entity may at least in part also impact on the measurement base selected Finally she addressed the concept of measurement uncertainty and how it may impact on the selection of an appropriate measurement basis The IASB Technical Principal then addressed the implications of faithful representation of financial information on the selection of measurement bases She explained that it is necessary to consider links between assets and liabilities if related assets and liabilities are measured using different measurement bases accounting mismatches may arise which may not faithfully represent the financial performance of an entity She continued her overview by discussing the concept of understandibility in the context of measurement bases and reiterated the importance of the cost constraint The IASB Technical Principal then summarised the feedback received to date noting that the comment period for the Exposure Draft was still ongoing She stated that there was support for the measurement approach suggested but there are big concerns surrounding the factors identified and their usefulness to the IASB when they are setting standards The FASB Project Lead then provided an overview of the FASB work conducted to date relating to measurement noting that they are not as far along the process as the IASB However she explained that there have been many public discussions and meeting with FASB members to discuss various measurement issues She stated that the staff had summarised principles identified based on these discussions in Agenda Paper 10D The IASB Vice Chairman highlighted paragraph 9 of Agenda Paper 10D and discussed how he firmly agreed with the concept of or term value flows and how these should also be considered instead of simply considering cash flows as a term He then stated that people use the term cash flows as an absolute concept rather than a short hand as it is intended to be seen An IASB member discussed that the concepts of direct and indirect cash or value flow raised in Agenda Paper 10D were not dissimilar to factors raised in the IASB Exposure Draft and was of the opinion that the IASB staff could use these terms to crisp up the discussion and consideration in the relevant chapter of the IASB Exposure Draft The IASB Technical Principal agreed stating that the idea was already implicitly part of the document but could be brought out more clearly Further she stated that this clarification could be useful to addressing some comments raised by respondents that the Exposure Draft does not go far enough in addressing the implications and consequences of the selection of the different measurement bases Another IASB member sought clarification from the FASB members on a few issues These included whether there should be a definition of OCI and earnings or profit or loss and how detailed and descriptive the measurement chapter should be A FASB member responded by saying that the FASB s objective is to develop a chapter that looks at more than just broad measurement bases but delves deeper and looks at the choices available under for instance an historical cost model However he stated that the chapter was not to be written to justify previous decisions made He further discussed that the FASB s objective is broader than that of the IASB namely determining the factors that would lead to the choice between historical cost based measures and current value measures and this means that more detailed guidance than that provided by the IASB in the Exposure Draft could be provided However he reiterated that no decisions had yet been made at this stage Another IASB member asked a question relating to paragraphs 10 12 of Agenda Paper 10D the categorisation of cash flows as direct indirect or somewhere in between He questioned whether analogising to leases where the cash flows are categorised as somewhere in between granting a loan where the underlying asset is cash could result in cash flows similar to those of a lease The only difference is the underlying asset The FASB Project Lead commented that this classification of loan cash flows had not been the intention and rather the loan would result in direct cash flows However a FASB member commented that a loan 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 a presumption that incomes and expenses will be included in profit or loss but this can be rebutted in specific circumstances and it is presumed that amounts included in OCI will be recycled to profit or loss this too can be rebutted in specific circumstances The IASB Technical Principal then briefly described the high level principles of presentation and disclosure included in the Exposure Draft These include the objective and scope of financial statements classification aggregation and offsetting and what sort of information would be useful to be provided in the notes These principles are high level and will be developed further into standards level guidance through the Disclosure Initiative The FASB Chairman expanded on the FASB Project Lead s discussion relating to OCI by stating that OCI could still be used by the FASB even though they feel that there is no conceptual basis for it He explained the FASB s thinking about the Conceptual Framework and its use firstly they would consider what was conceptual then what was beneficial to users and then what satisfied the cost benefit concept Further when at a standards level the FASB did not apply the Conceptual Framework an explanation should be provided in the related BC Therefore he concluded that the two Boards thinking and potential use of OCI would ultimately be similar The IASB Chairman explained that he felt that the Conceptual Framework DP was not widely understood He explained that there had been one conceptual basis for the use of OCI which is the incomplete measurement basis where an asset and liability are measured differently or where one of the two is not measured at all and as a result counterintuitive results would emerge if OCI was not used at all Therefore to say that there is no conceptual basis for OCI is strong The FASB Chairman clarified the FASB view on OCI by stating that although it may have no conceptual basis does not mean that they don t find its use beneficial An IASB member asked whether OCI would be used when developing a relevant presentation She stated that she could see it playing a role in the consideration of aggregation and performance presentation A FASB member clarified that discussions had not yet been finalised Another IASB member agreed that in the past there was no consistent use of OCI and does not agree that there is no conceptual basis for OCI He then posed a question to the FASB regarding whether the liability equity discussion would be considered in its deliberations on its Presentation chapter A FASB member responded by stating that problems existed with the definition of a liability and this could result in inconsistent outcomes in any discussion regarding liability equity Therefore measurement and presentation should be discussed and finalised first before tackling other issues as measurement could drive presentation and vice versa The IASB Vice Chairman queried the wording of paragraph 12 of the paper The resulting discussion discussed whether recurring and non recurring transactions and certain from uncertain transactions should be assessed and grouped differently There was agreement that this should be done but the IASB Vice Chairman still felt that the sentence was badly worded and did not describe what it was intended to An IASB member discussed that the current value of an item may be presented in the statement of financial position and the changes in that value may be presented separately She then questioned whether the FASB thought that this could be achieved using two separate lines in a single statement whereas the IASB may present the two components in different statements therefore the information is important to both Boards A FASB member stated that he was concerned that by creating OCI that users would feel that this information was not important until it hit net income The IASB member continued by asking how consideration of the complementary financial statements would assist in classification decisions The FASB Project Lead stated that the primary objective of considering the complementary nature of statements was to ensure that the statements relate to one another and where possible it should be possible to link the statements Another IASB member commented on the FASB s stance towards OCI and the fact that they would still use it given potential benefits despite stating that there was no conceptual basis for it He questioned whether it would not be useful to discuss what those potential benefits might be He would also prefer that given the lack of a conceptual basis for OCI that it would not be used He also queried whether the FASB were also of the opinion that there was no conceptual basis for the recycling of OCI the FASB stated that they did not think that there was a conceptual basis The FASB Chairman questioned whether as a result of not including OCI in the Conceptual Framework it would be harder to justify using it than it OCI had been included in the Conceptual Framework The IASB Chairman reiterated that net income is the primary indicator of performance and therefore the presumption is that all items would be included in there Only if there are very good reasons to do so would OCI be used He recommended that the FASB too create a high hurdle for the use of OCI The FASB Chairman stated that he did not feel that the Boards philosophies are different A FASB member stated that despite not developing a conceptual basis for OCI this did not mean that no discussion relating to the use of OCI would be included Another FASB member stated that other than currency translations and cash flow hedges are the only items that have characteristics different to those other items included in OCI With those other items there are items with similar characteristics included in net income not OCI and therefore it would be very difficult to formulate a conceptual basis for OCI The IASB Chairman closed the session Business combinations including the post implementation review follow up projects 23 Sep 2015 In this joint session the IASB and FASB the boards discussed their respective projects related to their Business Combinations Standards including the timing and overlap of the projects These projects covered the definition of a business accounting for intangible assets acquired in a business combination accounting for goodwill and the impairment of non current assets In this joint session the IASB and FASB the boards discussed their respective projects related to their Business Combinations Standards including the timing and overlap of the projects These projects covered the definition of a business accounting for intangible assets acquired in a business combination accounting for goodwill and the impairment of non current assets Definition of a business The FASB Project Lead provided a summary of the status of the FASB s project on clarifying the definition of a business He noted that the FASB would address this project in three phases 1 Clarifying the definition of a business 2 Addressing issues relating to the new revenue standard and 3 Exploring aligning asset accounting and business combination accounting differences which would take pressure off the definition of a business in general He highlighted that the first phase was where there was overlap between FASB and IFRS potential projects He noted that to address the concerns that had been raised in this area the FASB had tentatively decided to propose the following amendments Include a fair value threshold in the guidance as a practical screen to evaluate when a set of assets is not a business so that if the fair value of a single identifiable asset or a group of identifiable assets represents substantially all of the fair value of the gross assets acquired then the substance of the arrangement would be that the acquirer was just purchasing assets rather than an integrated set i e a business Introduce a requirement that for a set to be a business it must include at a minimum an input and a substantive process and include a framework to assist people in assessing when those requirements would be present Remove the requirement that a market participant should be capable of replacing the missing elements as the focus would now be on what was in the set and Align the definition of outputs with the new revenue Standard He noted that the goal of the amendments was to increase consistency in application narrow the definition of a business and to get U S GAAP further aligned with IFRS in this area He added that the FASB was ready to issue an Exposure Draft on this in the near term The IASB Technical Manager provided an overview of the IASB staff s assessment of the FASB s decisions

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  • IFRS Interpretations Committee meeting — 8-9 September 2015
    concerned were being parked until the completion of the IASB s agenda consultation Further he suggested that it could be explained that a number of issues had been submitted to the Committee regarding IFRS 5 and that the Committee would only determine a way forward based on the outcome of the IASB s agenda consultation in other words not to list the issues individually The Chair requested a vote on how many members would favour the approach suggested and seven members agreed with this suggestion However a concern was raised regarding the clarity and usefulness of the agenda decision if the issues were not described in some detail The Chair again requested three volunteers to assist the staff in the drafting of the agenda decision and three members volunteered An observing IASB member requested that the drafting be done carefully to ensure that the true status of the issues was communicated IAS 16 Property plant and equipment 08 Sep 2015 The Committee discussed various topics related to IAS 16 The project manager introduced Agenda paper 3 IAS 16 Property Plant and Equipment Draft Interpretation Accounting for proceeds and cost of testing PPE He said that in previous meeting the Committee tentatively decided to develop an Interpretation on the meaning of testing focusing on the meaning of functioning properly in paragraph 17 e of IAS 16 Property Plant and Equipment The Committee tentatively concluded that functioning properly is an assessment of the technical and physical performance of the PPE asset The assessment of functioning properly does not include an assessment of financial performance such as the level of operating margin or the quantity of the output as intended by management He said that the staff analysed whether the proposed amendments would be applicable to the extractive industries as it would imply changes in their existing accounting practices He said that the staff also analysed the similarities with IFRIC 20 and considered that it would not be necessary to change the scope of IFRIC 20 He also mentioned that the staff considered whether the scope paragraph of IFRIC 20 should be expanded to accommodate application to both deep mines and to the development phase of a mine but the staff considered that this was not necessary because paragraph 11 a of IAS 8 required management to refer the requirements in IFRSs dealing with similar and related issues when there was not specific guidance for a particular transaction or circumstance He then opened the discussion to the Committee There was general concern expressed by the Committee members about changing existing practices in the extractive industries Some members indicated that IFRIC 20 was scoped particularly to include only surface mining and more discussion would be needed in order to change the interpretation Some Committee members indicated that the issue was broader than extractive industries and that IAS 16 was not clear enough for this particular issue and that the scope should be expanded because the relevant issue was cost attribution On the other hand other Committee members expressed concern that the staff paper was not answering the specific question raised by the constituent and would prefer that the Committee would first try to answer the question rather than expanding the project The Implementations Director said that the focus should be in clarifying IAS 16 paragraph 17 e although it was difficult to clarify the topic without expanding it He said that in order to analyse the cost attribution issue it would require to expand the project Some Committee members pointed out that there was diversity in practice and there were several issues surrounding this topic One Board member suggested dividing the project in two tiers the first step would be to answer the specific question and the second step to broaden the project The Chairman suggested the following alternatives Conclude that focusing only on IAS 16 paragraph 17 e would not be feasible i e drop from the agenda the proposal was approved by only 5 Committee members Request the staff to analyse the topic again on a broader basis including an analysis of what should be included in cost and cost attribution the proposal was approved by only 5 Committee members To take one more pass through the analysis on defining testing and discuss it at the next meeting The proposal was approved by the majority of the Committee members The Chairman then clarified that if this option would not work the committee would discuss option A again The chairman then asked for direction to be given to the staff Some members suggested to focus also on paragraph 20 and 21 of IAS 16 including how functioning properly relates to operating as intended by management avoid focusing too much on volume explore further the cost attribution issue and the impact on the depreciation of the asset and clarify the need of judgement The Chairman also asked whether the remaining issues of the paper should be discussed There was general agreement not to discuss the remaining topics IAS 32 Classification of liability for prepaid cards issued by a bank in the bank s financial statements 08 Sep 2015 The Committee discussed i the obligation of the bank for the prepaid card was a financial liability ii loyalty programmes should not be considered in this prepaid card issue iii not to proposed a narrow scope amendment to reflect breakage because that could lead to unintended consequences and iv not to take the issue into the agenda The Project manager introduced the Agenda paper 4 IAS 32 Financial Instruments Presentation Classification of liability for prepaid cards issued by a Bank in the Bank s financial statements He said that in the last discussion held by the Committee it was tentatively decided to analyse more complex arrangements including loyalty programs to consider the basis for distinction with prepaid cards He then said that the staff recommendation was that i the obligation of the bank for the prepaid card was a financial liability ii loyalty programmes should not be considered in this prepaid card issue iii not to proposed a narrow scope amendment to reflect breakage because that could lead to unintended consequences and iv not to take the issue into the agenda He then opened the discussion to the Committee There was general agreement with the staff recommendation Some Committee members raised concerns that the issue was not only related to banks Another concern mentioned in the discussion was related to whether the features of the prepaid card should include or exclude the fact that the customer could redeem it not only to third parties but also to the issuer itself Some Committee members suggested issuing a narrow scope amendment and also considering the amendments issued under U S GAAP which allowed breakage on the basis of a speech issued by the SEC staff The Project manager responded that to allow breakage would require amending IFRS 9 One Board member indicated that there would be no justification for treating this particular financial liability different from others The Implementation Director indicated that there was general support for the agenda decision they would delete reference to banks and also they would take out the observation that the issue was not widespread One Committee member raised a concern that the guidance would only be helpful for this particular fact patter Another Committee member requested to clarify that the discussion did not include loyalty programs The Chairman concluded that the staff would consider the proposals for rewording and the majority 13 votes approved the staff recommendation for the agenda decision IAS 16 Property Plant and Equipment IAS 38 Intangible Assets and IFRIC 12 Service Concession Arrangements 08 Sep 2015 The Committee discussed 1 variable payments for asset purchases and payments made by an operator to a grantor in a service concession arrangement 2 variable payments for the purchases of property plant and equipment and intangible assets and 3 payments made by an operator to a grantor Agenda Paper 6 Variable payments for asset purchases and payments made by an operator to a grantor in a service concession arrangement The Senior Technical Manager informed the Committee that the agenda paper addressed two issues one concerned variable payments for asset purchases and the other variable concession fees payable by an operator under a service concession The Committee had discussed the issues previously and had reached a consensus on several issues including the subsequent accounting for variable payments for asset purchases and payments by an operator to a grantor However the Committee had been unable to reach a conclusion on the issue of variable payments dependent on future activities Based on the conclusions reached the Committee had recommended to the Board to consider amendments to IAS 16 IAS 38 and IFRIC 12 The Board had decided that it would only consider the project after the deliberations on the leases project had completed As the discussions on leases were substantially completed the staff suggested starting to reconsider the issue None of the Committee members objected Agenda Paper 6A Variable payments for the purchases of property plant and equipment and intangible assets The Senior Technical Manager continued with variable payments for asset purchases He said that the accounting for variable payments in the leases project could also be applied to asset purchases This would implicate that variable payments dependent on an index or a rate would be included in the initial measurement of the liability whilst other variable payments would be excluded Subsequent adjustments of payments based on an index or a rate would be recorded against the cost of the asset Subsequent adjustments of other variable payments would go through profit or loss under the leases proposals However the staff recommended to the Committee to retain their previous position that those payments were recognised as corresponding adjustments to the cost of an asset to the extent that those payments were associated with future economic benefits to be derived from the asset The Chairman asked whether the issue should be discussed for all asset purchases first and then for service concession agreements The Committee agreed with that One observing IASB member agreed that the timing was right for the project however she was concerned with the proposed leases analogy as the leases discussions were much broader The main objective of the leases project was to bring leases on the balance sheet and she expressed strong concerns about using the rationales developed as a starting point for all assets She also warned about potential knock on effects on other topics like hedge accounting In addition it would be difficult to scope the project Another observing IASB member expressed support for the proposed inclusion of subsequent adjustment of variable payments in the cost of the asset as the cost definition was met in his view Several Committee members agreed with the proposal but expressed a desire for a conceptual basis Many were unhappy with the leases analogy as leases were a special case One Committee member mentioned that the accounting requirements for leases scoped out all other kinds of transactions Others expressed concern about the message sent to constituents when postponing a project to wait for the outcome of the leases project and then stating afterwards that leases were unrelated to the project One Committee member said that the project should be put on hold until the final leases document would be published The Chairman replied that the leases document was in pre ballot stage and that it was unlikely that there would be major changes during the ballot process A Committee member suggested focusing on the submission which only concerned service concessions Some Committee members requested to link the accounting for the liability to the proposed Conceptual Framework where one feature of a liability was no practical ability to avoid the obligation One Committee member said that the rationale applied in IFRIC 1 should also be applied here A fellow Committee member highlighted the fact that the accounting treatment would be different if the asset was part of a business acquired A Committee member added that constituents had proposed analogising IFRS 3 However the IFRS 3 rationale for not including subsequent changes in the acquisition price was that pre combination and post combination parts of subsequent changes could usually not be distinguished This would not be the case with a single asset Some Committee members suggested focusing on the question of what the variable payments were for One Committee member said that they might be variable but that did not mean automatically that they were uncertain An observing IASB member indicated that these payments could be a form of financing A Committee member suggested differing between payments that were financing and payments that were dependent on external events One Committee member said that it should be considered that the vendor could have an asset depending on revenue recognition requirements The Chairman proposed that the staff should bring back a paper in which they present an analysis of why the Interpretations Committee should consider the implications of using the leases rationale for this issue Agenda Paper 6B Payments made by an operator to a grantor The Senior Technical Manager introduced the agenda paper and said that the Committee had previously decided to consider the substance of the payment when selecting the accounting If the payment gave right to a good or service then this good or service should be accounted for under the applicable standard If the payment was linked to a right of use of a tangible asset that element of the concession arrangement would be an embedded lease if the operator controls the right of use asset All other payments should be accounted for under the intangible asset model the financial asset model or the hybrid model depending on the principles of IFRIC 12 The Senior Technical Manager asked the Committee to confirm this previous position Many Committee members still supported the conclusions reached in previous discussions One Committee member warned however not to publish an opinion on this issue without having reached a consensus on variable payments for assets He said if the payments were included in the liability they should also be included in the asset One Committee member was concerned that the proposals could lead to a different treatment of an intangible asset under IAS 38 and IFRIC 12 A fellow Committee member warned that concessions can be very long and that the inclusion in the cost might not provide useful information in that case The Chairman concluded that service concessions should be included as a special case in the paper to be drafted by the staff IFRS 11 Joint arrangements 08 Sep 2015 The Committee discussed various topics related to IFRS 11 and the remeasurement of previously held interests 1 acquisition of control over a joint operation 2 loss of control transaction and 3 change of interests transaction resulting in an acquisition of joint control Agenda paper 5 IFRS 11 Joint Arrangements Remeasurement of previously held interests The project manager introduced the agenda paper He described the general principles identified by the staff to determine whether remeasurement of a previously held interest would be necessary He said that i the significance of the underlying economic event should be the primary factor in assessing whether or not previously held interests should be remeasured ii the measurement model ie a cost model or a fair value model applicable to the recognition of the previously held retained interests should be considered iii the accounting for previously held interests should be separately analysed for transactions involving assets or groups of asset that met the definition of a business versus those that do not and iv the use of a cost accumulation model should be avoided where this could be justified He also clarified that the structure of the investment and whether or not the investment was housed in a separate legal entity should not affect the analysis He then opened the discussion to the Committee There was general support for the staff analysis Although several Committee members expressed concern on the fact that the investment was or was not a legal entity was considered not relevant by the staff One Committee member said for example that it had tax implication and accordingly it would require more analysis The Chairman pointed out that the structure of the entity was considered relevant in IFRS 11 and in some situations it was substantive for example it was considered relevant whether a structure could be a legal entity in one jurisdiction and not a legal entity in another one The Implementation Director also pointed out that the presence of a legal entity could change the rights and obligations to the parties The Chairman concluded that there was general support for the staff recommendation and the staff would consider the concerns discussed in the meeting Agenda paper 5A IFRS 11 Joint Arrangements Remeasurement of previously held interests Acquisition of control over a joint operation The project manager introduced the agenda paper He explained that in developing the proposal the staff applied the principles outlined in agenda paper 5 He said that the transaction obtaining control of a joint operation either from having joint control in or being a party to a joint operation prior to the transaction hereafter referred to as the acquisition of control over a joint operation represented a significant economic event and the fair value measurement model of IFRS 3 should be applied and previously held interests should be remeasured to fair value on the date control is acquired He then said that the structure of the entity whether or not it was a legal entity should not lead to a different accounting treatment and finally that the staff proposed to amend IFRS 3 to clarify this issue He then opened the discussion to the Committee There was general support for the staff recommendation One Committee member suggested not defining what equity interest meant One Committee requested clarification as to the meaning of prospective application The Project manager

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  • IASB meeting — 20 and 22-23 July 2015
    September 2014 Amendment would be dealt with in the future if the research resulted in no amendments to IAS 28 being proposed or finalised Another IASB member expressed concern with having two versions of the Standard in existence for a potentially long period of time and suggested that a better solution to this issue might be to essentially provide a free option in the Standard for entities to choose which accounting they applied rather than having indefinite suspension of the Amendment and two versions of the Standard in existence The Director of Implementation Activities noted that although this would be cleaner from a process perspective the September 2014 Amendment affected a number of paragraphs and to convert this into an option would require a lot of rewriting which would be difficult to achieve before the effective date of the Amendment which was 1 January 2016 Another IASB member also expressed concern with having two versions of the Standard in existence and suggested that because the Amendment came about to resolve an issue of diversity in practice the Amendment did not need to remain in existence to support those entities that had already adopted it The IASB staff responded noting that with the recommended approach the staff were just trying to create a holding pattern A further IASB member expressed similar concerns and suggested that because there was already diversity in practice the IASB should not allow any further early adoption of the September 2014 Amendment from the date of publication of the amendment to defer the effective date of the September 2014 Amendment noting that if the IASB effectively authorised two different Standards this could create structuring opportunities The IASB observed that because this decision would mean that the IASB was effectively saying that the changes to the Standard were not mandatory if an entity had already adopted the Amendment they could choose to cease applying it and noted that this needed to be clearly communicated Ten of the fourteen IASB members voted in favour of deferring the effective date of the September 2014 Amendment to IFRS 10 and IAS 28 indefinitely with early application continuing to be permitted and allowing entities that had already applied the Amendment to continue to do so The IASB agreed to issue the narrow scope exposure draft with a comment period of 60 days IFRS 5 Non Current Assets Held for Sale and Discontinued Operations Next steps for a series of IFRS 5 related issues This session was devoted to discussing the next steps regarding a series of issues relating to IFRS 5 that had been discussed by the IFRS Interpretations Committee but not resolved In the agenda paper the IASB staff had recommended to the IASB that the issues should be divided into those to be considered in the short term and those to be considered in the medium to longer term and for the latter a reference should be made to these issues in the Request for Views in the forthcoming agenda consultation for a potential broad scope project on IFRS 5 Non current Assets Held for Sale and Discontinued Operations For the items identified to be considered in the short term the staff recommended that Issues 5 and 9 should be considered for possible tentative agenda decision items and Issue 11 should be addressed through an annual improvement process Issue 5 To what extent an impairment loss can be allocated to non current assets within a disposal group Issue 9 How to present intragroup transactions between continuing and discontinued operations Issue 11 Applicability of the disclosure requirements in IFRS 12 to a subsidiary classified as held for sale Overall approach An IASB member noted that she agreed with the staff recommendation to divide the unresolved IFRS 5 related issues between those to be considered in the short term and those to be considered in the medium to longer term as long as the issues were discreet and cautioned that the IASB needed to ensure that in doing so it considered whether issues were interrelated with anything else Another IASB member also supported the short term medium to longer term approach but expressed concerns about the IASB placing too much reliance on the results of the agenda consultation noting that not everything could be a high priority project and the IASB ran the risk that it came out as a low priority project but the issues would still exist He questioned what would happen if it was considered to be a low priority project The Director of Implementation Activities responded noting that the issues would have to remain there as they were not issues the Interpretations Committee could pick up unless the IASB asked the Interpretations Committee to undertake a broader project outside of the nature of the narrow scope projects the Interpretations Committee usually undertook Several IASB members noted that they did not believe the IFRS 5 issues warranted a specific question in the agenda consultation but suggested that the IASB should just highlight that it was there so people could offer a comment if they wanted to They also noted that a number of the issues were fundamental questions and highlighted the fact that this was a converged project with the FASB and even though the IFRS and US GAAP standards are not completely converged stressed the importance of talking to the FASB in trying to resolve the issues One of the IASB members also noted that it was important to convey in the agenda consultation that this project would be a big use of the IASB s time so people could factor that into account when providing a response All IASB members agreed that the unresolved IFRS 5 related issues should be divided up between those to be considered in the short term and those to be considered in the medium to longer term and that for the medium to longer term issues a specific question should not be asked about these issues in the agenda consultation but it would be useful to refer to these issues so that people would be mindful of these issues when they were responding to the general questions Issues to be considered in the short term An IASB member questioned whether the three short term issues could be bundled into a single annual improvement expressing his preference for bundling issues relating to the same Standard into a single document and noting that from a process perspective it would be more efficient than asking people to look at the same Standard three times He also added that annual improvements gave better clarity and force to a Standard than agenda decisions Another IASB member pointed out that in paragraph 21 of the agenda paper it was noted that with respect to Issues 5 and 9 the Interpretations Committee almost tentatively concluded that sufficient guidance existed and questioned how these issues would be bundled into an annual improvement noting that for an annual improvement the IASB had to admit that there was not sufficient guidance in the Standard and a clarification was necessary to change the Standard Another IASB member suggested this could be done through the Basis for Conclusions by only proposing an amendment with respect to Issue 11 and explaining in the Basis for Conclusions why the IASB did not believe it needed to propose an amendment in respect of Issues 5 and 9 because the Standard was sufficiently clear This approach would avoid making unnecessary changes to the Standard A further IASB member questioned how visible the issues would be in a Basis for Conclusions to annual improvements and whether they would get the visibility the IASB would like them to have Eleven of the fourteen IASB members agreed that Issues 5 and 9 should be considered by the Interpretations Committee for possible tentative agenda decision items Issue 11 was discussed in conjunction with agenda paper 12D on IFRS 12 IFRS 12 Disclosure Of Interests In Other Entities Proposal for an annual improvement clarification of the scope of the disclosure requirements in IFRS 12 This session was devoted to discussing the applicability of the disclosure requirements in IFRS 12 Disclosure of Interests in Other Entities to a subsidiary classified as held for sale The IASB staff recommended that the IASB should clarify the scope of IFRS 12 by specifying that the disclosure requirements in IFRS 12 except for those in B10 B16 applied to interests that are classified as held for sale or discontinued operations that the amendment be made through the 2014 2016 cycle of Annual Improvements and require the retrospective application of the proposed amendment with an option to apply it early An IASB member noted that she believed that this was all but an editorial correction and that it was unfortunate that the IASB had ended up in this position questioning why the IASB would have drafted B10 B16 so carefully if it did not think the rest of the Standard was applicable otherwise She acknowledged there was tension between IFRS 5 and IFRS 12 and that if the IASB felt an amendment was needed to get to the right outcome then this should be made However she noted that her underlying concern was whether other situations existed where it needed to be specifically stated that the requirement also applied if something was held for sale and that by making this amendment it could result in issues across the other standards that unless the IASB had specifically stated that the requirements applied to interests classified as held for sale or discontinued operations there was an open question Another IASB member acknowledged that the concern expressed by the previous IASB member was a valid concern but believed the IASB should do an annual improvement at this time to remove any uncertainty She noted that she did not believe the IASB needed to permit early adoption because this was a requirement entities could have always applied and there was nothing to stop them making the disclosure once it had been pointed out that it was required She noted that the concerns expressed by the previous IASB member came from the fact that IFRS 5 explicitly stated that no other disclosure requirements apply unless specifically stated and asked the staff to look at the standards that had been published since to see if there were any other clarifications that were needed and whether the blanket exemption should exist in IFRS 5 noting that it forced the IASB to consider whether there were any disclosures for discontinued operations every time they were working on a new Standard A further IASB member noted that he agreed with the comments of the other IASB members and noted that the problem with IFRS 12 was that it had been partially excluded and noted that it would have been better to partially include it as this would have interacted better with IFRS 5 He questioned whether there were any other standards where the disclosures were either partially included or excluded and suggested that this should be checked Another IASB member noted that the only reason this was done in IFRS 12 was because it was in response to a comment letter All IASB members agreed that the scope of IFRS 12 should be clarified by specifying that the disclosure requirements in IFRS 12 except for those in paragraphs B10 B16 do apply to interests that are classified as held for sale or discontinued operations and that it should be very clear that the IASB considers this to be a clarification All IASB members also agreed that such a clarification should be made through the Annual Improvement ED and that the proposed amendment should be applied retrospectively No IASB members indicated that they intended to dissent to the proposed amendments to be included in the Annual Improvements ED All IASB members agreed that the IASB should retain its decision to publish the Annual Improvement ED with a comment period of 90 days agreed with the proposed timetable for publication and gave the staff permission to start the balloting process including the additional proposed amendment and all IASB members confirmed that they were satisfied that all due process steps had been complied with Rate regulated activities 22 Jul 2015 The Board discussed an illustrative example presented by the staff to address the timing of revenue and cost recognition for rate regulated entities There were no decisions made The staff will continue to develop the proposal based on the comments raised by the Board The Board discussed an illustrative example presented by the staff to address the timing of revenue and cost recognition for rate regulated entities There were no decisions made The staff will continue to develop the proposal based on the comments raised by the Board Note To facilitate the understanding of this summary please see the illustrative example discussed by the Board available on the IASB s website The Project manager introduced Agenda Paper 9 Rate regulated Activities Revenue requirement Illustrative example She explained the tripartite relationship in a rate regulated environment and referred to paragraph 11 of the agenda paper She said that that in defined rate regulation the regulatory agreement between the entity and the rate regulator obliged the entity to carry out specified activities in exchange for the right to receive a determinable amount of consideration The revenue requirement reflected the determinable amount of consideration to which the entity was entitled The amount of consideration included both a right to recover specified costs plus a right to make a return on the entity s investments in the assets used to provide the regulated goods or services The regulatory agreement would include a formula for the calculation of the revenue requirement She said that the role of the regulator was not just to protect the customer but also to provide stability and quality there were also wider political issues including identifying what the customers could afford then the regulator would establish activities that an entity would need to do to achieve those objectives In some cases there could be a mismatch between the timing of billing to the customer and the activities performed by the entity She said that in May the Board decided to work on an accounting model to reflect the relationship between the regulator and the entity She referred to the numerical example included in appendix 1 to be discussed by the Board The staff did not propose any specific accounting treatment rather the staff suggested options for different accounting treatment adjusting revenue or costs adjusting both or no adjustments at all to reflect the mismatch She also said that the staff discussed the example with the Accounting Standards Advisory Forum ASAF she noted mixed views regarding the alternative solutions although there was more support for deferring revenue recognition rather than advancing revenue recognition She then opened the discussion to the Board There were mixed views expressed by the Board Some Board members indicated that the main decision should be whether it was necessary or not to make adjustments Some Board members expressed preferences for adjusting revenue because it would be more reasonable to explain deferral of revenue There was no agreement for deferring recognition of cost In terms of presentation there was more support for presenting the adjustment separately from revenue or cost because it would be necessary to show that this adjustment reflects a situation derived from a regulatory relationship There was also general support for the additional line item being presented on the face of the income statement with supplemental disclosure in the notes There were a few Board members who disagreed with the concept of adjusting revenue One Board member said that a regulated entity should not have any special treatment compared to other entities He said that banks for example were regulated and their equity would be different if there were no regulations however there were no accounting requirements for banks to adjust for the effects of their regulation Another Board member responded that regulated entities were different because they made decisions about investments billing etc based on regulations and also indicated that the regulatory framework forced entities to transfer revenue from one period to another Some Board members pointed out that it would be necessary to have an appropriate framework to evaluate which accounting treatment would be appropriate For example applying the Conceptual Framework to determine whether there were additional assets or liabilities created One Board member indicated that it would also be important to determine who the primary users of the regulated entities financial statements were He said that since those companies are capital intensive it would be reasonably to believe that loan providers and equity holders were the main primary users In relation to the specific issue of revenue one Board member indicated that it would be important to determine first whether this relationship had any bearing on the financial performance of the entity He asked whether the regulatory framework forced an entity to transfer goods or services which went beyond the requirements of IFRS 15 Revenue from Contracts with Customers Another Board member pointed out that it would be necessary to explore for each obligation that the entity was being required to perform whether the obligation was met over time or at a point in time There were also concerns with using the concept of performance obligation which was very specific to IFRS 15 while the regulatory environment required entities to assume obligations which were not defined in IFRS 15 The Chairman concluded that there was support for adjusting revenue and the staff would work on that assumption The Project manager indicated that that they would also work with the recommendation to present the adjustment as a separate line item and in the articulation of the concepts to avoid using concepts that were specific to IFRS 15 Dynamic risk management 22 Jul 2015 The Board discussed whether to leave the project as a research project based on feedback from constituents In addition the Board discussed what useful information concerned whose information needs were the focus why the information was needed and what sources for the information could be Agenda Paper 4A Accounting for Dynamic Risk Management a Portfolio Revaluation Approach to Macro Hedging Due process The Visiting Fellow informed the Board that the first part of the session concerned the due process for the project on dynamic risk management DRM The staff had noted significantly conflicting messages in the responses to the discussion paper DP issued in 2014 particularly related to the objectives of the project The staff believed that the insights the IASB had gathered from the public consultation on the DP were not necessarily sufficient to move to an exposure draft ED The staff therefore suggested leaving the project on the research agenda and issuing a second DP The staff also recommended that the Board did not close the possibility to move directly to an ED The Chairman expressed disagreement with leaving the possibility for an immediate ED open A Board member recommended clarifying the purpose of the project He said that the DP clarified the problem but the Board was still struggling to find a solution Another Board member said that the interaction with the financial statements presentation project now renamed the primary financial statements project should be considered The Board agreed with the staff recommendation to leave the project on the research agenda Agenda Paper 4B Accounting for Dynamic Risk Management a Portfolio Revaluation Approach to Macro Hedging The process to identify information needs The staff had been asked at the May meeting to examine how the information needs of constituents concerning DRM activities could be addressed through disclosures The objective of the agenda paper was to set up a process to identify those information needs They had examined in the paper what useful information concerned whose information needs were the focus why the information was needed and what sources for the information could be The Senior Technical Manager asked the IASB for their input on the process and whether they would like comparability between entities that undertook DRM activities and those that did not One Board member opened the discussion by saying that the IASB would have to decide whether the focus should be narrow and on hedge accounting or whether it should be broader and on disclosures She believed that the constituents had asked for the former Although she preferred the latter focus she expressed concern that it was unclear whether the Board had a mandate for that Another Board member agreed that the focus should be on disclosures as this was the only way in his view to make the interest rate risk of an entity more transparent He said that the scope and the objective of the project should be defined however this would be a very big project and he thought it was not be the right time to undertake this project as IFRS 9 had just been finalised The Technical Director understood those concerns and said that the project needed to find the appropriate entry point Possible entry points could be DRM activities or interest rate risk exposure in general But even if the latter were the entry point this would not mean that the entire risk management should be disclosed A Board member replied that this task would be difficult as DRM activities required different disclosures than micro hedging or proxy hedging The Chairman said that using general interest rate risk exposure as an entry point would be too broad as every company was exposed to interest rate risks One Board member warned that the IASB should not align the disclosures to the very extensive information required by regulators A fellow Board member said that the limit between financial statement risk disclosures and business risk disclosures should be considered The Technical Director acknowledged an overlap between those two kinds of risks but said that the focus was on interest rate risk disclosures as IFRS 9 addressed other risks appropriately One Board member said that the problem with the portfolio risk approach PRA was that the Board had tried to solve too many problems in one go He suggested extracting the problems and dealing with each of them separately He also said that the revaluation approach suggested by the DP might not be the right solution He also said that behaviouralisation with regard to core deposits was actually a form of proxy hedge accounting and therefore not a good solution either Several Board members agreed with that The Technical Director also agreed but said that all of the problems were linked and they needed to be under a common umbrella One Board member said that it would for example be useful information to know why companies entered into fixed for variable interest rate swaps although variable loans were on the decline with falling interest rates A Board member said that he had been under the impression that the Board decided to discuss disclosures first and then think about recognition and measurement A fellow Board member suggested waiting to see what the Basel Committee would propose as they considered the same issues as the IASB When taking a vote all Board members agreed that the comparability between those entities who undertook DRM and those who did not should be considered None of the Board members objected to the proposed process to identify information needs Revenue from contracts with customers Effective date of IFRS 15 22 Jul 2015 The Board discussed feedback received on Exposure Draft Effective Date of IFRS 15 and voted on whether to finalise the deferral of the effective date of IFRS 15 by one year to 1 January 2018 Comment letter summary due process and permission to ballot In this session the IASB Technical Manager provided a summary of the feedback received on the Exposure Draft Effective Date of IFRS 15 published by the IASB in May 2015 and the IASB members voted on whether to finalise the deferral of the effective date of IFRS 15 by one year to 1 January 2018 One IASB member observed that feedback had been received on the Exposure Draft encouraging the IASB to set a formula for determining the implementation lead time when deciding on the effective date of standards He highlighted the difficulties associated with setting a formula that would apply to all standards He noted that IFRS 15 was a Standard that involved up to millions of day to day transactions and therefore preparers would need more lead time than if they were implementing a Standard that only affected transactions that occurred once a year and noted that he disagreed with setting a formula but suggested that the IASB should work on this area a bit more The IASB agreed to finalise the amendment to IFRS 15 so that entities would be required to apply IFRS 15 for annual reporting periods beginning on or after 1 January 2018 with early application continuing to be permitted All IASB members voted in favour The IASB members confirmed that they were satisfied that all due process requirements had been met and gave the IASB staff permission to begin the balloting process to amend the effective date of IFRS 15 No IASB members indicated that they planned to dissent from the publication of the amendment to IFRS 15 Provisions and contingent liabilities IAS 37 research project education session 23 Jul 2015 During this educational session the staff discussed with the Board various topics related to its research project on IAS 37 Provisions Contingent Liabilities and Contingent Assets The Technical Manager introduced the session and noted that this was an Education Session on the research project on Provisions Contingent Liabilities and Contingent Assets and that the purpose of the research project was to gather evidence to enable the IASB to make a decision on whether to take on an active project to amend IAS 37 Provisions Contingent Liabilities and Contingent Assets and what the scope of such a project should be She noted that any project to amend IAS 37 would rely heavily on the Conceptual Framework and because of that noted that the IASB would need to wait until the revised Conceptual Framework had been finalised before reaching preliminary views on IAS 37 She noted that the staff wanted to discuss the issue with the IASB at this time for the following reasons To give the IASB a chance to offer any suggestions where the staff needed to perform further work before the IASB could reach preliminary views To give people thinking of commenting on the Conceptual Framework exposure draft an opportunity to see some of the implications of some of the proposals and how they might be applied by the IASB and To help those planning to contribute to the Agenda Consultation in assessing what priority this project should have compared to others She asked if the IASB members had any general comments on the project before taking the IASB through the six topics set out in agenda paper 14B One IASB member stressed the importance of being clear about the scope of the project noting the failure of the previous project on this topic was that the IASB members at the time tried to expand the project from a traditional IAS 37 project into a large project on non financial liabilities and emphasised the need to confirm the scope to make discussions easier Another IASB member noted that in addition to finalising the Conceptual Framework prior to starting on an IAS 37 project she also believed that the IASB should wait until insurance was finalised because of the crossover and noted that having insurance finalised would provide an important reference point for thinking about some of the issues about uncertain liabilities She also noted that waiting for insurance to be finalised would not have much of an impact from a timing perspective She also highlighted that if the IASB was to go ahead with a more limited project on IAS 37 looking at problematic areas people needed to understand that this did not mean that the IASB could only look at such areas and leave the rest of the Standard unconsidered She noted that the IASB still needed to look at the whole Standard to ensure it hung together She noted this as a caution for people responding to the Agenda Consultation The Technical Manager introduced each topic and asked the IASB members whether they had any questions or comments in relation to each topic Topic 1 Identifying Liabilities There were no comments by IASB members Topic 2 Recognition Criteria The Technical Manager highlighted that IAS 37 was unique in that it had three recognition criteria for liabilities and in particular it was unusual because it required that it was probable which is defined as more likely than not that there will be an outflow of resources required to settle the present obligation She noted that last time the IASB had looked at IAS 37 the IASB members had raised a concern about the lack of completeness this criterion resulted in especially when other Standards that were being written at the time did not have the probable outflows criterion She further noted that the IASB had proposed to remove it but people strongly objected to this because they felt that the probable outflows criterion was serving a useful purpose in filtering out those liabilities for which the cost of recognition exceeded the benefits She further noted that the staff had recently spoken to the Capital Markets Advisory Committee CMAC on this issue and the feedback they had received was that they did not think liabilities should be recognised until outflows were probable An IASB member questioned the reasons CMAC representing users of financial statements gave for not wanting the additional information The Technical Director responded noting that CMAC s feeling was that the amount was very uncertain and there was a need for disclosure anyway there were some doubts as to whether recognition really added much to the disclosure and further they would not want to see a full amount recognised if there was relatively low probability of the outflow The Vice Chairman noted that when he was performing outreach in Australia on this issue the feedback received was although it was a blunt tool either the whole amount is recognised or none there was a fairly broad acceptance because it was clear and not costly to apply There was discussion around differences between the recognition criteria in IAS 37 and US GAAP with the IASB observing that conceptually the approach to recognising a liability was more or less the same with the exception of entities defending lawsuits where probable is interpreted under US GAAP as a much higher threshold than the more likely than not threshold in IFRS Several IASB members suggested the IASB should do some research into whether even though people interpreted the IFRS and US GAAP guidance having different thresholds in reality practice was similar which could mean people were not applying IFRS as they should Another IASB member noted that the issue came from the American Bar Association defence part who had said that the language in IAS 37 created a lower threshold for the recognition of an obligation which then potentially prejudiced their clients defences in litigation matters and noted that the threshold was higher in US GAAP so entities did not have to book these obligations He pointed out that it did not seem that IFRS reporting entities in the US were having any issues which could indicate that they were applying more of a US GAAP threshold in that marketplace and perhaps even internationally He also suggested that paragraph 92 of IAS 37 could be trumping recognition thresholds however another IASB noted that this exemption for rare cases when disclosing information would be expected to prejudice seriously the position of the entity in a dispute with another party only applied to disclosure not recognition There were concerns expressed about how the staff would go about performing the research into the practice applied by IFRS reporters given it was a very judgmental assessment and would be difficult to make an assessment unless identical liabilities were being looked at which would be difficult to achieve given the nature of litigation One IASB member pointed out that global banks domiciled in a number of different jurisdictions have had major misconduct problems which have resulted in litigation and are all negotiating with the justice department and suggested the IASB could talk to enough people to get a sense of whether the same threshold was being applied by US GAAP and IFRS reporters The Technical Director noted that he was cautious about going out and talking to people unless the IASB had a clear sense that it might lead somewhere as it could get people excited for no reason An IASB member noted that this was a major focus for the investor community and it was important for the IASB to know whether its recognition requirements were being overridden by prejudices and therefore entities were not recognising liabilities when they should Another IASB member noted that from her experience in practice she had not seen anyone fail to provide information because of commercial prejudice Topic 3 Measurement With respect to risk adjustments one IASB member pointed out that the guidance in IAS 37 in this area was old and that it had been discussed in more recent Standards and suggested that it would make sense to update to reflect the best most recent thinking if the IASB was to do something on measurement He also noted that paragraph 43 of IAS 37 contained a reference to the word prudence which was inconsistent with where the IASB was going in the Conceptual Framework ED and noted that it was dangerous to allow it to stay there He noted that prudence and risk adjustments were completely different things and that they were being confused here Another IASB member noted that from an agenda consultation perspective the IASB should make people aware that there could be a big project on IAS 37 and if the IASB did not move forward with this there was the potential for a second much narrower project She also highlighted the need for the IASB to make it clear that a more limited project could address a group of practical problems that existed which had not been addressed in the past because of a preference to hold off and address the issues as part of a larger project She noted that the IASB could use the agenda consultation to gain an understanding of the importance people attached to the IASB undertaking a more limited project if the IASB was going to reject or give low priority to a larger project The IASB member noted the importance of making it clear whether the measurement of provisions included or excluded profit margin She noted that while insurance was a fulfilment concept it included a profit margin and so if the IASB were to merely state alignment with the fulfilment notion for IAS 37 liabilities it could send a confusing message to people Another IASB member noted that he believed the concept of risk adjustments was overdone and that best estimates would be a better approach noting the need for the IASB to make application practical and not overly complex for preparers who did not have access to specialists With respect to non performance risk a further IASB member noted that he believed the IASB could exclude non performance risk in general circumstances but not in extreme circumstances where it would be obvious an entity could not compensate everyone He noted the IASB would need to define the scope cases for when non performance could be applied Topic 4 Onerous Contracts There were no comments by IASB members Topic 5 Reimbursement Rights and Contingent Assets There was discussion around the different thresholds for contingent assets and contingent liabilities and how this would be

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  • Deloitte meeting notes
    United States English Toggle navigation Search site Toggle navigation Home News Publications Standards Governance Other regulatory Projects Resources Customise Topics Communications Toggle navigation Search site Info Deloitte meeting notes We maintain an extensive database of Deloitte observer notes from meetings of key standard setting governance and advisory bodies under the auspices of the IFRS Foundation You can navigate to the meeting notes using the links below or by using the left hand navigation panel Meeting notes in each category are listed in reverse chronological order If you are looking for meeting discussions about a particular project you can also access the meeting notes on the relevant project pages Standard setting bodies International Accounting Standards Board IFRS Interpretations Committee Governance IFRS Foundation Trustees Advisory bodies IFRS Advisory Council Accounting Standards Advisory Forum ASAF Quick links About meeting notes Latest meetings IASB meeting 16 17 February 2016 IASB meeting 19 20 January 2016 IFRS Interpretations Committee meeting 12 January 2016 IASB meeting 15 16 December 2015 IASB meeting 18 19 November 2015 Upcoming meetings February 2016 IASB meeting education session February 2016 IASB meeting February 2016 IFRS Advisory Council meeting March 2016 IASB meeting education session March 2016 IASB meeting About Contact

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  • IFRS 16 resources
    on IFRS 16 Leases our comprehensive Need to know publication on IFRS 16 our point of view industry related publications discussing the implications of the new leasing Standard on particular industries and sectors our Robert Bruce Column Bringing clarity to leases The new standard and an exclusive video interview with IASB Chairman Hans Hoogervorst and Deloitte s Global IFRS Leader Veronica Poole discussing the new Standard on lease accounting Additionally this page can be used to track all o f our news items related to IFRS 16 and all IFRS 16 related events Related Publications Point of view Telecommunications implications of the new leasing standard 15 Jan 2016 This publication highlights issues from the new leasing standard that will be of interest to those in the telecommunications sector Point of view Property occupiers implications of the new leasing standard 14 Jan 2016 This publication highlights issues from the new leasing standard that will be of interest to property occupiers Point of view Aviation implications of the new leasing standard 14 Jan 2016 This publication highlights issues from the new leasing standard that will be of interest to those in the aviation sector Need to know IASB issues IFRS 16 Leases 14 Jan 2016 This newsletter provides a comprehensive overview of the IASB s new standard IFRS 16 Leases EFRAG endorsement status report 13 January 2016 13 Jan 2016 This endorsement status report update reflects the issuance of IFRS 16 Leases by the IASB on 13 January 2016 It is yet to be determined when endorsement might be expected Robert Bruce interviews Bringing greater clarity to leases IFRS 16 13 Jan 2016 In this video interview Robert Bruce talks with IASB Chairman Hans Hoogervorst and Deloitte s Global IFRS Leader Veronica Poole about the new Standard on lease accounting IFRS 16

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