United States: On The Horizon For IFRS - June 14, 2013

IASB-only meeting April 2013

IASB issues April 2013 IASB-only meeting highlights Key issues

At the April 2013 IASB-only meeting the following issues were discussed:

• Annual Improvements to IFRSs 2010-2012 Cycle: The IASB tentatively decided to finalize the proposed amendment on IAS 16, Property, Plant and Equipment and IAS 38, Intangible Assets ‒ Revaluation method: proportionate restatement of accumulated depreciation. The IASB expects to issue the amendments Annual Improvements to IFRSs 2010−2012 Cycle in the third quarter of 2013.
• Annual Improvements to IFRSs 2012-2014 Cycle:
• • The IASB tentatively agreed that amendments to IAS 7, Statement of Cash Flows, on a piecemeal basis would not be appropriate. The IASB agreed with the IFRS Interpretations Committee not to proceed with previous proposals to amend IAS 7.
  • The IASB discussed a recommendation by the IFRS Interpretations Committee on the applicability of the amendments to IFRS 7, Financial Instruments: Disclosure–Offsetting Financial Assets and Financial Liabilities issued in December 2011 to condensed interim financial statements. The IASB asked the staff to report the views discussed by the IASB at a future Committee meeting in order for the Committee to determine whether it should propose an amendment to IFRS 7.
• Comprehensive review of the IFRS for SMEs: The IASB held an education session on how the guidance in the IFRS for SMEs was developed, including how that guidance was simplified from full IFRS. The IASB also continued its discussions on the Request for Information on the Comprehensive Review of the guidance in the IFRS for SMEs and made certain tentative decisions regarding the IFRS for SMEs.
• Conceptual Framework: The IASB continued its discussions on the Conceptual Framework project, specifically discussing and providing comments on a series of papers that taken together comprise an early draft of the Conceptual Framework Discussion Paper. The IASB members provided the staff with various suggestions for improving the Discussion Paper. At the May 2013 meeting, the staff will seek permission to begin the balloting process for the Discussion Paper, with the objective of publishing it in early July 2013.
• Financial Instruments: Hedge accounting: The IASB discussed issues related to the draft of the forthcoming hedge accounting requirements, which would amend IFRS 9, Financial Instruments, including the scope of the draft requirements and their interaction with macro hedging activities. The IASB tentatively decided to allow entities the option to continue to apply IAS 39, Financial Instruments: Recognition and Measurement, for hedge accounting or to apply the new guidance, since the IASB has not completed its project on macro hedge accounting. The IASB also tentatively decided that it has completed the due process requirements regarding its hedge accounting project and requested that the staff begin to prepare the Ballot Draft.
• IAS 37, Provisions, Contingent Liabilities and Contingent Assets ‒ Interpretation on levies: The IASB agreed to issue an Interpretation on the accounting for levies imposed by governments. IFRIC Interpretation 21, Levies was issued in May 2013.
• Post-implementation review of IFRS 8, Operating Segments: The IASB discussed the following topics related to the completion of the evidence-gathering phase of its post-implementation review (PIR) of IFRS 8.
• • Sources of input to the PIR and due process
  • Messages received and feedback summary
  • Lessons learned about the PIR process
  • Feedback from the April 2013 meeting of the DPOC

The IASB expects to issue the Feedback Statement and IASB Report on the PIR of IFRS 8 in June 2013.

• Recoverable amount disclosures for non-financial assets: The IASB discussed comments received on its Exposure Draft ED/2013/1, Recoverable Amount Disclosures for Non-Financial Assets (Proposed Amendments to IAS 36) a proposed narrow scope amendment to correct certain disclosure requirements in IAS 36, Impairment of Assets. The IASB issued the final amendments in May 2013.
• Update on investor outreach: An update was provided on current outreach with investors.
• Work plan: The work plan as of May 30, 2013, reflecting decisions made at the May 2013 meeting is available on the IASB website

All decisions reached at IASB meetings are tentative and may be changed or modified at future meetings. Board decisions become final only after completion of a formal ballot to issue a Standard or Interpretation or to publish an Exposure Draft.

The International Accounting Standards Board has issued an IASB Update, which summarizes the IASB-only meeting that was held on April 23-25, 2013.

Highlights of the meeting are discussed below.

Annual Improvements to IFRSs 2010-2012 Cycle

The IASB discussed two of the proposed issues from the Exposure Draft (ED), Annual Improvements to IFRSs 2010-2012 Cycle that was issued in May 2012.

Issue recommended for inclusion within Annual Improvements cycle for 2010-2012

IAS 16, Property, Plant and Equipment and IAS 38, Intangible Assets ‒ Revaluation method: proportionate restatement of accumulated depreciation

On the basis of the comments received from respondents and the recommendations of the IFRS Interpretations Committee (Committee), the IASB tentatively decided to finalize the proposed amendment on IAS 16 and IAS 38. The proposed amendment would clarify the requirements for the revaluation method in IAS 16 and IAS 38 to address concerns about the computation of the accumulated depreciation / amortization at the date of the revaluation.

Issue not recommended for inclusion within Annual Improvements cycle for 2010-2012

IAS 7, Statement of Cash Flows ‒ Interest paid that is capitalised

On the basis of the comments received from respondents and the recommendations of the Committee, the IASB decided not to finalize the proposed amendment to paragraphs 16(a) and 33 and the proposed addition of paragraph 33A to IAS 7 because (1) there were concerns raised about the implementation of the amendment and (2) the Committee observations that amendments to IAS 7 relating to classification of cash flows should not be made on a piecemeal basis unless the classification is evident from the current guidance in IAS 7 and an amendment to IAS 7 would make that classification clearer.

Next steps

The IASB expects to issue the amendments Annual Improvements to IFRSs 2010−2012 Cycle in the third quarter of 2013.

See the IASB project summary for more information on this project.

Annual Improvements to IFRSs 2012-2014 Cycle

The IASB considered the following topics that had previously been discussed by the IFRS Interpretations Committee (Committee) as part of its deliberations of the Annual Improvements 2012-2014 cycle.

Issues not recommended for inclusion within Annual Improvements cycle for 2012-2014

IAS 7, Statement of Cash Flows ‒ Classification of expenditures in the statement of cash flows

At its March 2013 meeting, the Committee recommended that the IASB delete the guidance in paragraph 16 of IAS 7 which makes explicit that "only expenditures that result in a recognised asset in the statement of financial position are eligible for classification as investing activities".

During its deliberations, the IASB observed that this guidance had been introduced as part of the Annual Improvements project in 2009 to clarify the classification of expenditures for exploration and evaluation activities. IFRS 6, Exploration for and Evaluation of Mineral Resources permits such expenditures to be recognized as either an asset or as an expense and some entities classified such expenditures as cash flows from operating activities and others classified them as investing activities. The IASB disagreed with the Committee's proposal to remove this guidance from paragraph 16 of IAS 7, because it observed that this guidance has potentially reduced diversity in practice in the classification of cash flows relating to exploration and evaluation activities.

During its deliberations on other aspects of IAS 7, the IASB had agreed with the Committee's observation that the primary principle for the classification of cash flows is that cash flows would be classified in accordance with the nature of the activity in a manner that is most appropriate to the business of the entity on the basis of the guidance in paragraph 11 of IAS 7. Some IASB members observed that the guidance in paragraph 16 of IAS 7 which makes explicit that "only expenditures that result in a recognized asset in the statement of financial position are eligible for classification as investing activities", should be read as a constraint on the application of the primary principle that cash flows should be classified in accordance with the nature of the activity and not as a competing principle.

IAS 7, Statement of Cash Flows − Definitions of operating, investing, and financing activities

At its March 2013 meeting, the Committee discussed how the definitions of operating, investing, and financing cash flows in IAS 7 could be made clearer and thus could lead to a more consistent application of the primary principle. The Committee concluded that clarifying the application of the primary principle is a matter that is too broad for the Committee to address and, accordingly, it determined that it could not take a holistic approach to the specific fact patterns recently discussed regarding the classification of cash flows under IAS 7.

During its deliberations, the Committee observed that several specific requests regarding the classification of cash flows had been considered individually but it thought that amendments to IAS 7 on a piecemeal basis would not be appropriate unless the classification is evident from the current guidance in IAS 7 and an amendment to IAS 7 would make that classification clearer.

Consequently, the Committee did not propose that the IASB further clarify in IAS 7 the application of the primary principle for the classification of cash flows.

The IASB tentatively agreed that amending the current definitions of operating, investing, and financing in paragraph 6 of IAS 7 is a matter that is too broad for the Committee to address and beyond the scope of the Annual Improvements project. The IASB also tentatively agreed that amendments to IAS 7 on a piecemeal basis would not be appropriate. As a result, the IASB agreed with the Committee's recommendation not to proceed with any previous proposals to amend IAS 7.

Issue under discussion by the IASB and the IFRS Interpretations Committee

IFRS 7, Financial Instruments: Disclosure ‒ Applicability of the Amendments to IFRS 7 to condensed interim financial statements

At its March 2013 meeting, the Committee discussed a request for guidance on the applicability of the amendments to IFRS 7, Financial Instruments: Disclosure–Offsetting Financial Assets and Financial Liabilities issued in December 2011 ("Amendments to IFRS 7") to condensed interim financial statements. The Committee was asked to clarify the meaning of "interim periods within those annual periods" as used in paragraph 44R of IFRS 7. The Committee noted that the current wording of this paragraph has the potential to lead to diversity in practice and requested the staff to consult with the IASB.

At the April 2013 IASB meeting, the staff consulted the IASB on this issue. The IASB agreed that the additional disclosure required by the Amendments to IFRS 7 is not specifically required for all interim periods after the first year of application of the Amendments to IFRS 7. However, the additional disclosure is required to be given in condensed interim financial statements prepared in accordance with IAS 34, Interim Financial Reporting, when its inclusion would be required in accordance with the requirements of IAS 34. IAS 34 requires disclosure of information in condensed interim financial statements when its omission would make the condensed interim financial statements misleading. The IASB noted that an interim financial report should include an explanation of events and transactions that are significant to understanding the changes in financial position and performance of the entity since the end of the last annual reporting period.

The IASB asked the staff to report the views discussed by the IASB at a future Committee meeting in order for the Committee to determine whether it should propose an amendment to IFRS 7.

See the IASB project summary for more information on this project.

Comprehensive review of the IFRS for SMEs

Development of the IFRS for SMEs

The IASB held an education session on how the guidance in the IFRS for SMEs was developed, including how that guidance was simplified from full IFRS.

The IASB also continued its discussions on its Request for Information on the Comprehensive Review of the guidance in the IFRS for SMEs. The following issues were discussed:

Scope of the IFRS for SMEs

The IASB discussed the type of entities that should be permitted to apply the guidance in the IFRS for SMEs, including whether certain entities with public accountability should be permitted to apply the guidance. Currently, paragraph 1.5 of the IFRS for SMEs prohibits publicly accountable entities from stating compliance with the IFRS for SMEs. The IASB tentatively decided not to delete or replace paragraph 1.5.

New and revised IFRS

The IASB continued its previous discussion on how the IFRS for SMEs should be updated for new and revised Standards that have been issued since it was first published. The IASB acknowledged that many jurisdictions have only recently adopted the IFRS for SMEs and thus would benefit from a stable platform at this time. Consequently the IASB tentatively decided not to amend the IFRS for SMEs during this initial review to incorporate IFRS 3 (2008), Business Combinations; IFRS 10, Consolidated Financial Statements; IFRS 11, Joint Arrangements; IFRS 13, Fair Value Measurement; and IAS 19 (2011), Employee Benefits.

Accounting policy options

The IASB considered whether an entity should be able to apply a more complex accounting policy based on requirements currently required or permitted in full IFRS. The IASB made the following tentative decisions:

• Not to include an option for the revaluation model to be used for property, plant and equipment
• Not to include an option (or requirement) for development costs to be capitalized on a similar basis to IAS 38, Intangible Assets
• Not to include an option (or requirement) for borrowing costs to be capitalized on a similar basis to IAS 23, Borrowing Costs

Optional fallback to full IFRS for financial instruments

The IASB tentatively decided to retain the option that allows entities to use the recognition and measurement principles in IAS 39, Financial Instruments: Recognition and Measurement until IFRS 9, Financial Instruments is completed and considered during a future review of the IFRS for SMEs.

Income tax

Section 29, Income Tax of the IFRS for SMEs, is based on the IASB's March 2009 Exposure Draft, Income Tax, which was never finalized. Thus the IASB tentatively decided that the requirements in Section 29 would be aligned with IAS 12, Income Taxes, taking into account appropriate modifications in the light of users' needs and cost-benefit considerations. The IASB also tentatively decided that the amendment to IAS 12 to add a rebuttable presumption that the carrying amount of investment property measured at fair value will be recovered through sale would be incorporated into Section 29.

Other questions in the Request for Information

The IASB tentatively decided to modify paragraph 18.20 of the IFRS for SMEs to specify that if an entity is unable to make a reliable estimate of the useful life of an intangible asset, the useful life would not exceed 10 years. The IASB also tentatively decided not to modify the requirements for share subscription receivables in paragraph 22.7(a).

SME Implementation Group Q&A programme

The IASB made the following tentative decisions regarding the SME Implementation Group (SMEIG) Q&A programme:

• Continue as a two tier system:
• • Tier 1 issues would be those requiring authoritative guidance and full due process, which are expected to be rare
  • Tier 2 issues would be addressed with non-mandatory education material subject to the normal due process for educational material
• Establish procedures to allow constituents to submit issues on the IFRS for SMEs via the IASB website. Only issues meeting the criteria in the SMEIG terms of reference would be addressed by the SMEIG. Other issues would be considered when updating the IFRS Foundation education material on the IFRS for SMEs.
• Incorporate existing Q&As into the IFRS for SMEs or the IFRS Foundation education material as appropriate

The IASB will continue to discuss the issues raised by respondents to the Request for Information at its next meeting.

See the IASB project summary for more information on this project.

Conceptual Framework

The IASB continued its discussions on the Conceptual Framework project, specifically discussing and providing comments on a series of papers that taken together comprise an early draft of the Conceptual Framework Discussion Paper. In addition to the matters discussed below, the IASB members provided the staff with various suggestions for improving the Discussion Paper.

Purpose and status of the Conceptual Framework

The IASB continued its discussions on the purpose and status of the Conceptual Framework and noted that:

• The purpose of the Conceptual Framework is to assist the IASB by identifying principles for the IASB to use consistently in developing and revising IFRS
• The Conceptual Framework may help interested parties to understand and interpret IFRS

Elements of financial statements

The IASB discussed the following revised definitions of an asset and a liability, which differ from the tentative decisions that had been reached in February 2013:

• An asset of an entity is a present economic resource controlled by the entity as a result of past events.
• A liability of an entity is a present obligation of the entity to transfer an economic resource as a result of past events.
• An economic resource is a right, or other source of value, that is capable of producing economic benefits, but only for the party that controls it.

The IASB tentatively decided that the Discussion Paper would propose these revised definitions. The IASB also instructed the staff to consider, in drafting, whether to delete from the definition of an economic resource the phrase "but only for the party that controls it".

In addition, the IASB tentatively decided that the Conceptual Framework would not set a probability threshold to determine whether an asset or liability exists, in the rare cases when this is uncertain. If existence uncertainty is significant in a particular project, the IASB would decide in that project:

• Which threshold, if any, would result in the most relevant information for users; and
• How to provide the most faithful representation of the circumstances, and how to make the information provided more complete, verifiable, timely, and understandable.

Additional guidance to support the asset and liability definitions

The IASB discussed three approaches for identifying present obligations in which the outcome depends on the entity's future actions. The IASB did not make any final decisions on which approach to use.

Recognition and derecognition

The IASB tentatively decided that the recognition criteria would discuss, in addition to situations in which recognition may not provide relevant information, situations in which recognition may not result in a faithful representation. Thus, the Conceptual Framework would indicate that the IASB might decide in a particular standard that an entity should not recognize an asset or liability:

• If recognizing the asset or liability would provide users with information that is not relevant, or not sufficiently relevant to justify the cost; or
• If no measurement of the asset or liability would result in a faithful representation of the asset or liability and of changes in the asset or liability

Measurement

In February 2013, the IASB discussed three proposed principles of measurement.

At the April 2013 meeting, the IASB tentatively decided the following:

• The first principle discussed in February 2013 would be retained as a statement of the objective of measurement (rather than as a principle).
• The second and third principles discussed in February 2013, and the related discussion of those principles, would be retained as background information about how the objectives of financial reporting and the qualitative characteristics of useful financial information would influence measurement requirements.
• The following two factors would be developed into principles for inclusion in the Discussion Paper:
• • The most relevant measurement method for an asset would be consistent with the way by which that asset will contribute to future net cash inflows and the most relevant measurement method for a liability would be consistent with the way by which the entity will settle or otherwise fulfill that liability.
  • The number of different measurements used would be the minimum necessary to provide relevant information. Unnecessary changes in measurement methods would be avoided, and necessary changes should be clearly explained.

Presentation in the statement of comprehensive income ‒ profit or loss and OCI

The IASB discussed whether and how to distinguish items included in profit or loss from items included in other comprehensive income (OCI). The IASB tentatively decided that the Discussion Paper will review two broad approaches to presentation of profit or loss and OCI:

• Approach 1 proposes that the Conceptual Framework would prescribe presentation of profit or loss as a total or subtotal. The items presented in OCI would be limited to remeasurements of recognized assets and liabilities measured on a current measurement basis.
• Approach 2 proposes that there would be a single statement of comprehensive income and that the Conceptual Framework would not prescribe a subtotal for profit or loss (or any other subtotal). Items presented in the statement of comprehensive income would be presented only once, that is, items previously presented in any part of the statement of comprehensive income would not be recycled in a subsequent period.

The Discussion Paper will indicate the IASB's preliminary preference for Approach 1.

The use of the term "business model" in the Conceptual Framework

The IASB discussed whether an entity's business model is relevant to decisions that the IASB will make in setting Standards. The IASB tentatively decided that, when the IASB develops new or revised Standards, financial statements can be made more relevant if the IASB considers how an entity conducts its business activities. In addition, the IASB tentatively decided that the Discussion Paper would not provide a formal definition of "business model".

Next steps

In May 2013, the IASB will review the due process followed in developing the Discussion Paper. The staff will also seek permission to begin the balloting process for the Discussion Paper, with the objective of publishing it in early July 2013.

See the IASB project summary for more information on this project.

Financial instruments: hedge accounting

The IASB continued its discussions related to issues raised on the draft of the forthcoming hedge accounting requirements, including the scope of the draft requirements and their interaction with macro hedging activities. At its meeting in January 2013, the IASB had asked the staff to provide further analysis and comment as to how an election to allow the application of IAS 39, Financial Instruments: Recognition and Measurement, rather than the new hedge accounting model might be designed and the consequences that might have.

Scope and interaction with macro hedging activities

The IASB discussed whether it should provide a scope exception to the new hedge accounting requirements that will become part of IFRS 9, Financial Instruments, to address the interaction of these new requirements with its project on macro hedging activities. The new hedge accounting standard already includes an exception to continue to apply IAS 39 rather than the new hedge accounting guidance to a fair value hedge of the interest rate exposure of a portfolio of financial assets or financial liabilities. The IASB considered whether there was also a need to allow entities to continue to apply IAS 39 to cash flow hedges. The IASB acknowledged that it had not yet completed its project on accounting for macro hedging and that providing a choice to continue to apply IAS 39 would allow entities to wait for the complete guidance related to hedging activities before applying the new hedge accounting model.

The IASB tentatively decided to provide entities with an accounting policy choice of either applying the new hedge accounting requirements in IFRS 9 or continuing to apply the existing requirements in IAS 39. The new hedge accounting related disclosure requirements which are expected to become part of IFRS 7, Financial Instruments: Disclosures, would apply to all entities applying hedge accounting under IFRS, even if electing to continue to apply IAS 39 for hedge accounting.

Due process summary for the hedge accounting project

The IASB discussed whether due process requirements had been met during the course of the hedge accounting project and tentatively agreed that those requirements had been met.

Re-exposure and permission to draft

The IASB tentatively decided that it was not necessary to re-expose the hedge accounting requirements as a result of the changes proposed to the final standard.

Next steps

The staff will proceed to prepare the Ballot Draft of the new version of IFRS 9, incorporating the final version of Chapter 6, Hedge Accounting.

See the IASB project summary for more information on this project.

IAS 37, Provisions, Contingent Liabilities and Contingent Assets ‒ Interpretation on levies

In May 2012, the Interpretations Committee published a draft Interpretation on the accounting for levies imposed by governments, other than income taxes. The final interpretation addresses the accounting for liabilities to pay levies, other than income taxes within the scope of IAS 12, Income Taxes, both in the annual and interim financial statements. An entity is not required to apply the interpretation to liabilities arising from emissions trading schemes.

Note: On May 20, 2013, the IASB issued IFRIC Interpretation 21, Levies.

Post-implementation review of IFRS 8, Operating Segments

The IASB discussed the following topics related to the completion of the evidence-gathering phase of its post-implementation review (PIR) of IFRS 8, Operating Segments.

Sources of input to the PIR and due process

The IASB discussed the three sources of input to the PIR process ― public consultation, outreach, and the review of academic literature ― and also reviewed the due process protocol. The IASB decided that the review work recorded is adequate with respect to the coverage of geographical regions and types of participants to ensure that representative views have been obtained. The IASB also decided that it had met the due process protocol requirements.

Messages received and feedback summary

The IASB decided that the draft feedback statement had identified all of the key messages received from the post-implementation review of IFRS 8, subject to some minor drafting changes. IASB members said that the feedback statement should be clear about what steps the IASB planned to take as a result of the review. The IASB asked the staff to draft a feedback statement and report on the PIR of IFRS 8.

Lessons learned about the PIR process

The IASB concluded that the PIR process of IFRS 8 had been effective and was an appropriate basis for future reviews. The IASB also decided that the development of any proposed amendments to an IFRS that is converged with the equivalent guidance in U.S. GAAP, proposed as a result of a PIR, would include active liaison with the FASB.

Feedback from the April 2013 meeting of the DPOC

The IASB discussed the IFRS Due Process Oversight Committee's (DPOC) feedback about the PIR of IFRS 8 and noted that the DPOC had concluded that the process used for the PIR of IFRS 8 had worked well in practice and represented a good start to the PIR process of the IASB.

Next steps

The IASB expects to issue the Feedback Statement and IASB Report on the PIR of IFRS 8 in June 2013.

See the IASB project summary for more information on this project.

Recoverable amount disclosures for non-financial assets

In January 2013, the IASB issued Exposure Draft ED/2013/1, Recoverable Amount Disclosures for Non-Financial Assets (Proposed Amendments to IAS 36) a proposed narrow scope amendment.

The reason for the proposed amendments to IAS 36, Impairment of Assets, was to correct certain changes to the disclosure requirements due to the issuance of IFRS 13, Fair Value Measurement. The amendments to the disclosure requirements in IAS 36 unintentionally expanded the disclosure requirements related to the recoverable amount of impaired assets. The amendments therefore proposed to:

• Clarify that the requirement to disclose the recoverable amount is intended only for impaired assets and not for each cash-generating unit for which the carrying amount of goodwill is significant
• Require additional disclosure about the fair value less costs of disposal of an individual asset for which the entity has recognized or reversed an impairment loss during the period, to be consistent with the disclosure requirements for impaired assets in U.S. GAAP
• Incorporate an amendment proposed by Exposure Draft ED/2012/1, Annual Improvements to IFRSs 2010–2012 Cycle, to require an entity to disclose the discount rate(s) used in the current and previous measurements (if any), when the recoverable amount of an impaired asset determined on the basis of fair value less costs of disposal was measured using a present value technique

The IASB tentatively decided to proceed with the amendments as proposed.

Note: On May 29, 2013, the IASB issued the narrow scope amendments to IAS 36.

Update on investor outreach

An update was provided on current outreach with investors. No decisions were made.

Work plan

The work plan as of May 30, 2013 reflecting decisions made at this meeting is available on the IASB website. See the IASB work plan for additional information.

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