"Dese are da conditions dat prevail." –
Alas, the 2013 IFRS changes on the preceding page are just the
beginning – there's much more in the pipeline. We
provide a brief overview of the nature and objectives of these
projects below. All of them, save one, are joint ones with the US,
so when we say "the Boards" we mean the IASB and FASB
working together. Well, sort of...
Revenue – establishing a one-size-fits-all model for
recognition and measurement. After ten years of study and debate
(scary that), the (evil?) forces of fair value have been beaten
back, and existing revenue recognition principles are largely being
carried forward in triumph. Nevertheless, the new model will affect
some companies, especially those relying on industry-specific
Leases – putting all leases on the balance sheet as
assets and liabilities (the project is also known as "death to
all operating leases"). Some on both Boards now are
threatening to vote against a compromise proposal designed to make
it more palatable for the masses. Is this project in trouble?
Classifying financial assets – revisiting when you
have to measure financial assets at fair value and whether changes
in fair value go to the income statement or OCI, or both. The IASB
got rid of OCI for financial assets when it bashed out a revised
financial instruments standard in 2008 (still your beating hearts,
it's not mandatory until 2015) but the FASB still wants it and
it looks like the IASB is going to agree, for convergence's
sake, of course.
Impairment – recognizing and measuring loan losses
using the so-called "three bucket approach" under which
the losses get bigger as you move from bucket to bucket. Or maybe
not. After consultation with constituents, the FASB has very
recently decided the model just isn't workable. It's now
going to develop a different solution all on its own, which
it'll then share with the IASB. And what's the IASB going
to do? We don't know, but it's not happy. Convergence in
this area is critical to financial institutions. The Chair of the
IASB has gone so far as to describe the prospect of the
project's collapse as an embarrassment to both Boards.
Hedging – simplifying and expanding hedge accounting
using a business model approach. This isn't really a joint
project – the only link to US GAAP is that the FASB has
agreed to ask constituents what they think of the IASB solution at
the same time it proposes something completely different. The IASB
also has a "macro hedging" project on the go, something
we suspect the US wouldn't touch with a ten foot pole.
Insurance contracts – figuring out a common model for
all insurers, well, not quite, as the Boards have fallen out over
one technical aspect (you don't want to know). Still,
they're way closer than they are on impairment or hedging. So
Investment entities – providing an exception for
these entities that would allow them to measure investments in
subsidiaries at fair value instead of consolidating them. The
Boards don't see eye to eye on some major aspects but getting
the IASB to provide an exception of any kind has been quite the
achievement. Until recently, the IASB viewed any idea that you
might not consolidate a subsidiary as blasphemy.
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