IASB-only meeting March 2013

IASB issues March 2013 IASB-only meeting highlights

Key issues

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

  • Agriculture: bearer biological assets: The IASB concluded that it had met the due process requirements for the proposed amendments to IAS 16, Property, Plant and Equipment and IAS 41, Agriculture and asked the staff to begin the balloting process for the Exposure Draft. The IASB plans to publish the Exposure Draft in Q2-2013 with a comment period of 120 days.

  • Annual Improvements 2010–2012: The IASB discussed two of the eleven proposals from the Exposure Draft, Annual Improvements to IFRSs 2010–2012 Cycle that was published in May 2012. On the basis of the comments received from respondents and the recommendations of the IFRS Interpretations Committee, the IASB reached certain tentative decisions on the following:

  • IAS 24, Related Party Disclosures ‒ Key management personnel services

  • IAS 1, Presentation of Financial Statements ‒ Current/noncurrent classification of liabilities

  • Conceptual Framework: The IASB continued its discussion on an early draft of the Discussion Paper on the Conceptual Framework and reached certain tentative decisions on the following issues:

  • Presentation and disclosure

  • Presentation in the statement of comprehensive income

  • Additional guidance on constructive obligations and economic compulsion, to support the definition of liability

  • Measurement

  • Boundary between liabilities and equity

  • Definitions of income and expense

  • Capital maintenance

  • Fair value measurement: The IASB discussed whether the unit of account for investments in subsidiaries, joint ventures, and associates is the investment as a whole or the individual financial instruments that make up the investment. The IASB tentatively decided that the unit of account would be the investment as a whole.

  • IAS 1, Presentation of Financial Statements ‒ proposed disclosure requirements about assessment of going concern: The Board tentatively decided to further develop the proposals for a narrow-focus amendment to IAS 1 on the disclosures about the assessment of going concern recommended by the IFRS Interpretations Committee.

  • IAS 19, Employee Benefits: The IASB members agreed that they had complied with the due process requirements to date in developing the Exposure Draft, Defined Benefit Plans: Employee Contributions (Proposed amendments to IAS 19 Employee Benefits). On March 25, 2013, the IASB issued the Exposure Draft with a comment period ending July 25, 2013.

  • IFRS for SMEs: comprehensive review 2012–2014: The IASB commenced their discussion of the Request for Information, Comprehensive Review of the IFRS for SMEs, including issues relating to the scope of the IFRS for SMEs as well as a framework for considering new and revised Standards that have been issued since the IFRS for SMEs was published. The IASB reached a tentative decision on the clarification of use of the IFRS for SMEs by not-for-profit entities.

  • Put options written on noncontrolling interests: After receiving a report on the feedback from the comment letters on the draft Interpretation on the accounting for put options written on noncontrolling interests in the parent’s consolidated financial statements and the IFRS Interpretations Committee’s views on the draft Interpretation, the Board tentatively decided to reconsider the requirements in paragraph 23 of IAS 32, Financial Instruments: Presentation, including whether all or particular put options and forward contracts written on an entity’s own equity should be measured on a net basis at fair value.

  • Revenue recognition: The Board tentatively decided to reverse its February 2013 tentative decision and permit early application of the proposed revenue standard.

  • Work plan: The work plan as of March 25, 2013, reflecting decisions made at the March 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 March 19-21, 2013.

Highlights of the meeting are discussed below.

Agriculture: bearer biological assets

The IASB discussed a paper summarizing the steps that it has taken in developing the proposed amendments to IAS 16, Property, Plant and Equipment and IAS 41, Agriculture, the actions taken to comply with the necessary due process steps, and an initial effect analysis of the proposals.

The IASB concluded that it had met the due process requirements and asked the staff to begin the balloting process for the Exposure Draft. The IASB plans to publish the Exposure Draft in Q2-2013 with a comment period of 120 days.

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

Annual Improvements 2010–2012

The IASB discussed two of the eleven proposals from the Exposure Draft, Annual Improvements to IFRSs 2010–2012 Cycle that was published in May 2012.

IAS 24, Related Party Disclosures ‒ Key management personnel services

The Exposure Draft includes the following proposed amendments to IAS 24, Related Party Disclosures to clarify the requirements about key management personnel (KMP) services that are provided by an entity rather than by an individual.

  • The management entity providing KMP services would be identified as a related party of the reporting entity.

  • An exemption would be granted from the detailed disclosure requirements in paragraph 17 of IAS 24 with respect to KMP services provided by a management entity.

  • Payments made to a management entity with respect to KMP services would be separately disclosed by extending the disclosure requirements in paragraph 18 of IAS 24.

The IASB discussed the comments received in response to the Exposure Draft and tentatively decided to:

  • Finalize the proposals subject to some drafting changes

  • Reaffirm the proposed transition provisions and effective date

  • Include a section in the Basis for Conclusions that explains the asymmetry of the related party relationship between the management entity and the reporting entity

In addition, the IASB tentatively decided not to add a requirement to the proposals to disclose information about the nature and extent of KMP services provided. The Board was concerned that this would increase disclosures in the financial statements. IAS 24 does not currently require disclosures of the nature and extent of other types of related party transactions.

The IASB expects to issue the Standard Annual Improvements to IFRSs 2010–2012 Cycle in Q3-2013.

IAS 1, Presentation of Financial Statements ‒ Current/noncurrent classification of liabilities

The Exposure Draft includes a proposal to amend paragraph 73 of IAS 1, Presentation of Financial Statements to clarify that a liability is classified as noncurrent if an entity expects, and has the discretion, to refinance or roll over an obligation for at least twelve months after the reporting period under an existing loan facility with the same lender, on the same or similar terms.

The IFRS Interpretations Committee had recommended to the IASB that it should not confirm the proposed amendment to IAS 1 in its current form because the proposed amendment would tie the classification requirements of financial liabilities in IAS 1 to the derecognition requirements of financial liabilities in IAS 39, Financial Instruments: Recognition and Measurement and IFRS 9, Financial Instruments, which it thought was not appropriate.

The IASB agreed not to proceed with the proposed amendments as part of the Annual Improvements to IFRSs 2010–2012 Cycle and tentatively decided to ask the IFRS Interpretations Committee to reconsider what clarifications could be made to IAS 1 to address this issue.

The staff will present a paper to the IFRS Interpretations Committee at a future meeting.

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

Conceptual Framework

The IASB continued its discussion on an early draft of the Discussion Paper on the Conceptual Framework and reached tentative decisions on the following issues.

Presentation and disclosure

The existing Conceptual Framework does not include any guidance on presentation and disclosure. Accordingly, the IASB tentatively agreed to propose the following in the Discussion Paper:

  • Financial statements comprise the primary financial statements and the notes to the financial statements.

  • The primary financial statements convey summarized information that communicates a financial picture of the entity and are supported by notes to the financial statements.

  • No primary financial statement has primacy over the other primary statements.

  • Presenting the primary statements in such a way that users can understand the linkage between the items in the individual statements makes the information more useful.

  • Classification and aggregation into line items and sub-totals would be based on similar properties.

  • Offsetting may be required where such a presentation provides a more faithful representation of a particular position, transaction, or other event.

  • The purpose of the notes to the financial statements is to supplement and complement the primary financial statements and to provide any additional information to meet the objective of the financial statements.

  • If an entity discloses information about the resources and obligations it may have in the future, it would disclose that information outside of the financial statements, for example in management commentary.

Presentation in the statement of comprehensive income

Currently, there is no principle in IFRS that determines the presentation of income and expense in the statements(s) of profit or loss and other comprehensive income (OCI).

Financial performance

The IASB tentatively agreed that rather than having the Discussion Paper propose to equate financial performance with either “comprehensive income” or “profit or loss” or any other total or sub-total, the Discussion Paper instead will propose that all recognized items of income and expense provide information about an entity’s financial performance.

Principles for presentation in profit or loss or OCI

The IASB tentatively agreed that the Discussion Paper would propose a set of principles for determining whether a recognized item of income or expense should be presented in profit or loss or in OCI. Those principles are:

  • Items presented in profit or loss communicate the primary picture of financial performance

  • Items of income and expense are recognized in profit or loss unless presenting them in OCI provides a better depiction of financial performance

  • Items previously presented in OCI should be reclassified to profit or loss if that provides relevant information about financial performance in that period

Based upon the proposed principles, the Discussion Paper will identify two groups of income and expense that would be eligible for presentation in OCI:

  • Bridging items: these items arise when the IASB has determined that a recognized asset or liability should have two different measurement bases (one, not based on cost, for use in the statement of financial position, and one for use in profit or loss).

  • Mismatched remeasurements: these remeasurements arise when an item of income or expense represents an economic phenomenon so incompletely that presenting that item of income or expense in profit or loss would provide information that has little or no relevance for assessing the entity’s financial performance in that period.

The IASB also discussed an approach to communicating financial performance that makes no distinction between profit or loss and OCI.

This is based on the view that identifying a single number within comprehensive income as the primary indicator of financial performance oversimplifies the performance of an entity. The IASB tentatively decided that the Discussion Paper would also describe this approach, although a majority of IASB members do not favor it.

Additional guidance on constructive obligations and economic compulsion, to support the definition of liability

The IASB continued its discussion on the meaning of the term “obligation”. In particular, the IASB discussed the role of economic compulsion in identifying obligations, and the difference between economic compulsion and a constructive obligation.

Distinguishing constructive obligations from economic compulsion

A constructive obligation results in a liability. Economic compulsion does not result in a liability. The IASB tentatively agreed to propose in the Discussion Paper adding guidance to the Conceptual Framework to help distinguish constructive obligations from economic compulsion. For an entity to have a constructive obligation:

  • The entity must have a duty or responsibility to another party. It is not sufficient that an entity will be economically compelled to act in its own best interests or in the best interests of its shareholders.

  • The other party must be one who would benefit from the entity fulfilling its duty or responsibility, or suffer loss or harm if the entity fails to fulfill its duty or responsibility.

  • As a result of the entity’s past actions, the other party can reasonably rely on the entity to discharge its duty or responsibility.

Evaluating the effect of economic compulsion on contractual options

The IASB tentatively decided that the Discussion Paper should propose including in the Conceptual Framework the following general principles:

  • An entity should report the substance of a contract.

  • A group or series of contracts that achieves, or is designed to achieve, an overall commercial effect should be viewed as a whole.

  • All terms – whether explicit or implicit – should be taken into consideration.

  • Terms that have no commercial substance should be disregarded:

  • One situation in which a right (including an option) has no commercial substance is the situation in which it is clear from the inception of the contract that the holder will not have the practical ability to exercise the right.

  • If, after disregarding options with no commercial substance, an option holder has only one remaining option, that option is in substance a requirement.

The Discussion Paper will also discuss whether economic compulsion should be considered in determining whether a claim against an entity is a liability or part of equity.

Measurement

The IASB discussed measurements other than cost or fair value. The Board tentatively agreed that the Discussion Paper would include a discussion of the factors that should be considered in constructing a cash-flow-based measure and suggested certain questions that would need to be addressed in constructing this measure.

Boundary between liabilities and equity

At a previous meeting, the IASB discussed a new approach for distinguishing liabilities from equity. At the March 2013 meeting, the IASB discussed examples that illustrate how that approach would apply to written put options on an entity's own shares.

Definition of income and expense

Since there have been few problems with the existing definitions of income and expense, the IASB agreed that the Discussion Paper would not include a proposal to amend those definitions. The IASB also tentatively decided that the Discussion Paper would not propose defining separate elements for:

  • Gains, revenue, losses, and expenses

  • Income (expenses) that should be reported in profit or loss and income (expenses) that should be reported in OCI

Capital maintenance

The Discussion Paper will propose not to change the existing descriptions and discussion on capital maintenance until such time that any standards-level project on accounting for high inflation indicates a need for change.

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

Fair value measurement

Based on requests received, the IASB discussed whether the unit of account for investments in subsidiaries, joint ventures, and associates is the investment as a whole or the individual financial instruments that make up the investment. The IASB also discussed the interaction between the unit of account of those investments and their fair value measurement.

The IASB tentatively decided that the unit of account for investments in subsidiaries, joint ventures, and associates is the investment as a whole. The IASB also tentatively decided that the fair value measurement of an investment of quoted financial instruments would be the product of the quoted price of the financial instrument multiplied by the quantity of instruments held. The IASB noted that quoted prices in an active market provide the most reliable evidence of fair value.

The IASB also tentatively decided that the fair value measurement of cash-generating units (CGUs) for impairment testing when those CGUs correspond to a quoted entity would be the product of their quoted price multiplied by the quantity of instruments held.

The IASB staff will present to the IASB a summary of the due process steps undertaken, before preparing an Exposure Draft of proposed amendments to IFRS 13, Fair Value Measurement.

IAS 1, Presentation of Financial Statements ‒ proposed disclosure requirements about assessment of going concern

In 2012, the IFRS Interpretations Committee (Committee) was asked to clarify the guidance on disclosing material uncertainties related to an entity’s ability to continue as a going concern under IAS 1, Presentation of Financial Statements. That guidance requires an entity to disclose material uncertainties about its ability to continue as a going concern when management becomes aware of those uncertainties.

In January 2013, the Committee recommended a narrow-focus amendment to IAS 1 for deliberation by the IASB that would:

  • Retain, substantially unchanged, the guidance relating to going concern as a basis for preparing financial statements

  • Provide guidance on identifying material uncertainties and requirements on what to disclose

In March 2013, the Board discussed the proposals recommended by the Committee and considered whether this area should be addressed by IFRS, auditors, or regulators. The Board also discussed the volume of the disclosures and the timing for those disclosures.

The Board tentatively decided to develop the proposals recommended by the Committee further. To this end, the Board asked the staff to prepare a revised draft of the proposals for discussion at a future meeting.

The Board did not discuss a paper on the time frame for an assessment of going concern that it had previously planned to discuss.

IAS 19, Employee Benefits

The IASB considered the steps in due process that it has taken to date in developing the Exposure Draft, Defined Benefit Plans: Employee Contributions (Proposed amendments to IAS 19 Employee Benefits). The Board agreed that they had complied with the due process requirements to date and plan to issue the Exposure Draft at the end of March 2013.

Note: On March 25, 2013, the IASB issued the Exposure Draft with a comment period ending July 25, 2013.

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

IFRS for SMEs: comprehensive review 2012–2014

The IASB commenced their discussion of the Request for Information, Comprehensive Review of the IFRS for SMEs, including the issues relating to the scope of the IFRS for SMEs as well as a framework for considering new and revised Standards that have been issued since the IFRS for SMEs was published.

Scope of the IFRS for SMEs

Use of the IFRS for SMEs by publicly accountable entities

Paragraph 1.5 of the IFRS for SMEs prohibits publicly accountable entities from stating compliance with the IFRS for SMEs. The IASB considered whether this paragraph is too restrictive. The Board also considered whether the decision on which entities should be able to use and state compliance with the IFRS for SMEs should be left to individual jurisdictions.

The Board discussed whether paragraph 1.5 could be replaced by a requirement for publicly accountable entities to disclose that they are not within the intended scope of the IFRS for SMEs if laws in their jurisdiction permit use of the IFRS for SMEs. The IASB concluded that it needed additional clarity about how such a disclosure requirement would be expressed before it was able to make a decision. No decisions were made.

Clarification of use of the IFRS for SMEs by not-for-profit entities

The IASB tentatively decided that soliciting and accepting contributions does not automatically make a not-for-profit entity publicly accountable. The Board noted that paragraph 1.4 of the IFRS for SMEs provides sufficient guidance on this issue and, accordingly, it decided that the IFRS for SMEs does not require any changes.

New and revised IFRS

The IASB developed the following principles for dealing with new and revised Standards during this comprehensive review and future reviews:

  • New and revised Standards should be considered individually on a case-by-case basis.

  • New and revised Standards should be considered after publication rather than waiting until after the Post-implementation Review has been completed.

  • Changes to the IFRS for SMEs could be considered at the time that the new and revised Standards are published. However the IFRS for SMEs would only be updated for those changes at the next three-yearly review, in order to provide a stable platform for SMEs.

The IASB did not make any decisions about amending the IFRS for SMEs as a result of new or revised Standards.

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

Put options written on noncontrolling interests

In May 2012, the IFRS Interpretations Committee (Committee) published a draft Interpretation on the accounting for put options written on noncontrolling interests in the parent’s consolidated financial statements (NCI put).

In January 2013, the Committee reviewed the staff’s summary and analysis of the comments received on the draft Interpretation and reaffirmed that the financial liability recognized for an NCI put would be remeasured under IAS 39, Financial Instruments: Recognition and Measurement, and IFRS 9, Financial Instruments, with changes in measurement recognized in profit or loss. However, the Committee believes that if NCI puts were measured on a net basis at fair value, consistently with derivatives that are within the scope of IAS 39 and IFRS 9, better information would be provided. The Committee also noted that many respondents commented that the Committee or IASB should more comprehensively address the accounting for NCI puts—or all derivatives written on an entity’s own equity.

Consequently, the Committee decided to ask the IASB to reconsider the requirements for put options and forward contracts written on an entity’s own equity in paragraph 23 of IAS 32, Financial Instruments: Presentation, before finalizing the draft Interpretation. The Committee noted that the IASB should consider whether NCI puts and NCI forwards should be accounted for differently from other derivatives written on an entity’s own equity. The staff was directed to report both the Committee’s views and the feedback from the comment letters to the IASB and to ask the Board how to proceed.

In March 2013, the IASB tentatively decided to reconsider the requirements in paragraph 23 of IAS 32, including whether all or particular put options and forward contracts written on an entity’s own equity should be measured on a net basis at fair value. Further discussion is expected at a future meeting.

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

Revenue recognition

The Board reconsidered its previous tentative decision to prohibit early application of the proposed revenue standard, Revenue from Contracts with Customers. After considering some concerns raised about that decision, the Board tentatively decided to reverse its February 2013 decision and permit early application of the proposed revenue standard.

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

Work plan

The work plan as of March 25, 2013 reflecting decisions made at this meeting is available on the IASB website. See the IASB work plan for additional information.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.