Service Concession Arrangements

The discussion of Service Concession Arrangements was educational in nature, and no decisions were made. Staff explained to the Board the issues dealt with by IFRIC in developing draft interpretations on such arrangements. The following were the key issues that emerged from this session:

• There was some consensus amongst the Board that the word 'concession' should be defined.
• Guidance on the distinguishing factors between the notions of right of use and right of access should be explored further.

Income Taxes - Backwards Tracing

As part of the short-term convergence project, the IASB and FASB have been considering differences between IAS 12 Income Taxes and FASB Statement 109 Accounting for Income Taxes, and developing tentative conclusions with the goal of achieving convergence on these two standards. One of the issues that is being considered as part of this project is the issue of 'backwards tracing'

Backwards tracing is a slang term that refers to the process of remeasuring, in the current year, the after-tax amounts of gains and losses that occurred and were reported in prior years. For instance, an available-for-sale security had an unrealised appreciation of $100 and was reported in other comprehensive income (a separate component of shareholders' equity) net of tax (assuming a 40% rate) as a $60 increase in year 1. Assuming no changes in market value of the security and a tax rate change to 45%, backwards tracing would result in the $5 incremental tax effect to be allocated to comprehensive income in year 2. With no net of tax reporting, the issue of backwards tracing does not arise.

Recognising that the IASB and the FASB will be required to agree on the way forward at the October meeting, the staff were asked to prepare two papers for that meeting:

1. A joint paper, amongst other issues, seeking agreement between the two Boards on the fact that this issue should be converged.

2. An IASB paper assuming the FAS 109 position (of using income from continuing operations as a control number) and thereby setting out how the other items would be dealt with it terms of backwards tracing.

No decisions were taken during this discussion.

Conceptual Framework

At the April joint IASB/FASB meeting, the Boards discussed a staff proposal to undertake a joint project to develop a common (converged) conceptual framework that both Boards agree on and that improves on their two existing frameworks.

The purpose of today's session was to familiarise the Board with the issues that would be presented at the joint IASB-FASB meeting in October, for which a joint staff team will present a paper with joint staff recommendations.

The following are some of the issues that arose during this preliminary discussion:

• It was evident from discussion that both the IASB and FASB conceptual frameworks required improvement and not just convergence.
• During convergence, and consistent with the objective of improving the conceptual framework, due consideration would be given to any other existing conceptual frameworks, not just the IASB and FASB frameworks.
• The Boards' constituents will have the opportunity to comment on the improved and converged framework, as with to any other IASB pronouncement.

The point was made that such a project was in fact a major one that could not be classified as short-term; hence there was a need for the Board to segment and prioritise this project. There was however, no agreement on how to prioritise, with the Board agreeing to debate this again in October. The issues of concern in this regard were as follows:

• Segmenting the project would present challenges as generally the concepts within the framework are interrelated. For example, improvements and convergence on measurement issues could not be undertaken in isolation, as they required agreement first, on issues of 'what' to measure (definitions of elements etc) and 'when' (recognition criteria) to measure them.
• Process differences at the IASB and FASB, both in developing the pronouncement as well as on public consultation and other due process steps.
• Issues still to be dealt with on the Board's agenda which would have an influence on the conceptual framework. For example, the notion of an economic versus a reporting entity would only be dealt with when the Board addresses consolidations.
• The development of a conceptual framework, by its nature, is an on-going exercise.

The Board considered a similar project currently underway in Canada that may result work that is useful in the IASB-FASB project.

No decisions were made during this session.

Business Combinations Phase I

In April 2004, the IASB published an Exposure Draft of Proposed Amendments to IFRS 3 Business Combinations – Combinations by Contract Alone or Involving Mutual Entities. The comment period closed 31 July 2004. 75 comment letters were received.

Staff presented a summary of the comment letters. The majority of respondents said that they disagreed with the Board. The various reasons for this where discussed at length. The Board agreed to proceed as follows:

• Not to finalise the ED of proposed amendments, but rather deal with the issues in Phase II of the business combinations project.
• Clarify that IAS 22 does not apply to business combinations that may be achieved by contract alone or involving mutual entities because that standard has been superseded and, therefore, is not within the IAS 8 hierarchy. This point was made to highlight that pooling of interests is no longer an option. Instead, preparers would have to analogise to principles within pronouncements currently in issue, and this may include IFRS 3, despite the scope exclusion. The Board noted that this may give rise to different accounting treatment depending on which pronouncements were referred to. For instance, some may look to the conceptual framework and not IFRS 3, due to the scope exclusion.
• The descriptor 'combinations by contract alone without the obtaining of an ownership interest' would be clarified to state 'combinations by contract alone that do not involve any of the combining entities obtaining an ownership interest in the other combining entity (entities)' so as to eliminate any structuring opportunities.
• Clarify that if an entity is a parent in terms of IFRS 3 under such arrangements, then it should apply IAS 27 effective 31 March 2004 consistently with the effective date of IFRS 3.
• Clarify that in terms of IFRS 1, if a parent-subsidiary relationship existed on the date of transition where a 'stapling' transaction had been entered into, then the parent would, on first-time adoption, be required to consolidate the subsidiary.

The Board viewed the above as clarifications of the current requirements, not amendments, and therefore exposure of the above would not be necessary. Furthermore, the Board agreed to communicate these clarifications directly with the respondents who commented on the exposure draft as well as through its publications, including IASB Update, Insight, and posting on the website.

The following are some of the reasons discussed by the Board before agreeing to proceed on the above basis:

• The Board's intention is to eliminate the pooling of interests method of accounting for business combinations that may be achieved by contract alone or involving mutual entities whilst Phase II of the business combinations project is being completed.
• Removing the scope exclusion in IAS 22 would require re-exposure and would be contradictory to the Board's earlier decision to address these issues during the Phase II project.
• Any amendments to current literature would affect the 'stable platform'.

IFRIC Update

The Chairman of IFRIC gave an update of IFRIC activities.

Wednesday 21 September 2004

Insurance Contracts Phase II

The Board participated in an educational session on Insurance. No decisions were taken during this session. During this session, Staff explained to the Board, the key aspects of two accounting models - the asset-and-liability approach and the deferral-and-matching approach. The Board noted that under the asset-and-liability approach items are not recognised in the balance sheet unless they meet the definitions of asset or liability, whereas the deferral-and-matching approach analyses the profit and loss effects first and tries to pick up the appropriate assets and liabilities from there, without explicitly considering whether they meet the recognition criteria. The following were the key issues that emerged from this session:

• there was some consensus amongst the Board that the assumptions used in accounting for insurance contracts at inception should not be 'locked in' for accounting purposes throughout the contract; and
• significant discussion is required with industry groups as to what should appropriately be called 'revenue' in relation to an insurance context. Some concern was expressed by Board members that some transactions that are in effect, deposit taking, are being incorporated in disclosed revenue.

The Board discussed briefly how they should interact with the insurance working group. The working group and the Board will consider issues using an iterative process - that is the Board or the working group may be the first to consider a particular issue, with the deliberations of that group being communicated to the other. The Board will have ultimate responsibility for the making of a standard. The working group next meets in late November or early December.

Business Combinations Phase II - Application of the Purchase Method

Mutual Entities

An important objective of the IASB-FASB joint project is to achieve convergence on the accounting for business combinations. A remaining area of divergence is the accounting for combinations between two or more mutual entities. The FASB decided to include business combinations involving two or more mutual entities within the scope of its Business Combinations Exposure Draft arising from the Application of the Purchase Method project.

In June 2004, the Board considered whether the IASB's Exposure Draft arising from this project should propose that business combinations involving two or more mutual entities or by contract alone without the obtaining of an ownership interest should be accounted for in accordance with the Board's tentative decisions in this project, rather than in accordance with the interim approach set out in the Exposure Draft of Proposed Amendments to IFRS 3 Combinations by Contract Alone or Involving Mutual Entities (Mutual Entities Exposure Draft).

The Board tentatively decided that the Exposure Draft should propose that such business combinations be accounted for in accordance with the proposals in the Application of the Purchase Method project. However, the Board agreed that before proceeding with this tentative decision, it should consider the issues that the FASB considered in respect of mutual entities to the extent that those issues have not already been dealt with by the IASB.

With this objective in mind, FASB staff gave an overview of the issues that had been considered by the FASB and noting that although differences do exist in the manner that business combinations affect mutual entities when compared to other entities, such differences did not warrant different accounting. Furthermore, the particular difficulty of identifying an acquirer would not be unique to such entities only.

FASB staff also indicated that it did not appear that the FASB had intentions to explore 'fresh start accounting' for 'true mergers' which were agreed to be rare / seldom occurred, as this would create another form of accounting (in addition to purchase method accounting). A Board member suggested that the IASB should still explore fresh start accounting as this was an area that had not been explored before and therefore could not be ruled out as not providing appropriate accounting in such cases.

After some deliberation, the Board re-affirmed some of its previous decisions and made consequential decisions as follows:

• re-affirmed the Phase I 'in-principle' decision to require the purchase method of accounting for combinations of two or more mutual entities.
• that difficulties in identifying the acquirer are not a sufficient reason to justify a different accounting treatment and that no further guidance is necessary for identifying the acquirer for combinations of two or more mutual entities.
• reject the phase I Mutual Entities Exposure Draft's proposed 'modified' purchase method of accounting and propose in the forthcoming Exposure Draft that the accounting for goodwill should be the same for combinations of mutual entities as for combinations of other entities.
• require the acquiring mutual entity to measure and recognise the business combination as the fair value of the acquired mutual entity.
• add additional guidance for measuring the fair value of an acquired mutual entity.
• require that in an acquisition in which the acquirer exchanges member interests for the member interests of the acquired mutual entity, the fair value of the acquired mutual entity be recognised as a direct addition to a properly labelled capital or equity account, which would be consistent with the accounting for combinations in which any other entity issues equity instruments in exchange for equity instruments of the acquired entity.
• provide detailed guidance for the valuation of acquired loans, deposits, or intangible assets in the forthcoming Exposure Draft.
• Not modify the tentative decisions in this project for possible regulatory impacts but consider using the invitation to comment to ask constituents to identify any regulatory concerns that might exist in their jurisdictions.
• Include an additional disclosure requirement for mutual entities to disclose the accounting for the member interests transferred.

Implications of introducing fair value hierarchy into IFRSs

The FASB and IASB have in the past, tentatively decided in this project to use fair value as the measurement objective for the business acquired in a business combination. The Boards also tentatively decided to adopt additional guidance for measuring fair value in the form of a hierarchy (the fair value hierarchy) to ensure consistent application of the fair value measurement requirement.

However, the FASB subsequently amended the fair value hierarchy to reflect decisions made by the FASB as part of its Fair Value Measurements project. Therefore, the FASB plans to include in its forthcoming Business Combinations Exposure Draft the fair value hierarchy agreed in its Fair Value Measurements project. The IASB has not considered all of the issues that the FASB has considered as part of its Fair Value Measurements project and that resulted in the FASB amendments.

The Board deliberated on how best to proceed considering the overall objective of this project was convergence, the desire not to delay the Phase II project, but also considering that the IASB had not deliberated on the specific issues that led to the FASB making amendments to the hierarchy. Some of the options discussed:

• append the FASB document with a 'wrap-around' from the IASB stating that these issues are still to be debated by the IASB with a view to producing a single pronouncement in the future with all necessary fair value guidance that would be applicable under IFRS.
• to debate the issues in the FASB document as part of Phase II, on the understanding that a 'high hurdle' (a 'dissentable' issue) would be used during these deliberations in making wording suggestions.

The latter option was selected and the Board proceeded to list the issues that it would like to include in the Phase II fair value document that would be applicable to fair value measurement in the context of business combinations only. These issues will be discussed at the next meeting:

• definition of an active market;
• guidance on market inputs;
• guidance on valuation techniques

Amendments to IAS 39: Fair Value Option

At this meeting, the Board considered an analysis of the 115 comment letters received on the Exposure Draft and began to debate possible ways in which the Board might proceed in the light of these comments.

Summary analysis of letters:

• 115 letters were received, with 65% from Europe, and 51% from preparers.
• Only 15% of respondents agreed with restricting the fair value option. The majority of respondents (76%) did not agree with restricting the fair value option. 9% did not express a clear view, in the main because they chose to address only one or two specific proposals without expressing a general view.
• Of the respondents that did not agree with restricting the fair value option, most did not want any change to the existing IAS 39 (60% of all comment letters). The rest would retain the fair value option with some changes, most frequently with requiring additional disclosures of when and why the fair value option was used. 19 respondents (17%) explicitly stated that they concurred with part or all of the Alternative Views.
• Of those that agreed in general terms that the fair value option should be restricted, none agreed with substantially all the proposals in the Exposure Draft. Some would make the criteria stricter, so that fewer instruments would qualify for the fair value option (including 8 that would restrict the permission to use the option for instruments containing embedded derivatives - criterion (a) - to only those instruments that IAS 39 requires to be separated). Others would amend the criteria proposed, especially because they disagreed with the introduction of the 'verifiability' criterion (criterion (b)).

The Board noted the level of disagreement with the Exposure Draft as well as the fact that where suggestions had been made as alternatives, it appeared that those suggestions would not be workable.

Some Board members reiterated the initial intentions and rationale that led to the introduction of the fair value option; primarily to provide an alternative to hedge accounting, as well as promote the use of fair value in financial reporting. The Board noted that South Africa had been using the unrestricted fair value option since 2002 with no adverse effects and that Australia was in the process of implementing it.

The position of the FASB on this issue was discussed and noted to be as follows:

• The FASB were intending to introduce the fair value option into its literature without any limitations but stopped work on that project once the IASB had issued the Exposure Draft proposing the limitation.
• The FASB position was generally understood to be in favour of IAS 39 with the unrestricted fair value option.

In addition, FASB staff indicated that they were concerned about the operability of the limitation on the fair value option.

The Board also noted that this issue was not on the joint meeting agenda, and proposed that joint discussion with the FASB would be useful.

The Board decided to proceed as follows on this issue:

• Seek views on alternative solutions. This process would include seeking input from Regulators and Banks.
• Seek input from the Financial Instruments Task Force

Thurday 23 September 2004

Accounting Standards for Small and Medium-sized Entities

The Board noted that tomorrow is the deadline for comments on the IASB's Discussion Paper Preliminary Views on Accounting Standards for Small and Medium-sized Entities and that no decisions would be taken at this meeting. The staff noted that as a result of this project certain potential improvements to full IFRSs have been identified. The Board decided that such items should be catalogued and dealt with at some time in the near future.

The Board spent much of the time discussing who the target market is for the SME standards – with considerable differences of opinions. Some believe that SME standards should be for companies that have local GAAP reporting requirements but that cannot follow full IFRSs due to the sophistication of the standards. Others believe SME standards should apply to any company that does not have public accountability, which would include large unlisted companies as well as those more traditionally thought of as SMEs. This debate is fundamental to the project and will have to be discussed at a future meeting after reviewing comment letters on the discussion paper.

The Board discussed two broad approaches to the format and content of IASB Standards for SMEs:

• IASB Standards for SMEs should primarily be a reorganisation of all of the principles in the IFRSs to make the standards more useful to SMEs. An SME that wishes to asset that its financial statements conform to IASB Standards for SMEs would be required to follow all, or virtually all, of the recognition and measurement principles in all IFRSs. However, because some of those principles are not likely to be relevant for many SMEs, the IASB Standards for SMEs might put the less relevant material in one or more appendixes or might omit the material entirely, with a requirement to look to the IFRS if an issue confronting an SME is addressed there. The SME standards would contain appropriate references back to the IFRSs.
• IASB Standards for SMEs should be a self-contained and reduced version of IFRSs that includes those recognition and measurement principles of relevance to the majority of SMEs. In some cases, the principles in the IASB Standards for SMEs might differ from those in IFRSs. There would not be references back to full IFRSs, or mandatory or optional 'fallbacks'.

Both approaches would start with extracting the principles from IFRSs. They would differ in the extent to which all of the recognition and measurement requirements of IFRSs would apply to SMEs. They would also differ in degree of detail.

To date the staff has prepared and presented to the Board 13 preliminary SME versions of IFRSs. Development of those standards has followed the first approach above more closely than the second.

At this meeting, the staff presented to the Board an approach by which the IASB Standards for SMEs would include only broad principles (based on black letter principles in IFRSs) plus any critical guidance, with a general reference back to the full IFRSs. The IASC Foundaiton's Education Department would publish, concurrently with the relatively brief IASB Standards for SMEs, guidance that is expressly tailored for SMEs, including the relevant material from the IFRS that has been omitted in the SME version of the standard. Staff presented two examples of this approach to the Board based on IAS 29 and IAS 41.

The Board concluded that any decision about these approaches in is premature and should await analysis of the comments on the Discussion Paper. Staff agreed to prepare a preliminary analysis for consideration at the Board's October 2004 meeting. The Chairman said he would appoint a subcommittee of the Board to review the comment letters and make a recommendation about the approach.

Share-based Payment

The Board was given an update on the US FASB re-deliberations of the FASB Exposure Draft on share-based payment. The staff noted several differences that may exist if the FASB proceed on their current path – notably the treatment of deferred taxes, scope, debt-equity distinction, and the option proposed by the FASB to recognise expense relating to options with graded vesting conditions on a straight-line basis.

The Board believed the biggest difference related to deferred tax and discussed their concern over the FASB's approach. Specifically, IFRS 2 measures deferred tax based on the current intrinsic value. The FASB's proposal is to measure the deferred tax on the compensation expense recognised, thereby reducing the amount shown as compensation expense as it would be presented net of tax. The IASB does not agree with this approach, but will consider this issue during the convergence project once the FASB completes all of its phases of its share-based payment project (which could be several years).

Convergence: Employee Benefits

The Board began its deliberations of the exposure draft to add an option to IAS 19 to allow actuarial gains and losses to be recognised directly in equity and presented in a statement of recognised income and expense (SORIE). The Board decided to confirm its intention to undertake a comprehensive review of accounting for post-employment benefits in the future. The Board also decided (11-3) to continue towards finalising the proposals in the exposure draft as immediate recognition in equity would be more transparent than deferred recognition.

The Board also decided to:

• Amend IAS 19 so that entities that adopt the option must treat the effect of the asset ceiling in the same way as the other options;
• Prohibit recognition of actuarial gains or losses recognised in the SORIE in profit or loss in a later period (that is, no 'recycling'); and
• Require presentation of the actuarial gains and losses in the balance sheet as a component of retained earnings.

The Board also discussed the issue of allocating benefit obligations among members of a group plan. No decisions were taken. The staff will present to the Board examples of allocations that can be made reasonably and those the staff believe can not be made reasonably. Two Board members expressed intent to dissent to the final standard.

Convergence: Income Taxes

The staff updated the IASB on decisions made to date by both the IASB and FASB. The IASB decided to add into the convergence project the topic of when tax benefits should be recognised (a similar issue to the proposed FASB Interpretation of FAS 109). No further decisions were made.

Friday 24 September 2004

Proposed Amendments to IAS 37

Title of IAS 37

The Board decided to retain the existing title.

Definition of a provision

IAS 37 defines a provision as "a liability of uncertain timing or amount". Paragraph 11 of the current standard then attempts to explain that it is this uncertainty that distinguishes provisions from other liabilities, for example trade payables and accruals.

The Board decided that the wording should be changed and that staff would look into this. Some wording suggested during discussion was along the lines of defining a provision as "a liability for which the outflow of economic resources is of an uncertain timing or amount".

Probability recognition criterion

At the March Board meeting, the Board decided that the present application in IAS 37 of the probability recognition criterion to product warranties and guarantees is flawed, because the criterion is applied to the conditional obligation (contingent liability to repair the product/make a payment under the guarantee) rather than the unconditional obligation (present obligation) to provide a service for the duration of a contract that accompanies the conditional obligation. The Board noted that it would be inconsistent for an entity to consider recognition of a liability (unconditional obligation) by assessing whether the contingent liability (conditional obligation) would result in an outflow of resources. For consistency, the Board decided that the probability recognition criterion should be applied to the liability (unconditional obligation).

The staff recommended omitting the probability recognition criterion (paragraph 14(b)) from the amended IAS 37.

The Board agreed with the staff proposal and indicated that wording should be tightened in other areas to ensure that there is no misunderstanding of the intentions of the deletion. The main concern in this regard was the non-existence of a 'bright line' in certain scenarios, for example:

An unfavourable court judgement could give rise to an unconditional liability. Prior to that judgement, a conditional (contingent) liability exists. However, if the same issue were to be resolved by the passing of a law that has the same unfavourable effects, current interpretation of IAS 37 would result in an unconditional liability being recognised on passing of the law, with no disclosure of a conditional liability prior to that (in certain cases). The Board's general view was that in the scenario of the court judgement, that was enforcement of an already existing legal framework that constituted the past event whereas, in the scenario of new legislation, no prior law existed, hence the difference.

In the recently published ED of Amendments to IAS 39 Financial Instruments: Recognition and Measurement and IFRS 4 Insurance Contracts Financial Guarantee contracts and Credit Insurance (the Guarantee ED), the Board proposed that financial guarantee contracts should be recognised initially at fair value and subsequently measured "at the higher of:

• 1. the amount determined in accordance with IAS 37; and
• 2. the amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with IAS 18 Revenue."

The Board developed the Guarantee ED because of its concerns about the application of the probability recognition criterion in IAS 37 to guarantees-specifically, because Example 9 of IAS 37 explains that no liability is recognised for a single guarantee if it is not probable that a payment will be required under the guarantee. The Guarantee ED therefore clarifies that all entities that issue financial guarantee contracts should recognise a liability at inception (at fair value) regardless of the probability of payments being required under the guarantee.

The Board agreed the in amending IAS 37 in as far as the 'probability recognition criterion' is concerned (see above), the issue as regards guarantees would be resolved.

IFRS or IAS

The Board discussed whether the amendments to IAS 37 warrant the revised pronouncement being issued as an IFRS due to the extent of amendments. The Board agreed to list all the issues that required revision and then to determine whether given the current agenda, it would be worthwhile dealing with all those issues and as a result, issue an IFRS and not a revised IAS.

Amendments to IAS 19

Basis for amending recognition of voluntary termination benefits

Under the present requirements of IAS 19, termination benefits payable as a result of an employee's decision to accept voluntary redundancy (voluntary termination benefits) are recognised when the entity is 'demonstrably committed' to provide those termination benefits.

In December 2002, the Board decided to change this requirement to converge with the recognition requirements for 'special termination' benefits in SFAS 88 Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits. Special termination benefits are described in SFAS 88 as "benefits to employees in connection with their termination of employment [that are] offered only for a short period of time". Special termination benefits are recognised when the employee accepts the offer and the amount can be reasonably estimated.

The staff has concluded that an entity does not have a present obligation to provide voluntary termination benefits until the individual accepts the offer because before this time there is no mutual understanding of the arrangement. The staff also notes that the entity may have the discretion to avoid paying termination benefits up until the point that the employee accepts the offer (because the entity might be able to withdraw the offer or refuse the employee's acceptance of the offer).

The Board agreed with the staff and decided not to go into the detail of what 'short-term' means.

Early retirement versus voluntary redundancy

The Board discussed this issue and concluded that IASB staff should consult FASB pension experts with a view to presenting any new information in October.

Redeliberation of ED 6 Exploration for and Evaluation of Mineral Resources

Board members noted at a previous meeting that IAS 36 paragraph 22 requires impairment to be assessed at the individual asset level "unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets". In addition, IAS 36 paragraph 70 requires that "if an active market exists for the output produced by an asset or group of assets, that asset or group of assets shall be identified as a cash-generating unit". In some cases in which exploration and evaluation assets are recognised, for example in the petroleum sector, each well is capable of producing future cash inflows that are observable and capable of reliable measurement because there is an active market for crude oil. The Board was concerned that respondents might not have appreciated this application requirement fully (because of a lack of familiarity with IAS 36). The Board directed the staff to investigate this further.

The staff highlighted this concern in the July 2004 issue of IASB Update, in the Website project summary, and in the Effect of Redeliberations document (also on the Website). These materials were sent to the IASB's research project team and the UK's Oil Industry Accounting Committee (OIAC) with a request that their constituents be encouraged to respond to the issues raised. The staff received 16 comment letters.

Staff advised the Board that there was broad support for the revised approach to the assessment of impairment – the facts and circumstances approach. The Board's revised approach was seen as a sensible and pragmatic solution and one that would assist on-going comparability with existing practice in many countries.

In view of the above, staff proposed an approach that requires management to allocate exploration and evaluation assets to an appropriate unit of account and test impairment at this level. The staff considered that the approach taken by the Board to the impairment of goodwill in its 2004 revisions to IAS 36 paragraphs 80-82 offered the best model available within IFRSs to accomplish this objective. Using the analogy provided above, this might be an oil field or a contiguous ore body. The unit of account might be the same as an area of interest but might not be. Since the proposal would permit CGUs to be aggregated, the staff has mirrored the goodwill requirements in IAS 36 and proposed that the unit of account can be no larger than a segment, based on either the entity's primary or secondary segment reporting format under IAS 14 Segment Reporting. This requirement is no less rigorous than ED 6's requirement that the special CGU "be no larger than a segment".

The Board agreed with this proposal.

Other issues arising from the pre-ballot draft standard resulted in the following staff proposals:

• IFRS 6 paragraph 8 ["Exploration and evaluation assets shall be measured at cost"] be raised to a bold letter principle. This would also be consistent with the paragraphs on initial recognition in IAS 16 (paragraph 15) and IAS 38 (paragraph 24).
• The Board's proposals not be re-exposed and that the Board proceed directly to finalise the IFRS. The reasons for this being that:
  • 1. No fundamental changes of principle have been made; and
  • 2. Where changes have been made to ED 6, they have been made to matters addressed in the invitation to comment on which constituents' comments were invited. The Board has considered the comments received and the basis for alternatives suggested by constituents and as a result of its own redeliberations. It is doubtful that re-exposure would yield any new information that has not already been shared with the Board.

The Board agreed with the staff on both issues.

A ballot Draft will be submitted to the Board in October. Four Board members indicated their intention to dissent on the basis that the IFRS contradicts the hierarchy requirements in IAS 8. The IFRS would be published in November 2004.

Analysis of the comment letters on Strengthening the IASB's Deliberative Processes

The IASB invited those with an interest in its work to comment in writing on the improvements being implemented or proposed. The deadline for comments was 25 June 2004.

The Board received 50 submissions commenting on its paper. In general the comment letters support the proposed changes to the deliberative process. Respondents also suggested additional steps for the IASB's due process.

The Board indicated that its intention as a result of this process was to publish a manual similar to the FASB Rules of Procedure that sets out the principles that underlie the deliberative process without setting detailed procedures.

The Board discussed the following:

• There seemed to be some misunderstanding amongst respondents about the differences between field tests and field visits as evidenced by certain comments received. The Board clarified that field tests would be undertaken on a selective basis at the discretion of the IASB.
• Staff noted that on the whole, the suggestions made by the IASB were generally viewed as adequate, but there remained a need for the Board to communicate better and more visibly, the processes that it undertakes in developing Standards.
• The Board disagreed with requests for it to perform an impact analysis for each major project. The scope for such analysis would be too wide. The Board underscored its role, which is to set high quality accounting Standards and that this should not be confused with the perception that the IASB is responsible for directing capital markets. The Board will consider adding this to the conceptual framework.
• Although updates to the Trustees are currently presented by the Chairman of the Board, Staff suggested that this be more formalised in future.
• The Board noted that in the recent past, comment periods to exposure drafts have been relatively short, primarily due to the 2005 deadline. The Board agreed to extend the time frames given to constituents in future.
• Publishing of near final exposure drafts was seen as not serving any particular interest. Instead, the Board will only publish near final drafts as this is viewed as more useful to constituents. Project summaries will continue to be made available on the IASB website.

This summary is based on notes taken by observers at the IASB meeting and should not be regarded as an official or final summary.