16-18 May 2005, London

Monday 16 May 2005

Measurement on Initial Recognition – Draft Discussion Paper Measurement Bases for Financial Accounting: Measurement on Initial Recognition

The purpose of the discussion at this meeting was to ascertain whether IASB members object to the publication by the IASB, with a 'wrap-around' invitation to comment, of the discussion paper, Measurement Bases for Financial Accounting: Measurement on Initial Recognition, prepared by staff of the Accounting Standards Board of Canada (AcSB).

IASB members were asked whether the paper appropriately identifies and discusses the issues and whether the Invitation to Comment appropriately positions the paper and asks the right questions to seek useful feedback for the IASB in its future standard-setting activities.

Individual Board members commented that the paper was thorough and that it approached the hierarchy in an appropriate manner. Some Board members expressed concern regarding some of the conclusions, and some expressed concern that some aspects had been omitted from the analysis. For example, it was pointed out that the paper seemed dismissive of the notion that a transaction price agreed on a particular date between a willing buyer and willing seller would result in fair value due to the passage of time if delivery takes place subsequently. The Board agreed to communicate the concerns to the AcSB staff.

Generally, the IASB members were supportive of issuing the document to trigger thought and responses on the issues. The Board asked that it be made clear in the paper that the IASB had not debated the issues and, therefore, that the views therein were not those of the IASB.

The Board discussed whether the Invitation to Comment appropriately positions the paper and asks the right questions in order to provide the Board with information to assist in future standard-setting activities. The Board discussed this in a fair amount of detail, with some IASB members disagreeing with specific points. On the whole, the Board agreed that the introductory remarks should be explicit in explaining where and how the paper fits into the IASB agenda as well as clarifying the relationship with the FASB equivalent document.

Regarding the proposed six-month comment period, some Board members expressed concern that this was insufficient time because about 249 pages of material would require translation into various languages. It was agreed that a summary of the key issues would be inserted into the paper to alleviate this problem.

It is anticipated that the paper would be issued in July 2005.

Short-term Convergence – Provisions, Contingent Liabilities and Contingent Assets

The Board was asked to consider seven distinct issues related to a proposed exposure draft. Those issues emanated from the comments of certain Board members as well as suggestions by staff.

Issue 1: Measurement guidance

A Board member questioned whether there was sufficient guidance about how to measure a stand ready obligation. To assist constituents in measuring liabilities with contingencies, the measurement requirements in the pre-ballot drafts included a new paragraph. This explained that the uncertainty of the amount and timing of the cash flows resulting from the conditional obligation is reflected in the measurement of the unconditional stand ready obligation. However, in response to the Board member's concern, the staff recommended expanding the illustrative example of a lawsuit and a warranty obligation to provide more guidance on measurement.

The Board agreed with the staff recommendation. In addition, the staff were asked to clarify certain aspects that distinguished the examples as well as to clarify the recognition criteria for a stand ready obligation.

Issue 2: Definition of a provision

IAS 37 presently defines a provision as 'a liability of uncertain timing or amount'. Provisions are therefore specified as being a subset of liabilities. However, the Standard does not provide sufficient explanation of how liabilities within this subset should be identified. The distinction between a provision and a liability that is not a provision is vague. Also vague is the distinction between a provision and the new analysis of contingent liabilities. For example, a liability for a product warranty that IAS 37 states is a provision also has attributes of a contingent liability – the uncertainty about timing or amount is relating to the cash flows associated with the conditional obligation.

The staff recommended the elimination of the term 'provision'. The staff thinks that it should be replaced with the phrase 'non-financial liability' as it is important to make a clear distinction between liabilities within the scope of IAS 39 Financial Instruments: Recognition and Measurement and IAS 37.

Some Board members who supported eliminating the term 'provision' at this time noted that there is a risk that the term will become more entrenched and be very difficult for the Board or its successors to remove. Elimination of the term would allow the Board to revert to the terminology in the Framework. The conflicting use of the term, which may cause confusion, was also noted as the term 'provision' is now more readily understood in the context of adjustments to the carrying amount of assets (for instance, receivables, inventory, PP&E) rather than a liability.

Other Board members disagreed on the basis that the term 'provision' has already become entrenched in legislation and other guidance with the same meaning as that in IAS 37; therefore, superseding it would cause upheaval. The issue of the translation problem in non-English speaking countries was also raised as the term 'non-financial liability' would have different meanings in different jurisdictions.

The Board agreed to eliminate the term 'provision' on the basis that, whilst having sympathy for non-English speaking constituencies, the IASB had to develop the best conceptual Standards and that the issue of translation should not be a consideration for the IASB. In addition, it was noted that the IASB's Standards are issued in English. It was noted that the elimination of the term 'provision' from IFRSs (in the context of liabilities) would not necessarily preclude preparers from using the term in financial statements.

The staff recommended and the Board agreed in principle, that:

• for all classes of provisions, an entity should disclose the carrying amount of the provision at the period end together with a brief description of the obligation;
• for any class of provision with significant estimation uncertainty, an entity should also present the other disclosures currently specified by the existing version of IAS 37.

Concern was expressed about the term 'significant' in the second bullet point. Some Board members believe this is a lower threshold when compared to 'material' whereas others believe it is the converse. The staff were asked to reconsider the wording.

Issue 3: Contingent assets and contingent liabilities

The Board was asked to confirm its agreement to eliminating the requirement to disclose contingent assets and contingent liabilities from IFRSs as well as to remove those terms from the title of IAS 37.

The Board agreed. A definition of a 'contingency' would replace the terms 'contingent liability' and 'contingent assets' and this would clarify that it is a conditional obligation or right.

Issue 4: Disclosure of comparative information

IAS 37 specifies that for each provision (or class of provision) the entity present a reconciliation of the carrying amount at the beginning and end of the period. However, no reconciliation is required for the comparative information. Some Board members suggested that the exemption be withdrawn.

The staff therefore recommended that disclosure of comparative information should be required. The Board agreed.

Issue 5: Transition requirements

The Board discussed this issue at length, particularly the problems that would be faced by preparers if transition was to be as required by IAS 8 as the measurement of liabilities would require the use of hindsight. The problem is exacerbated by the need for comparability that would be sacrificed if prospective application were to be required. In addition, the issue of first-time adopters transitioning to IFRS via IFRS 1 would present a an additional issue as they are subject to a different set of rules. The Board decided that a principle should be documented and perhaps inserted into IAS 8 regarding transition in general and that IFRS 1 should be revisited in the future to remove any inconsistencies with that principle. Regarding the exposure draft, the Board agreed to require transition to be effected using IAS 8 but to specify that it would be impracticable for entities to meet the measurement requirements, thereby indirectly pointing preparers to the guidance in IAS 8 that requires the entity to restate opening balances for the earliest period for which retrospective restatement is practicable (which may be the current period).

Issue 6: Onerous contracts

A Board member has asked that the Board consider some of the issues that arise from the existing definition of an executory contract in IAS 37 and the existing definition of an onerous contract. That Board member notes that the definition of an executory contract is broad, because any inequality as to performance makes the contract non-executory. For example, if an entity receives a deposit to sell goods, the contract is no longer executory which could lead to a provision being recognised if the value of the goods changes. That Board member also notes that IAS 37 specifies that if an entity has an onerous contract, it 'recognises the present obligation under the contract as a provision'.

At the November meeting, the Board considered whether to address further issues in this project. The Board concluded that the scope of the project be limited to those amendments necessary to implement the revised thinking about contingent liabilities and converging with SFAS 146.

Although acknowledging the point raised and the status of the project, the staff did not recommend reconsidering more generally the requirements relating to onerous contracts.

The Board agreed.

Issue 7: Format of the exposure draft

The Board agreed to issue the exposure draft as a clean copy but to make the marked up copy of the existing IAS 37 available through its website. In addition, a table of concordance would be inserted into the exposure draft for constituents to understand better, the proposed changes.

Tuesday 17 May 2005

Insurance Contracts – Non-life insurance accounting

The Board considered the following aspects of non-life insurance accounting:

• (a) whether the measurement of non-insurance claims liabilities should include discounting and risk margins.
• (b) four possible accounting approaches for non-life insurance contracts, which discussed in January 2005 with the Insurance Working Group.

There was a brief digression when Board members expressed extreme disappointment at receiving a letter from several insurance industry associations that challenged the activities of the Insurance Working Group. The Board expressed its absolute support for the Working Group and appreciation for the way it has engaged the Board and the staff in studying complex problems. However, it was apparent that the insurance associations had not understood the Working Group's terms of reference, which did not include making recommendations to the Board. It was agreed that the Board should clarify matters with the industry associations as soon as possible.

Introduction

The IASB staff reviewed recent developments on the Insurance project, noting that the FASB had expressed the desire that this become a 'modified joint project' at the appropriate time (i.e., after the IASB has published a discussion paper). The staff noted that the topics for discussion at the meeting reflected the following advice from participants in the Insurance Working Group.

• (a) it is important to consider not only individual measurement topics but also the whole package of decisions that make up entire accounting approaches.
• (b) there is concern about the possibility of accounting mismatches between insurance liabilities and the assets that back them.

The Board agreed that it should not discuss whether there should be a single model until the Working Group has had the opportunity to discuss several basic types of insurance contract (annual non-participating non-life, non-participating life, participating life, unit-linked (variable) life or annuity, universal life). In addition, there was a need to look again at the measurement attributes before committing to a particular course of action. One Board member noted that he would not support any solution that produced a different accounting model for each type of insurance contract depending on how it was described. There might be arguments for a different approach as between life and non-life, but other 'bells and whistles' could be accommodated through existing accounting standards on bifurcation, derivative accounting, etc.

Non-life business: over-view of possible accounting approaches

The Board discussed four possible approaches to accounting for non-life contracts, labelled A-D, as follows:

Approach A:

• (a) uses the main features of most countries' existing accounting requirements for insurance liabilities (that is, unearned premium liability [amortised as the premium is earned, and subject to a liability adequacy test], deferred acquisition costs [amortised and subject to an impairment test], undiscounted claims liabilities with no explicit risk margin).
• (b) applies IAS 39 Financial Instruments: Recognition and Measurement to financial assets.

Approach A is essentially the existing position for many insurers subject to IAS 39, local equivalents of IAS 39 or US GAAP.

Approach B:

• (a) uses the main features of most countries' existing accounting requirements for insurance liabilities (same as approach A).
• (b) modifies approach A's treatment of some financial assets held. Specifically, it permits amortised cost measurement for financial assets that provide fixed or determinable payments and are held to back insurance liabilities.

Approach C:

• (a) distinguishes the stand-ready obligation to pay valid claims for future insured events arising under existing contracts from the claims liability (that is, the liability to pay valid claims for insured events that have already occurred, including claims incurred but not reported [IBNR]). The stand-ready obligation is measured (as in approaches A and B) as the unearned portion of the premium, less deferred acquisition costs (a future meeting should discuss whether deferred acquisition costs should be recognised separately from unearned premium).
• (b) modifies approach A's treatment of the claims liability. Specifically, claims liabilities:
  • (i) are discounted. The Working Group has not yet discussed explicitly what discount rate should be used in an approach of this kind. To provide a specific proposal, this paper assumes a current risk-free discount rate. The use of a current discount rate seems consistent with Working Group participants' wish to minimise accounting mismatches.
  • (ii) include a risk margin (basis to be determined).
• (c) applies IAS 39 to financial assets (same as approach A).
• Approach C's treatment of claims liabilities would be consistent with the treatment of provisions in IAS 37 Provisions, Contingent Liabilities and Contingent Assets.

Approach D:

• (a) accounts for insurance liabilities (both claims liabilities and pre-claims liabilities) using the approach that the IASB and FASB are exploring in their joint project on revenue recognition. In some respects, this approach is also similar to the proposals in the Draft Statement of Principles developed by the former IASC Steering Committee. Specifically, 'unearned' premium and acquisition costs would not be deferred. Instead, the insurer's contractual rights and obligations would be measured at current exit value from inception.
• (b) applies IAS 39 Financial Instruments: Recognition and Measurement to financial assets (same as approach A).

It was noted that the 'exclusive' labels were not necessarily useful, and that there was some overlap, especially between Approaches C and D. It was noted that Approach C is similar to the approaches adopted in Australia, Canada and New Zealand. Approach C could also be described as 'no change for premium accounting; FAS 60 with discounting for claims.' Approach D is generally a new approach.

The Board discussed the alternatives proposed by the staff at some length. The decision on preference was deferred pending the discussion of discounting and risk and uncertainty.

Discounting

The Staff reviewed arguments in favour and opposed to discounting insurance liabilities (see Observer Notes, Agenda Paper 4A for these arguments). The Board had a wide-ranging discussion, but eventually agreed that discounting should be required for all non-life claims liabilities. There should there be no specific exemption on materiality grounds for liabilities that meet specified criteria. Normal materiality criteria should apply.

Risk and uncertainty

The Board discussed how risk and uncertainty should be reflected in the accounting model. The staff noted that this area had been particularly difficult for the Working Group to resolve. After a vigorous debate, the Board agreed that:

• the measurement of non-life insurance claims liabilities should include risk margins. This recommendation is compatible with approaches C and D, as described above.
• if approach D were to be adopted, risk margins would be included in both:
  • (a) the claims liability (i.e. the liability to pay valid claims for insured events that have already occurred, including claims incurred but not reported [IBNR]); and
  • (b) the stand-ready obligation to pay valid claims for future insured events arising under existing contracts, in other words obligations relating to the unexpired portion of risk coverage. (For discussion with the Insurance Working Group, the staff invented the term pre-claim liability to describe this.)
• Risk margins should be applied in carrying out a liability adequacy test.

The Board noted that 'risk margin' was a term of art and expressed some dissatisfaction with it.

Estimation techniques

The Board agreed that it should clarify the measurement objective (in due course) and give high level guidance, but should not give detailed operational guidance on techniques for estimating the number and amount of claims arising under insurance contracts.

IAS 39 – The fair value option: transition issue

The staff made a viva voce presentation (that is, there were no papers, either for the Board or Observers) on an issue that several insurance companies had asked to have highlighted. The staff noted that the issue was not a new matter and had been discussed at the time the Fair Value Option had been approved.

The issue had to do with the restatement of comparatives and affected first-time adopters especially. There was a potential problem between the definitions in IAS 39 paragraphs 9(b)(i) and 9(b)(ii) and the look-back period permitted when an entity adopts IAS 39 for the first time. The insurance companies were concerned about 'undue restrictions' on designation and a lack of comparability between current and comparative periods.

Board members held a brief discussion on the topic, but agreed that the issue was one of which they were aware when they approved the amendment to the Fair Value Option in April 2005. There was no appetite to re-open the decisions, especially because to do so might necessitate additional due process, which would delay the issue of an amendment that was considered important by constituents.

Accounting Standards for Small and Medium-sized Entities (SMEs) – Approach to considering possible presentation and disclosure modifications of IFRSs for SMEs.

The staff noted that the Working Group would meet next in June 2005 and that the Board intended to hold round-table discussion later in the year, most likely in October 2005.

Definitions

The Board noted that goal of this project was to develop accounting standards suitable for entities that (a) do not have public accountability and (b) publish general purpose financial statements for external users. They discussed both attributes.

The Board agreed that there was a need to clarify what the Board understood 'public accountability' to imply. Filing financial statements with Companies House or with the taxation authorities did not, by itself, create public accountability. The Board could usefully provide a commentary on the Framework on this issue.

In addition, the Board should define what it meant by 'general purpose financial statements' and 'external users'. Most importantly, the Board should define what external users are not: e.g., management and parties permitted by contract or operation of law to demand additional financial information from the entity.

General purpose financial statements are financial statements prepared for investment or credit decisions, etc, to be made by those without any other access to financial information.

After discussion, the Board agreed that their current definitions of public accountability, external users, and general purpose financial statements are appropriate as a 'working principle' for defining the entities included in the scope of the project.

Presentation and disclosure

The Board agreed to direct the staff to prepare a presentation and disclosure questionnaire, similar to that prepared on recognition and measurement.

In doing so, the Board also debated, and decided to stay silent on, the following:

• The need for a cash flow statement
• If a cash flow statement was a necessary component of a set of SME financial statement, whether it should be prepared on the direct method
• Whether a SME should be required to prepare consolidated, consolidating or combined financial statements

Standard formats

There was agreement (but not unanimous) that the presentation and disclosure questionnaire should raise the possibility of standardising the format of the statement of changes in equity for SMEs (a single format for all SMEs). As an alternative, all of the options under IAS 1 should be retained pending completion of the Performance Reporting project.

Consolidated financial statements

The Board discussed whether it should raise the matter of exemption for SMEs from a requirement to prepare consolidated financial statements in that questionnaire, or whether the possibility of an SME exemption should be addressed as a potential recognition and measurement difference. The Board agreed that such a question should be asked. In addition, questions should be asked about:

• Whether the level of disclosure of related party disclosure was adequate or should be increased; and
• Whether disclosure of economic dependence should be required.

Conceptual Framework – Qualitative characteristics of financial information

The Board discussed 'cross-cutting issues' relating to relevance and reliability and their component characteristics that were identified during the series of meetings held in November and December 2004 with small groups of Board members and staff. The Board also discussed some 'non-issues' related to the same qualitative characteristics.

Relevance

The staff asked the Board to consider the question: What does relevance mean, and of what does it consist? Predictive value, confirmatory or feedback value, materiality, timeliness?

The Board seemed to agree generally with the staff although some Board members expressed concern about the use and context of the 'predictive value' notion. The Board seemed to suggest that better words could be used to describe the predictive value notion although the intention being to retain the current meaning attached to the term.

Reliability

Faithful representation, including completeness and substance over form

The staff recommended that faithful representation continue to be identified as a key quality (or subquality) of accounting information, a quality that includes completeness and leaves no room for representations that subordinate substance to form. The Board generally expressed support for the direction taken by the staff on this issue. A number of Board members expressed their support to eliminate the term 'substance over legal form' from the Framework as it has the same meaning as 'faithful representation' therefore it cannot be a subset thereof. An explanation will be added, together with examples, to the Basis for Conclusions in order for constituents to follow the Board's thinking on this issue - that is, the notion of 'substance over legal form' is subsumed within the notion of 'faithful representation'.

Verifiability, including precision and uncertainty

The staff expressed agreement with the IASB Framework on the need for financial information to be free from material error in order that it can be relied on by users. The staff also agrees with the FASB Concepts Statements and others that the way to assure users that they can rely on the information is for it to be verifiable, preferably by direct verification. The staff therefore recommended that verifiability be included as a quality or sub-quality, with an explanation that emphasizes that being verifiable is necessary to provide assurance to users that the information is free from material error, as well as representationally faithful, complete, and neutral.

The Board agreed with the staff that the characteristic of verifiability is required in the framework. The Board also suggested clarifying that the notion of being able to 'vouch' is a subset of 'verifiability'.

Neutrality, including freedom from bias, prudence, and conservatism

The staff expressed reluctance to continue to include conservatism or prudence in a list of qualitative characteristics of accounting information together with neutrality. The clash of concepts is glaring. The Board agreed that the notion of conservatism should be eliminated but some guidance should be included in the Framework that requires the careful consideration and use of caution when faced by uncertainty (e.g. estimates).

On the issue of reliability, the staff pointed out that among accountants, usage of the notion varies. Many seem to equate reliability with verifiability, not representational faithfulness. In addition, different Standards have different hurdles for what represents 'reliable' measurement - is this because different meanings of reliable are applied (e.g. depending on desired outcome)? Or is it because of different trade-offs between relevance and reliability? Or is it the influence of conservatism? Why is some information 'sufficiently' reliable for balance sheet recognition but not for income statement (e.g. valuation changes recognised directly in equity)? These issues will be discussed by the Board at a future meeting.

Performance Reporting – Earnings per share and Comprehensive Income per Share

At the 21 April 2005 joint Board meeting, the FASB and the IASB agreed that non-owner changes in net assets (the Statement of Earnings and Comprehensive Income) should be presented in a single statement with a total for non-owner changes in net assets (often referred to as 'comprehensive income') and a required subtotal called 'net income' or 'profit or loss'.

The staff asked the Board to consider the effect of this decision on the presentation of per-share measures, namely earnings per share (EPS) and comprehensive income per share (CPS). Specifically, the Board was asked whether they would require a measure of CPS? The Board debated this issue extensively with a number of Board members expressing a desire to ultimately eliminate IAS 33 as a way of de-emphasising EPS in financial reporting. The Board agreed to retain IAS 33 as presently drafted for purposes of completing the performance reporting project. Consequently, CPS would be a measure that is permissible but not required. In answering a subsequent question posed by the staff, the Board agreed that should CPS be disclosed, this would be in the notes to the financial statements and the disclosure provisions would apply that require reconciliation of the numerator used and a line item that is reported in the income statement.

Wednesday 18 May 2005

IFRIC X Liabilities Arising from Participating in a Specific Market – Waste Electrical and Electronic Equipment – Approve a proposed Interpretation

The Board was asked to approve the Interpretation on this topic developed by the IFRIC. The Board discussed the appropriateness of issuing an interpretation on such a specific matter in a particular jurisdiction. It was noted that an interpretation on this matter is also being developed by the US. The Board agreed that the interpretation was necessary and an appropriate subject matter for an IFRIC interpretation.

The Board noted that the disclosure of possible future outflows which the IFRIC 'encouraged but did not require' in its basis for conclusions was inconsistent with IASB policy. Firstly, a disclosure requirement should either be contained in the authoritative pronouncement or it should be excluded, the basis for conclusions is an inappropriate place for it. Secondly, the Board has made a deliberate policy choice not to 'encourage' disclosure, and the Interpretation is inconsistent with that policy decision. Thirdly, the disclosure would be more onerous than those proposed in the proposed revisions to IAS 37 Provisions, Contingent Liabilities and Contingent Assets.

The Board note that in the Basis for Conclusions the IFRIC noted that it did not address the accounting for 'new' waste management obligations because the IFRIC believe the accounting treatment is clear. The Basis for Conclusions went on to explain what that accounting treatment should be. The Board noted this was inappropriate use of the basis for conclusions. The Board agreed to endorse the issuance of the Interpretation providing that:

• The interpretation would be withdrawn and incorporated into the revised IAS 37 when that document is issued as a standard;
• The conclusion on 'new' waste management obligations in the Basis for Conclusions is moved to the 'Background' section of the Interpretation; and
• The 'encouraged' disclosure is removed.

The Board also agreed to recommend to the IFRIC that the transition paragraph be re-drafted to reflect that for many entities this will not be a change in accounting policy, rather it will be an election of an accounting policy for a previously un-accounted for transaction.

Share-based Payment –Changes in Contributions to Employee Share Purchase Plans

At a recent meeting the IFRIC was unable to reach consensus on the appropriate accounting for changes in contributions to employee share purchase plans, and the chair requested that the matters under debate be brought before the Board. The Board agreed that their should be no difference in the accounting whether the employee or the employer had cancelled the share-based payment transaction - in either case the requirements of IFRS 2 in respect of cancellations (that is accelerated expensing) apply. The Board noted that this was consistent with FAS 123 (r) and also consistent with a discussion they had in respect of executives voluntarily forfeiting share options during the development of IFRS 2.

The Board noted that this did result in an anomaly - if the employee ceases to save prior to ceasing employment (possibly in anticipation of cessation of employment) and the options are cancelled, accelerated vesting would occur, but if the employee ceases employment first, truing up would be allowed. However, the Board agreed that this was a result of the bright line they had been forced to draw in the development of IFRS 2 to enable truing up.

The Board agreed that vesting conditions comprise service and performance conditions only. The staff will report to the IFRIC the outcome of the Board debate.

IFRS 7 Financial Instruments - Disclosures – Day 1 profit disclosures and amendments to IFRS 4

Amendments to IFRS 4

The Board considered the best way to complete this project, in the context that significant work is still required on the Implementation Guidance to IFRS 4. The Board agreed to finalise IFRS 7 without amending the Implementation Guidance to IFRS 4. That is, the appropriate changes will be made to the text of the Standard, but not to its Implementation Guidance. This was agreed because the time taken to complete the Implementation Guidance would be significant and might seriously delay the issuance of IFRS 7, which did not seem appropriate since most insurance industry participants had indicated they do not intend to early adopt IFRS 7 (thus reducing the urgency for guidance in that industry).

The Board agreed to extend the option in paragraph 45 of IFRS 7 so that an issuer of insurance contracts may provide a sensitivity analysis based on value-based techniques (such as embedded value) if the entity's key management personnel use that technique to manage and evaluate is performance in accordance with a documented risk management or investment strategy, even where that technique does not play a part in determining the entity's profit or loss or equity. The Board agreed that this was consistent with IFRS 7 - the disclosures did not need to tie up to amounts recognised in the financial report. The Board unanimously agreed to require entities to provide sensitivity analyses covering the whole of their business, but permit entities to provide different types of sensitivity analysis for different classes of financial instruments.

The Board agreed that an entity that measures insurance liabilities using assumptions imposed by a regulator should comply with the requirement to provide a sensitivity analysis by disclosing how a reasonably possible change in the related risk variable would affect profit or loss or equity if such a change was applied to the regulator-set locked-in assumption. For example, where market rates of interest are 10% and the regulator forces the use of 3% and there is a reasonably possible change in market rates of interest to between 9 and 11%, that reasonably possible change would be applied in the context of the regulator set rate - that is the 9 - 11% would not be considered a reasonably possible change to the regulator-set assumptions but, for example, 2 to 4% might be.

The Board agreed that where a reasonably possible change in the risk variable would not trigger the liability adequacy test there may be no effect on profit or loss or equity and thus there may be no effect to disclose in the sensitivity analysis. If a reasonably possible change would trigger the liability adequacy test the entity would disclose the effect on profit or loss or equity from the resulting change in the measurement of the liability. The Board noted that in determining whether the liability adequacy test had been triggered a company might use similar methodology to that used for determining whether impairment testing requirements had been triggered.

The Board agreed that the sensitivity analysis permits, but does not require, entities to disclose the potential impact of future management actions that may offset the effect of changes in the risk variable under consideration. Such disclosure could be qualitative or quantitative, but would not exclude entities from the requirement to disclose the impact of the factor on sensitivity analysis without consideration of the effect of future management actions.

Certain industry representatives had suggested the liquidity risk disclosure of IFRS 7 could be improved. The Board agreed that while the disclosures might be able to be improved, the delay to the project was not justifiable.

The Board agreed that there was not a need to re-expose the amendments to IFRS 4 as a result of today's discussion.

Day 1 Profit Disclosures

At its February meeting the Board agreed disclosures in respect of Day 1 Profits. Staff noted that the proposed disclosures have been reproduced in the observer notes for this session which are available on the IASB website www.iasb.org. The Board agreed that these should be placed in a more prominent position on the website. Staff asked that any comments from the public be received by June 1st at the latest.

Issuance procedure

The Board discussed briefly the publication of near final drafts on its website. It was noted that in general the final pre-ballot draft was released on the website. The Board briefly debated whether, in the context of this, the 20 day notice period to National Standard Setters was really necessary. They agreed to debate this topic further in private session.

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