Conceptual Framework

The Board were asked to consider three papers, as follows:

• Qualitative characteristics: costs and benefits;
• Elements 1: asset definition; and
• Reporting entity: preliminary staff research.

Each of these papers is available under Observer Notes on the IASB website. They are papers 2, 2A and 2B respectively.

Costs and Benefits

This paper considers whether the benefits of an accounting standard justify the costs involved. In particular, does the cost-benefit balance differ for different entities (e.g. small or unlisted companies). The paper considers what the current IASB Framework and FASB Concepts Statement 2 say on cost-benefit analysis. Both Frameworks acknowledge that for accounting standard setting, rigorous cost-benefit analysis is too difficult to apply and that the evaluation is judgemental. The paper then briefly considers other standard setters that have considered cost-benefit concepts. Finally, the paper considers the Board's alternatives, which are:

• A. Do very little;
• B. Commit to requesting more information; or
• C. Commit to conduct actual cost-benefit analysis.

Staff recommended option B - namely, that the discussion of cost-benefit analysis is enhanced. This option involves requesting information and reviewing it, but not verifying that information or developing it in the absence of it being available. Option A was rejected as it was felt this would not be accepted by many of the Board's constituents. Option C was rejected as it might not be achievable and would extend the timetable of every standards project.

The majority of the Board agreed with the staff's proposal for option B, although a couple of Board members were unsure of the difference between a well explained option A and option B.

In addition, many of the Board felt that a fuller discussion of costs and benefits should be provided. This should clarify that costs are not the same as consequences. Further, benefits are not just to shareholders or owners of a business, but can be much wider. For example, they can benefit society by resulting in greater capital markets efficiency. This discussion should consider more fully what the costs are and who bears them, and what the benefits are and who gets them.

It was further agreed that there was no need for a different approach for different types of entity. However the application will result in different results for different types of entity.

The intention is to produce an exposure draft on objectives and qualitative characteristics to present to the Board in January.

Asset Definition

The paper proposed a definition of an asset as:

An asset of an entity is a present right, or other access, to an existing economic resource with the ability to generate economic benefits to the entity.

There was discussion about what 'other access' meant. Staff agreed that this needed to be tightened. The intention was to avoid capturing only legal rights, but the current wording may be too broad.

There was general discussion about whether recognition criteria were being mixed in with the definition. For example, the definition could exclude the words 'of an entity' or 'to the entity', and still be the definition of an asset.

Reporting Entity

The IASB Framework defines the reporting entity in one sentence with no further explanation. The FASB framework does not contain a definition. Thus there is a gap in both frameworks, even though the concept exists. This paper considers what a reporting entity is - i.e. when is a legal entity or economic unit a reporting entity, aggregation versus disaggregation, the purpose of consolidated financial statements and whether control is the right basis for consolidation.

The Board questioned how concepts such as joint control or significant influence fit into this project. Staff noted that this would be during a later stage of the project. The purpose of this meeting was to establish the direction of the project and the key areas of focus.

The paper provoked a lot of discussion. Some Board members felt that the definition of a reporting entity should not depend on whether that entity produces financial statements and that the paper was often circular. Others felt that certain aspects of the paper were helpful, such as the distinction between direct and indirect control.

Generally, the Board felt that the project should remain broad, and consider only what a reporting entity is.

Wednesday 14 December 2005

Insurance Contracts Phase II

As a part of phase II of the Insurance Contracts project, the Board discussed staff papers dealing with issues on Cancellation and Renewal options.

The first question raised was related to potential differences on short-term versus long-term contracts. The staff's perception was that there should be no inherent difference in contracts as long as the terminology in the contracts is the same. Some Board members disagreed with this statement. They pointed out that acquisition costs may be different for short-term than for long-term contracts. Other comments were that there could be different intentions behind a short-term contract with a renewal option and a straight long-term contract. The Board seemed to agree that institutional as well as contractual arrangements have to be considered when assessing the accounting treatment.

The staff also raised a question on whether only substantive features should raise different treatments of contracts. The Board had a short discussion on whether price would be the only substantial difference in a contract, and agreed that it probably would not be. They agreed to come back to this issue.

The next staff paper raised the issue on whether an asset could be recognised based on cash flows from policyholders. A Board member noted that the analysis made by the staff that an asset should not be recognised seemed reasonable, but not for the reason addressed, that the insurer does not control the cash flows. The Board member stated that the question should be whether the insurer has a present right to these cash flows.

The other issue dealt with was whether this conclusion would apply even if cash flows expected are specified in the contract. In conjunction with this issue, the Board discussed briefly, the meaning of the word specified. Some Board members commented that the policyholders have no obligation to pay the premium even if an amount is specified in the contracts and it would therefore not change the fact that this would not create an asset for the insurer.

The Board also discussed the rights and obligations in an insurance contract. The Board was asked whether rights have to be enforceable. Board members tended to agree that enforceability is crucial. An additional issue discussed was whether an insurer could acquire contractual rights from an insurance relationship. The staff pointed out that if the policyholder did not pay premiums, the insurer is able to let the contract go without any obligations. The question is how strong the remedy has to be before you can say it is enforceable and giving contractual rights to the insurer. The Board agreed that this would need further deliberation.

The Board did not discuss agenda papers 3E and 3F.

Insurance Contracts Phase II - Educational Session

No decisions were made during this session.

Representatives from the IAA held an educational session on Participation and Performance - Linked Features in Insurance and Related Contracts.

Presenters gave an introduction to the principal scope of the products they would cover during the session. This would be mainly life insurance, investments contracts and certain non-life contracts. The Board considered features on insurance contracts such as performance-linked contracts, which include contractual reference to one of the parties of the contract. Presenters introduced the issue of discretion in insurance contracts, and the Board had a discussion on different discretionary elements and constraints in contracts.

At the end of this session the representatives raised three main accounting issues arising from use of these features in insurance contracts. Some members of the Board had concern about the perception of discretion and the effect this could have, specifically if this could create reclassification of surplus from equity to liabilities.

Income Taxes - Short-term Convergence

The following issues arose from drafting the amendments to IAS 12:

1. The treatment of assets and liabilities that have a tax base that differs from their initial carrying amount

The staff recommended that all assets and liabilities that have a tax base different to the amount at which they would initially be recognised should be recognised at fair value assuming a tax base equal to fair value. Having established this principle for initial recognition, the staff would extend it to all assets and liabilities that are remeasured at fair value, so that they are remeasured at fair value assuming a tax base equal to fair value.

The Board agreed with the staff recommendation but asked that this be clarified in the drafting as the point being made is that the tax base is that which the market would consider at any point in time (generally equal to the cost of purchase, and therefore fair value on that date) and may differ with the tax base of the entity that acquired a similar asset at a prior date. Considering this, when an asset is remeasured to fair value, the tax base is not that which was previously determined by the entity, but rather the current tax base the market attaches to the asset. Given the potential for misunderstanding, the Board agreed to include an example in the literature.

2. The recognition of deferred tax assets and liabilities arising on the initial recognition of goodwill

Requiring the recognition of a deferred tax liability for a taxable temporary difference arising on the initial recognition of goodwill would remove an exception from the temporary difference approach in IAS 12 and SFAS 109. One of the objectives of the income taxes convergence project has been to eliminate as many as possible, exceptions from the temporary difference with the aim of making it more transparent.

The staff recommended that the Board remove the prohibition in IAS 12 from recognising a deferred tax liability on the initial recognition of goodwill, consistent with its decision on the recognition of deferred tax assets in the Business Combinations project.

The Board's view was that it was pointless to create a reconciling item with US GAAP over an issue related to goodwill. Consequently, the Board decided that it would be guided by the FASB on this issue.

Two additional issues were brought before the Board. These issues relate to concerns raised by commentators:

1. Allocation of tax to components of profit or loss and equity

IAS 12 and SFAS 109 both include requirements on the allocation of tax to components of profit or loss and equity. The SFAS 109 requirements are more detailed. The two sets of requirements give similar answers except in respect of changes in tax that was originally recognised in equity. Under IAS 12, those changes are also recognised in equity; under SFAS 109, they are recognised in profit or loss.

Some Board members questioned whether this issue was only specific to the US jurisdiction. After some discussion the Board decided not to amend IAS 12. However, the Board also decided to include in the exposure draft an example illustrating the potential complexity of this issue and seek specific comments thereon.

2. Intra-group transfers of assets

An intercompany transfer of assets (such as the sale of inventory or depreciable assets) between tax jurisdictions is a taxable event that establishes a new tax base for those assets in the buyer's tax jurisdiction. The new tax base of those assets is deductible on the buyer's tax return as those assets are consumed or sold to an unrelated party. US GAAP requires taxes paid by the seller on intercompany profits to be deferred and prohibits the recognition of a deferred tax asset for the difference resulting from tax base differences between the jurisdictions. IAS 12 does not provide a similar exception. The Board has previously decided not to amend IAS 12 to provide for this exception and the FASB has decided to amend SFAS 109 to eliminate this exception.

The Board noted that when such a transfer of assets occurs, there is no accounting event that requires accounting for in the consolidated financial statements, however there is a tax event which changes the amount of taxes payable. The difficulties of tracing individual assets within a group across various jurisdictions until sold to a third party would create undue complexity. The Board also discussed the tax regime in Japan in which the transferee is required to pay in taxes, only the excess above that which was paid by the transferor. The Board reiterated its position that IAS 12 is correct and does not require amendment.

Fair Value Measurements

Definition of fair value

The staff presented a paper identifying and comparing the differences between the definitions of fair value in the FASB's draft Fair Value Measurements (FVM) standard to the definition in IFRS. This comparison was meant to assist the Board in concluding whether or not to replace the current IFRS definition of fair value with the FVM standard definition. The staff's overall recommendation was to replace the current IFRS definition of fair value with the definition of fair value in the FVM standard. However, the staff made it clear that it was not stating that this definition be applied to all instances where fair value is currently used in IFRS. This scoping issue is the subject for a separate discussion that would span several Board meetings.

The Board discussed in detail, the various components of the current and proposed definition of fair value in the context of the staff's analysis. Although the Board was in overall agreement to proceed with the proposed definition in the FVM standard, the following points were noted:

• Certain Board members wanted to see the various issues discussed pulled together and presented in some logical manner that would clarify how fair value is approached. As noted below, the Board was concerned that the proposed definition would cause confusion where this was not the intention.
• Some Board members were concerned about changing 'amount' to 'price' as this would change the meaning of fair value. This concern seemed to emanate around the treatment of transaction costs.
• The explicit discussion of 'exit values' in the draft guidance was seen by some as problematic. Illustrations were provided indicating that at the time of the transaction; the agreed price constitutes both an 'entry' and 'exit' value for that specific asset or liability. Others indicated that it was their belief that the current fair value definition already encompasses an exit value notion.
• Following on from this issue, the notion of 'marketplace participants' is believed by some Board members to be a less superior phrase to the widely accepted 'knowledgeable, willing parties' notion which is more readily understood to apply to a transaction between two parties without the necessity of the existence of a 'market'. The FASB's rationale for introducing the 'marketplace participants' notion as a means of excluding to the greatest extent possible, any entity specific factors when determining fair value, was noted.

The Board will be asked to debate the meaning of the 'reference market' notion at subsequent meetings.

Scope of the Fair Value Measurements Project

The Board considered a paper setting out on a Standard by Standard basis, which individual standards should be scoped in or out of this project. That paper was organised into three sections:

• Standards that require fair value measurement
• Standards that require fair value measurement by reference to another standard
• Standards that do not require fair value measurement

Within each of these sections, the staff made various proposals for the Board's consideration. Overall, the staff recommended not modifying as part of this project existing reliability clauses and practicability exceptions. The staff concluded that such modifications could result in significant changes to current practice and that any changes should be considered on a standard-by-standard basis separately from this project.

Standards that require fair value measurement

The following standards were noted as requiring assets or liabilities to be measured at fair value in certain circumstances:

• (a) IAS 11 - Construction Contracts
• (b) IAS 16 - Property, Plant and Equipment
• (c) IAS 17 - Leases
• (d) IAS 18 - Revenue
• (e) IAS 19 - Employee Benefits
• (f) IAS 20 - Accounting for Government Grants and Disclosure of Government Assistance
• (g) IAS 26 - Accounting and Reporting by Retirement Benefit Plans
• (h) IAS 33 - Earnings per Share
• (i) IAS 36 - Impairment of Assets
• (j) IAS 38 - Intangible Assets
• (k) IAS 39 - Financial Instruments: Recognition and Measurement
• (l) IAS 40 - Investment Property
• (m) IAS 41 - Agriculture
• (n) IFRS 1 - First-time Adoption of International Financial Reporting Standards
• (o) IFRS 2 - Share-based Payment
• (p) IFRS 3 - Business Combinations and the June 2005 Exposure Draft
• (q) IFRS 5 - Non-current Assets Held for Sale and Discontinued Operations

The Board agreed with the staff recommendations (as set out in the observer notes) for each standard except in the following instances:

• IAS 18 - the staff concluded that in the instances where an entity received services for dissimilar goods or services, the measurement objective is not consistent with the draft FVM standard and therefore IAS 18 should be excluded from the scope. The Board noted this issue but indicated a preference to include IAS 18 within the scope of the FVM Standard as this is a minor part of the fair value requirements in IAS 18. The confusion caused in the market if the Board were to exclude IAS 18 from the project would be undesirable.
• IFRS 2 - due to the grant date model, the Board noted the issue that may arise where an entity measures a share-based payment transaction by reference to the equity instruments granted, not the goods or services received. However, the Board decided to include IFRS 2 within the scope of the FVM Standard on the same basis as for IAS 18.

Standards that require fair value measurement by reference to another standard

• (a) IAS 2 - Inventory
• (b) IAS 21 - The Effects of Changes in Foreign Exchange Rates
• (c) IAS 27 - Consolidated and Separate Financial Statements
• (d) IAS 28 - Investment in Associates
• (e) IAS 31 - Interests in Joint Ventures
• (f) IAS 32 - Financial Instruments: Presentation and Disclosure
• (g) IFRS 4 - Insurance Contracts
• (h) IFRS 7 - Financial Instruments

The Board agreed with the staff recommendation that discussion of the above is not necessary as these standards do not contain any additional requirements to measure assets or liabilities at fair value.

Standards that do not require fair value measurement

• (a) IAS 1 - Presentation of Financial Statements
• (b) IAS 7 - Cash Flow Statements
• (c) IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors
• (d) IAS 10 - Events After the Balance Sheet Date
• (e) IAS 12 - Income Taxes
• (f) IAS 14 - Segment Reporting
• (g) IAS 23 - Borrowing Costs
• (h) IAS 24 - Related Party Disclosures
• (i) IAS 29 - Financial Reporting in Hyperinflationary Economies
• (j) IAS 30 - Disclosures in the Financial Statements of Banks and Similar Financial Institutions
• (k) IAS 34 - Interim Financial Reporting
• (l) IAS 37 - Provisions, Contingent Liabilities and Contingent Assets
• (m) IFRS 6 - Exploration for and Evaluations of Mineral Reserves

With regard to IAS 37, the Board concurred with the staff that the measurement principles therein are consistent with fair value principles in many respects and went further to state that when the amendments to IAS 37 are finalised, it would add explicit reference to fair value to clarify this issue.

Thursday 15 December 2005

Instruments Puttable at Fair Value

The Board was asked to confirm proposed amendments to IAS 32, as a correct reflection of the Board's decisions at its September 2005 meeting (the proposals are set out in the observer notes).

The Board debated how best to narrow the amendment so as to ensure that the return over a period of time is the same for all instrument holders within the most subordinated class. The concern raised by some Board members related to the fact that the entry price of acquiring the instrument could be manipulated by adding premiums or discounts that could distort the return to individual holders. The staff was asked to add a condition to this effect along the lines of requiring entry and exit from the most subordinated class of equity at fair value.

In order to apply the proposed amendments, the staff noted that an entity must determine fair value in accordance with the IAS 39 application guidance. Partnerships or non-public companies, which calculate the fair value of the redemption price of the puttable instruments using a proxy measure (for example, book values or a pre-set formula based on book values), might not be able to apply the proposed amendments. This is because such proxy measures might not be consistent with the measurement of fair value under IAS 39, paragraphs AG69 to AG82. The Board agreed to allow the use of the proposed amendment in the above instances only where the share is not listed and the formula or proxy measure is an approximation of fair value.

The Board reiterated that the objective here is to reach fair value at entry and exit and that a formula designed to penalise early exit may not qualify as a fair value proxy.

The Board asked the staff to consider supplementary disclosures (as well as presentation issues) regarding the fair values of instruments captured by these amendments even though they are classified as equity. The rationale for supplementary disclosure requirements being that such instruments have potential claims on assets. Limited life entities The Board agreed to include within the proposed amendments to IAS 32, the issue of classification of instruments puttable at fair value in limited life entities. The Board also agreed to include a table of examples in the guidance clarifying that for limited life entities, the instruments are not puttable.

Liquidation at the option of the holder

The proposed amendments would allow equity classification of instruments that contain an obligation entitling the holder to a pro rata share of the net assets of the entity upon liquidation of the entity, including instruments that give the holder the option to require the entity to liquidate. Therefore, partnership interests that include a condition that requires the partnership to liquidate upon the exit of any partner will be classified as equity, if it has the required characteristics.

The Board discussed whether the requirements to liquidate upon the withdrawal of a partner are substantive. The concern was raised because in practice, the effect of a partner withdrawing would result in mere book entries.

The Board also registered concerns about extending the requirements to any instrument that allows the holder the ability to liquidate if that holder feels aggrieved in any way. The Board seemed to agree that the answer to this issue was to require that all the parties should have the same ability to require liquidation, therefore in the case of a partnership, every partner must be able to put to the partnership, his/her interest.

Consolidated financial statements

The Board considered the consequences of its decisions for consolidated financial statements. The Board agreed that the non-controlling interests must be regarded as being not in the most subordinated class of instruments from the group's perspective. The rationale for this view is that the claims of non-controlling interests to the net assets of the subsidiary have to be satisfied first, before the parent's share of the net assets of the subsidiary could be distributed to the parent's residual interest holders. Hence, non-controlling interests are not in the most subordinated class of instruments at the group level.

For limited life entities, the Board agreed that at the group level, non-controlling interests in a limited life subsidiary will be classified as financial liabilities. This is because the proposed amendments are based on the view that non-controlling interests are not in the most subordinated class of instruments at the group level. The Board also came to a similar view on the issue of obligations arising on liquidation when liquidation is at the option of the holder.

In considering the entire package of proposed amendments, the Board agreed by vote to proceed with the amendments with some Board members dissenting on the basis that these amendments were merely an exception to the principles of IAS 32 designed to address the specific concerns of certain constituents and as a consequence, sets a bad precedent.

Insurance Contracts: Life Insurance Accounting Models

The purpose of this session was for the Board to get an overview of the various accounting approaches available to the Board without going into the detail of precise measurement attributes.

The Board discussed the potential difficulties involved in the measurement of the margin recognised as the insurer provides service and is released from risk under the contract. This is coupled by the fact that additional risks may arise during the period resulting in a requirement to reassess at each balance sheet date, the full extent of risk within existing contracts, in addition to the assessment of risk release from the date of inception or previous assessment.

After discussing other aspects of the staff's presentation, the Board decided that the staff should concentrate all further work on the project on the two current-value approaches.

Accounting Standards for Small and Medium-sized Entities

The Board continued its discussion from the November 2005 meeting of possible modifications for SMEs of recognition and measurement principles in IFRSs. The Board considered the staff recommendations and reached the following decisions:

Recognition and measurement of provisions and contingent liabilities under IAS 37 Provisions, Contingent Liabilities and Contingent Assets. No major simplifications needed for SMEs.

Capitalisation of development costs incurred after commercial viability has been determined under IAS 38 Intangible Assets. No major simplification needed for SMEs. An entity that incurs significant development expenditure is likely to know whether and when that expenditure has proved fruitful. Therefore, the IAS 38 requirement is not particularly burdensome.

Use of the effective interest method under IAS 39 Financial Instruments: Recognition and Measurement. Retain the requirement to use the effective interest method. Include one or more examples in the SME standard.

Fair value measurements under IAS 39. The Board asked the staff to develop an approach that involves classifying financial assets into two categories -:easily disposable and not easily disposable financial assets. Easily disposable financial assets are those (a) for which an observable market price is available and (b) either the asset can be sold on the market at any time without causing any disruption or major change in the entity's operations or the management is committed to a plan to sell the asset and an active programme to locate a buyer and complete the plan have been initiated.

Whether a cost model should be an accounting policy option for SMEs in accounting for biological assets and agricultural produce at point of harvest. The Board concluded that IAS 41 Agriculture already provides that if reliable measure of fair value is not available, use the cost model. Therefore, no major simplification of IAS 41 is needed for SMEs.

Measurement of share-based payments under IFRS 2 Share-based Payment. No major simplification is needed for SMEs because IFRS 2 already provides for use of the intrinsic value method if an entity is unable to estimate reliably the fair value of the equity instruments granted at the measurement date. The Board agreed to remove the references to 'rare cases' in the SME equivalent to paragraph 24 of IFRS 2.

IFRS 3 Business Combinations - Purchase method procedures. No major simplification is needed for SMEs either with respect to measuring acquired assets and liabilities in business combinations or with respect to recognition of intangibles.

IAS 7 Cash Flow Statement. No major simplification is needed for SMEs. That is, a cash flow statement should be a required component of the financial statements of SMEs.

IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets - Revaluation model. The revaluation option for property, plant, and equipment and for intangible assets as set out in IAS 16 and IAS 38 should remain an option for SMEs via cross-reference to those standards in the SME standard.

IAS 16 - Component depreciation. The SME version of IAS 16 should not refer to component depreciation.

IAS 16 Residual values and useful lives of property, plant and equipment. No major simplification is needed for SMEs. A requirement to review annually the estimates of residual value and useful life is not burdensome.

IAS 40 Investment Property - Frequency of remeasurement. Include both the cost-depreciation-impairment model and the fair value model in the SME standard. Require fair value at reporting date; do not specify annual fair valuation.

IAS 40 - Use the IAS 16 revaluation model option? The revaluation model of IAS 16 should not be used by SMEs to account for investment property.

IFRS 1 First-time Adoption of IFRSs - Retrospective application. The Board considered the view that retrospective application of a new IASB Standard for SMEs is too complex for SMEs because of unavailability of data. The Board concluded that a decision on this issue can only be made after the specific SME standards have been decided on, because only then can the issues relating to retrospective application be identified and analysed.

IFRS 5 Non-current Assets Held for Sale and Discontinued Operations - Is an SME Version Needed? IFRS 5 is not burdensome for SMEs, and no major simplification of it is needed for SMEs. Regarding the need to measure costs to sell on a present value basis, because most disposals will be completed in one year, the SME version of IFRS 5 should require measurement at fair value less costs to sell without the present value computational guidance from IFRS 5.

Joint Ventures

The short-term convergence project proposes to eliminate proportionate consolidation consistent with the Roadmap agreement. However, the IASB staff has considered and taken into account some of the early work developed by the AASB in its long-term research project on joint ventures as useful background information.

The Board agreed with the staff's view that the short-term convergence project be limited to requiring the application of the equity method for all interests in joint-venture entities (that is, eliminating proportionate consolidation as an option in IAS 31). In the staff's view proportionate consolidation is not consistent with the Framework's criteria for asset and liability recognition. Board members indicated their reservations with equity accounting as currently applied as it does not provide sufficient information. However, the Board indicated that they did not want to tackle, at this point, the differences between equity accounting and consolidation.

Some Board members believe that despite this being a short-term project, it would be useful for the Board to explore the issue of differentiating joint ventures and undivided interests. Attached to this is the question of whether substantive guidance can be developed to distinguish jointly controlled assets or operations and jointly controlled entities.

IFRIC Update

The Board was asked to review the recently published tentative decisions of the IFRIC and provide comments as appropriate. The Board was informed that a draft Interpretation on IAS 34 was currently with IFRIC members for editorial review and will be forwarded to Board members shortly.

The Board approved for issue, a final Interpretation dealing with the Scope of IFRS 2 (issued by IFRIC as draft D16).

Friday 16 December 2005 (Morning Only)

Technical Plan

Tentative project timetable

The Board considered the tentative project timetable (provided in Agenda Paper 7 of the observer notes) and milestone reports from the project managers. It was noted that in the future, when the technical plan was considered (quarterly) the project page on the website for each project would also be updated. This would ensure more up to date project information is available on the website than is currently the case.

Board members asked staff to clarify the approach to the issuance of documents in relation to the Conceptual Framework. A number of Board members had understood that Exposure Drafts would be issued on different sections as and when they were completed, but final guidance would not be issued until the entire project was complete. The tentative project timetable indicates that final guidance on certain sections (objectives and qualitative characteristics) would be issued concurrent to certain other sections being exposed. Staff members noted that the entire project could take up to seven years, and it would be inappropriate to do nothing with an exposure draft for seven years, and therefore the Board had previously decided to issue final guidance which acknowledged that it could be subject to change when a final 'omnibus' standard was issued. The Board agreed to continue to consider this issue as the project progresses.

The Board noted that the tentative project plan suggests a number of EDs and standards will be issued in the next two years. It was noted that some constituents may become concerned at the sheer volume of projects for which Exposure Drafts or Standards are expected. The tentative project plan represents the best estimates of the project managers at this time, and staff noted that it is generally fairly accurate for the next six months, with the ability to predict accurately being greatly reduced thereafter. Staff noted that of the documents to be issued in quarters one and two of 2006, they only had doubts about the practicality of this in relation to two projects, indicating that seven or more Exposure Drafts can be expected in the next six months. It was noted that items in the project plan only move in one direction - that is projects are not usually completed substantially in advance of the expected date.

It was noted that the issuance of a final standard in relation to non-financial liabilities in Quarter 4 of 2006 was considered a very optimistic estimate.

The Board agreed that appropriate communication of the plan was required. The project plan will not be added to the website until the roadmap for elimination of the reconciliation requirements with US GAAP has been completed, which will probably not be until February. It was agreed that in the future when the Board considers the technical plan they will also consider the proposed communication with constituents.

Precedential topics

The Board had asked staff to prepare a paper explaining what they believe to be 'precedential topics'. The conclusions from the discussion are to be used as an aid for resource allocation decisions.

Staff had defined precedential issues as those that:

• Involve 'cross-cutting' issues (that is, have significant impact on more than one project of the Board);
• The Board has developed significant intellectual capital in relation to such that there is a real possibility of the decisions on these topics contributing positively to the work of the Board;
• Have progressed sufficiently through due process that decisions will be available for use in other projects in the short term; and
• If the Board failed to progress would inhibit work on other projects.

Based on these criteria the staff had identified that work on non-financial liabilities, control and fair value measurement (in that order) was considered precedential. It was noted that certain other issues had far reaching consequences (such as debt/equity) but were insufficiently progressed to be of value to the Board in using 'precedential projects' to shape decisions in other areas.

Some Board members raised the issue of performance reporting, believing that it should also be treated as a precedential project. It was noted that if the performance reporting project would not develop clear characteristics of those items that should go through 'other comprehensive income' rather than net income, this would not be a satisfactory outcome. However, many Board members noted that there is not a robust conceptual basis for putting items through other comprehensive income, rather it is required in response to certain political pressures. The Board agreed that for the purposes of resource allocation, performance reporting should be considered a precedential project.

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