Tuesday 24 January 2006 (afternoon only)
 Business Combinations II – analysis of comment letters on ED
The IASB began redeliberating the exposure drafts that it published as part of the Business Combinations Phase II project in conjunction with the US Financial Accounting Standards Board (FASB).
Together, the IASB and the FASB received 282 comment letters in total on the Business Combination ED and held roundtable discussions with approximately 50 of those respondents. 95 comment letters were received on the IAS 27 ED.
The staff stated that the purpose of the day's discussions was to seek the Board's consent on the direction that the staff intends to take regarding the various issues raised. The purpose was not to discuss the detailed technical points with a view to making decisions. Detailed analysis of each issue will be brought before the Board at subsequent meetings for consideration by the Board.
The Board was asked to review the primary objective of the business combinations project, which was defined as:
To develop a single high-quality standard for accounting for business combinations that can be used for both domestic and cross-border financial reporting.
To accomplish that objective, the staff plan to develop FASB and IASB standards on business combinations and non-controlling interests that:
- 1. Are converged on a common set of principles that provide decision-useful information.
- 2. Contain converged guidance that minimizes exceptions to those principles.
- 3. Are written in plain English, and use the same language to the extent possible to minimise differences in the application in the US and internationally.
- 4. Provide authoritative implementation/application guidance to the extent necessary for consistent application by different entities.
The Board confirmed that the objective and the staff's approach to achieve that objective are still appropriate.
The Board went on to review the issues as analysed by the staff together with the proposals of how to approach each major issue. The Board concurred that the staff analysis was complete. There was some discussion of particular topic areas as the Board and the staff clarified the intended course of action.
The Board considered a detailed timetable setting out the topics to be addressed at future meetings. The staff explained that redeliberations were expected to take approximately one year. After discussing the order that issues will be brought to the Board, the staff of both the IASB and FASB agreed to examine the timetable to take into account the suggestions put forward.
Update from the Financial Instruments and Insurance Working Group Meetings
The Board received feedback from the staff on the Financial Instruments Working Group meeting held on 9 and 10
January and on the Insurance Working Group meeting held on 12 and 13 January. No decisions were taken during this session.
Wednesday 25 January 2006 (afternoon only)
Short-term Convergence - Borrowing Costs
At their meeting in November 2005, the Board decided to address immediate expensing versus capitalising borrowing costs as a short term convergence project. For the January meeting, the staff prepared a paper setting out how the transitional provisions for only allowing capitalising should be addressed for existing IFRS users as well as for first time adopters.
The Board first considered the proposal as set out for existing IFRS users.
Some Board members questioned whether it should be mandatory to capitalise costs for projects started before the amendment was effected, but after the information necessary to apply the amendment was obtained. Some board members would like that to be an option, rather than a requirement, as they considered consistency in application to be more important.
The requirement for retrospective application as set out in the paper was defended by the staff. A choice for constituents could potentially delay implementation of these capitalisation requirements with several years on a lot of projects, as these are often long term (building processes lasting several years).
The Board decided to issue an exposure draft proposing that:
- Existing IFRS users should apply the proposed amendments (required capitalisation) prospectively to borrowing costs relating to qualifying assets for which the commencement date for capitalisation is after the effective date - with an option to apply the capitalisation amendments starting at any date elected before the effective date.
- First-time adopters should have the same transition options as existing IFRS users (this will require amendment of IFRS 1).
The Board discussed whether the comment period on this exposure draft should be shorter than normal but decided the exposure period should be 120 days.
Performance Reporting - Segment A
The Board deliberated issues identified by the staff when drafting the pre-ballot of Proposed Amendments to IAS 1. The paper consists of issues that the Board discussed during this session.
Composition of a complete set of financial statements
Some members had concern about the controversy it could create if the IASB is going ahead of FASB on this issue (as FASB has decided to postpone this until Segment B) when the objective from the beginning of this project was convergence.
Other members respond by emphasising the importance of giving users comparative information, rather than trying to converge with the FASB.
The Board decided that the ED should propose that a complete set of general purpose financial statements should include a statement of financial position at the beginning of the period as well as one as of the end of the period.
Proposed consequential amendments to IAS 34
The Board decided not to make any amendments to the wording in IAS 34 so that it will continue to require a complete or condensed statement of financial position as at the beginning and end of the interim period.
Proposed consequential amendments to IFRS 1
The Board was asked whether they would amend IFRS 1 to require a reconciliation of total recognised income and expense, rather than profit and loss.
Comments were made that, as preparers have to consider all numbers when reconciling equity, IFRS 1 should be amended to require reconciliation of total recognised income and expense.
The Board voted in favour of the staff recommendation.
Proposed amendments to titles of standards
The Board voted in favour of the proposed changes.
Presentation of dividends
The Board agreed with the staff's recommendation that because dividends are distributions of equity to owners, they should not be shown on the face of the income statement.
Accounting Standards for Small and Medium-sized Entities (SMEs)
The purpose of this session was to give the Board some preliminary information on a nearly complete first draft of an exposure draft presented to the Board. The Board was not expected to discuss the specific content of the draft during this session, as the plan is to discuss this at the February 2006 meeting. Several Board members did note, however, that their overall view is that further simplification of the recognition and measurement principles is needed.
The Board had a lengthy discussion on how the IASB Framework should be incorporated into the SME standards. The draft ED currently includes extracts from the Framework covering objectives, qualitative characteristics, and elements definitions. An alternative would be to include the full framework or to cross-refer back to the Framework but not include it.
The ED also included some pervasive principles to which SMEs could look for guidance in the absence of a specific standard. Some Board members were critical of those principles on grounds that they are inconsistent with specific standards elsewhere in the ED or are inconsistent with provisions in full IFRSs.
The Board did not make any final decisions on this issue. The staff suggested preparing some amendments to this section of the ED and bring those back to the Board for further consideration.
Earnings per Share - Treasury Stock Method
The staff paper for this session recommended that the treasury stock method be applied in calculating the dilutive effects of all convertible instruments on EPS.
That proposal was in line with the FASB's decision before they decided to postpone this issue until completion of their liabilities/equity project.
This session was brief as the Board had no questions to the paper, and agreed to the recommendations set out by the staff.
IFRIC Update: Reassessment of Embedded Derivatives - Proposed Interpretation
The Board was given an update on the latest developments at the IFRIC.
In conjunction with this, the Board was asked whether they would approve the proposed final interpretation on D15 Reassessment of Embedded Derivatives.
The Board had one minor comment which staff said would be addressed. Based on this the interpretation was approved.
This summary is based on notes taken by observers at the IASB meeting and should not be regarded as an official or final summary.
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