IASB Meeting 16-19 October 2007

Tuesday 16 October 2007 (afternoon only)

Post-employment Benefits – Discussion paper issues relating to defined benefit promises

At the September meeting the Board noted that post-employment benefit promises have three phases:

• An accumulation phase during which the employee renders service in exchange for the promise of remuneration in the future. This phase ends when the employee ceases employment.
• A deferment phase, which occurs after the employee has completed employment but before the benefit payment has started (eg during a pension deferment period or a sickness waiting period).
• A payout phase during which the employer's liability to the employee for previously deferred remuneration is settled.

The two questions raised at that meeting were:

• Which phase or phases should determine the classification of the benefit promise?
• How should the benefit promise in each phase be measured?

After discussion, the Board agreed on the following pragmatic cut-off for the definition of benefit promises in the project:

• the definition of benefit promises should refer to the accumulation phase only. In particular, longevity risk should not affect the classification, but would be factored into the measurement of the obligation; and
• the liability for a benefit promise should be measured according to its definition whether the employee is the accumulation, deferment, or payout phase.

Conceptual Framework – Phase A: Objectives and Qualitative Characteristics

The Board discussed the following issues:

How will new chapters fit with the existing Framework?

The Board considered the issue that when the Objectives and Qualitative Characteristics phase of the Framework Project is completed, Chapters 1 and 2 of the new Framework will be finished. Consequently, paragraphs 9-46 in the existing Framework – that is, the paragraphs of the existing Framework dealing with the objective and qualitative characteristics of financial statements – will be out of date. The Board discussed whether to:

• Leave the existing Framework as it is, or
• Withdraw paragraphs 9-46 in the Framework and make consequential amendments.

The Board decided for Phase A that withdrawal of paragraphs 9-46 would be preferable, with consquential amendments as needed.

Amendments to other parts of the Framework

The Board considered whether to replace the term 'reliability' in the recognition criteria in the existing Framework. The Board discussed at length arguments in favour and against updating the recognition criteria. The Board tentatively agreed not to update the recognition criteria. Staff were asked to conduct further analysis on paragraph 86 of the Framework to determine how the term 'faithful representation' may be applied.

Consequential amendments to existing IFRSs

The Board noted that when both Chapters 1 and 2 of the new Framework are finalised, there would be some inconsistencies between IFRSs and the new Framework. However, the Board decided not to amend IFRSs. Consequently, supporting materials from the Framework on 'reliability' will not be available. This approach follows the principle that the Framework should not override pronouncements.

Effective date

The Board discussed whether an effective date for the new Framework is necessary for the Board and constituents.

The Board concluded that, for its own use, an effective date is not needed when Chapters of the new Framework are completed. This is because the Board will want to start using the new Framework in standard-setting as soon as possible. The Board concluded, however, that for constituents an effective date for Chapters 1 and 2 would be useful. The Board did not specify a proposed effective date; however, the Board tentatively concluded that one year from the issue of the chapters would be a reasonable timeframe, with early adoption permitted.

The Objective of Financial Reporting

At the September meeting, the Board tentatively decided that the objective of general purpose external financial reporting is:

To provide financial information about the reporting entities that is useful to current and potential investors and creditors and others in making decisions in their capacity as capital providers.

Conceptual Framework – Phase B: Elements and Recognition

The Board continued its discussion of the definition of an asset. The objective of the discussion was to decide on a definition that could be used as a working definition of an asset as the Board proceeds with other aspects of Phase B of the Conceptual Framework project.

The Board tentatively agreed that:

• the focus of the definition of an asset should be on a present economic resource rather than on future economic benefits; and
• an assessment of likelihood should be remove from the definition of an asset.

The Board concluded that the definition should focus on the present rather than on past transactions or events.

The Board then considered whether the term 'control' should be replaced with the phrase 'present rights or other access', and whether the definition should include the phrase 'to the exclusion of others'.

The Board tentatively agreed that the working definition of an asset should focus on 'present rights or other access'. It did not agree to including 'to the exclusion fo others'. It requested that staff consider how better to express the notion of 'other access'.

The Board did not decide on the sequencing within the definition, and it asked staff to prepare a paper outlining how the definition would read:

The Board then considered whether the term 'control' should be replaced with the phrase 'present rights or other access', and whether the definition should include the phrase 'to the exclusion of others'.

The Board tentatively agreed that the working definition of an asset should focus on 'present rights or other access' and include the phrase 'to the exclusion of others'. However, the Board did not decide on the sequencing within the definition, and it asked staff to prepare a paper outlining how the definition would read:

• if the 'right' is discussed first; and
• if 'resource' if discussed first.

This paper will be discussed at the joint meeting with the FASB to be held next week.

Annual Improvements 2008

IAS 18 – Determining whether an entity is acting as a principal or as an agent

At its September 2007 meeting, the IFRIC decided not to develop an Interpretation of IAS 18 determining whether an entity is acting as a principal or as an agent, agreeing instead to remove the issue from its agenda. The IFRIC also decided to recommend to the Board that implementation guidance should be added to the Appendix to IAS 18 to help constituents to determine whether an entity is acting as a principal or as an agent.

The Board tentatively agreed with the IFRIC recommendation and, subject to editorial corrections, agreed that the following proposed implementation guidance should be included in the Appendix to IAS 18 as part of the Annual Improvements 2008 project:

Paragraph 8 states that 'in an agency relationship, the gross inflows of economic benefits include amounts collected on behalf of the principal and which do not result in increases in equity for the entity. The amounts collected on behalf of the principal are not revenue. Instead, revenue is the amount of commission.'

Determining whether an entity is acting as a principal or an agent depends on facts and circumstances and requires judgement. An entity is acting as a principal when it has exposure to the significant risks and rewards associated with the sale of goods or the rendering of services. Features that, individually or in combination, may indicate that an entity is acting as a principal include:

• (a) the entity has the primary responsibility for providing the goods or services desired by the customer or for fulfilling the order, for example by being responsible for the acceptability of the products or services ordered or purchased by the customer;
• (b) the entity has inventory risk before or after the customer order, during shipping or on return;
• (c) the entity has discretion in establishing prices directly or indirectly, such as by providing additional goods or services;
• (d) the entity has credit risk.

An entity is acting as an agent when it does not have exposure to the significant risks and rewards associated with the sale of goods or the rendering of services. One feature that may indicate that an entity is acting as an agent is that the amount the entity earns is predetermined, being either a fixed fee per transaction or a stated percentage of the amount billed to the customer.

Disclosures required for non-current assets (or disposal groups) classified as held for sale or discontinued operations under IFRS 5

At its September 2007 meeting, the IFRIC considered a request to clarify whether the disclosure requirements of other standards, in the absence of specific exclusion, would apply to non-current assets (or disposal groups) classified as held for sale or discontinued operations in accordance with IFRS 5. The IFRIC concluded that this issue could be resolved efficiently through an amendment to clarify IFRS 5 and decided to draw the issue to the attention of the Board rather than taking the item on to its own agenda.

The Board considered two potential alternative approaches to addressing this issue:

• View A: IFRS 5 and other standards that specifically relate to non-current assets (or disposal groups) classified as held for sale or discontinued operations set out all the disclosures required in respect of those assets or operations. Disclosures required by other standards do not apply to such assets (or disposal groups).
• View B: Disclosures required by IFRSs, whose scope does not exclude non-current assets (or disposal groups) classified as held for sale or discontinued operations, continue to apply to such assets (or disposal groups).

The Board discussed the two approaches and noted that splitting out disclosures as proposed by View B would present practical difficulties. The Board did not make a final decision on which approach is preferable. It requested staff to perform further analysis to be presented at a future Board meeting.

Wednesday 17 October 2007

Fair Value Measurements – comment letter analysis

The staff presented their analysis of comments received on the IASB's discussion paper on fair value measurement. The discussion paper was issued as a 'wrap around' of FASB Statement of Financial Accounting Standards No. 157. The complete analysis is available in the Observer Notes section on the IASB's website (Agenda Paper 2C).

The staff asked the Board to do the following:

• consider the main points raised in the comment letters (136 received);
• affirm the project objectives; and
• approve the staff's preliminary project plan.

The main points raised in the comment letter by constituents included (please refer to Agenda Paper 2C for a detailed analysis):

• General agreement to that the fair value measurement project is needed;
• Concerns about how to provide guidance on determining fair value when it is not clear in which circumstances;
• The interaction between the fair value measurement project and the conceptual framework project (in particular, phase C which covers measurement);
• The view that in many situations an entry price notion is superior to an exit price notion;
• Fair value is more akin to a heading for a 'family' of measurement bases and accordingly terms should be used which are more descriptive (that is, more clearly articulate what the Board's intended measurement basis in that situation is); and
• With regard to measuring liabilities at fair value, the respondents raised concerns about the application of a transfer notion instead of a settlement notion and asked for guidance as to the meaning of non-performance risk.

Regarding the interaction between this project and the Conceptual Framework project, some Board members noted that the outcome of this project is only one of a number of possible measurement bases that will be in the revised Framework. Consequently, the impact on the Framework project is only minor. The staff confirmed that it consults with staff of the Framework project on a regular basis.

Some Board members observed that the notion 'entry price' should be as well defined as 'exit price'. Staff noted that this is part of the proposed project plan.

No decisions were made.

The Board was also asked to agree on the following project objectives:

• Development of principles and measurement guidance for an exit price measurement basis; and
• Completion of a standard-by-standard review of fair value measurements permitted or required in IFRSs to asses whether each standard's measurement basis is an exit price. If the Board does not agree, will it agree to decide on a case-by-case basis whether or not to develop measurement guidance for those other measurement bases.

The Board agreed to both objectives. On the second bullet point, it was clarified that this analysis will not lead to the development of additional guidance for those measurement bases that will be identified as not fitting in the definition of fair value for the purpose of the fair value measurement project. However, the Board noted that a working definition for fair value must first be agreed on before the analysis can be done.

IFRIC proposal: Draft amendment to IFRIC 11 and IFRS 2 – Group cash-settled share-based payment transactions

At its September 2007 meeting, the IFRIC decided to amend IFRIC 11 IFRS 2–Group and Treasury Share Transactions to clarify that certain share-based payment arrangements are within the scope of IFRS 2 Share-based Payment and to specify how the employee services received by the subsidiary should be measured in its financial statements. In addition, the IFRIC agreed to suggest to the Board (consequential) amendments to IFRS 2 to clarify its scope, particularly paragraph 3 of IFRS 2. (See September 2007 IAS Plus IFRIC Notes).

Subject to editorial comments the Board agreed to the proposed amendments to both IFRIC 11 and IFRS 2 (actual text was not included in the observer notes).

Some Board members noted that it would be better to amend IFRS 2 with consequential amendments to IFRIC 11 rather than the other way round. However, no decision regarding the due process was made at this meeting.

Financial Instruments Puttable at Fair Value and Obligations Arising on Liquidation – Arrangements for Roundtables

At its September 2007 meeting, the Board decided to proceed with a revised approach to the Exposure Draft Financial Instruments Puttable at Fair Value and Obligations Arising on Liquidation and to discuss the proposed amendments at a public roundtable meeting. You can find Deloitte's report on that meeting Here.

The Board agreed that the roundtable discussions will take place in London on 12 November 2007. The discussions will be open to the public.

Participants will be asked to respond to the following questions:

• Does the staff draft address the types of financial instruments that should be addressed in a short-term limited-scope project? If not, what instruments should be addressed and why?
• Are the proposals operational? If not, why not and what changes would you propose?
• Are there any issues that are not addressed in the staff draft that should be addressed? If so, what are they and why should they be addressed?

One Board member noted that that it was important to clarify that the purpose of the roundtable was exclusively to discuss the proposed amendments and not to raise additional issues. No Board member objected to that statement.

Financial Statement Presentation Phase B – Presenting information on the face of the financial statements

(The FASB staff joined the meeting by video link for this session.)

The Board continued its deliberations on various issues to be addressed in the initial discussion document of this project.

Classified statement of financial position

The Board reaffirmed by majority vote its tentative decision that an entity would not be required to present a classified statement of financial position when a presentation of assets and liabilities in order of liquidity provides information that is reliable and is more relevant. The Board noted that this decision will require judgement and that the initial discussion document should include examples to illustrate circumstances in which a statement of financial position presented in order of liquidity may be more relevant.

Capital management disclosures

The Board discussed the capital management disclosures currently required in paragraphs 134 to 136 of IAS 1 (revised 2007) Presentation of Financial Statements.

The staff pointed out that the term 'capital' may include operating items and suggest to change paragraph 135(a)(i) of IAS 1 to something like "A description of what is managed as capital (including as appropriate, operating, financing and equity items)". Some Board members stated that in current IFRSs, the term 'capital' relates to long-term financing and equity items and that the disclosures under paragraphs 134 to 136 of IAS 1 should focus on such items.

The Board decided not to amend the existing guidance in this respect.

Netting in the statement of cash flows

At the March 2007 meeting, the Board tentatively decided to eliminate the concept of cash equivalents. Accordingly, the statement of cash flows would present flows related to cash alone; items currently classified as cash equivalents would be classified in the same manner as other short-term investments.

At this meeting, the Board discussed whether net or gross amounts of cash receipts and payments related to items currently classified as cash equivalents should be presented on the statement of cash flows.

At previous meetings the IASB and the FASB had tentatively agreed a 'netting principle' stating that entities should prepare financial statements using a gross presentation except when (a) net presentation is required or permitted by the authoritative accounting literature or (b) there is no incremental value in the additional information provided in a gross presentation – that is – the net amount provides all of the information that is necessary.

The Board tentatively decided to eliminate the existing general netting guidance in paragraph 22 of IAS 7 Cash Flow Statements, as this would be covered by the general netting principle. The current specific netting guidance in paragraph 24 of IAS 7 should be retained to provide additional application guidance.

Based on these decisions, the guidance regarding netting in the statement of cash flows would be something like:

Cash receipts and payments should not be offset (presented net) in the statement of cash flows unless there is no incremental value in the additional information provided in a gross presentation – that is, there is no benefit in a user of the financial statements knowing the two amounts; the net amount provides all of the information that is necessary.

Net presentation of cash flows is permitted in the following circumstances for financial institutions:

• Cash receipts and payments for the acceptance and repayment of deposits with a fixed maturity date
• The placement of deposits with and withdrawal of deposits from other financial institutions
• Cash advances and loans made to customers and the repayment of those advances and loans.

Application of the cohesiveness principle

At previous meetings, the IASB and the FASB agreed that the cohesiveness principle should be the governing principle in the financial statement presentation project.

Under the cohesiveness principle, assets and liabilities are classified into a functional category (operating, investing, financing, and the like). The classification in the statement of financial position dictates the treatment in the other statements. Accordingly, the income and expense (including gains and losses) associated with those assets and liabilities are presented in the corresponding category in the statement of comprehensive income, and the cash flows associated with those assets and liabilities are presented in the corresponding category in the statement of cash flows.

Classification and presentation of dividends payable

The Board discussed whether the corresponding dividend payment should be classified in the financing or equity section of the statement of cash flows. Under the current working principles, a liability for dividends payable is likely to be classified in the financing category. The cohesiveness principle would require classify the dividend payment in the financing section.

However, because dividend payments normally relate to transactions with owners in their capacity as owners, a classification in the equity section of the statement of cash flows may be more appropriate.

The Board decided that dividends payable and the related changes should be classified in the financing section.

Classification and presentation of foreign currency translation adjustments (FCTAs)

FCTAs relating to consolidated subsidiaries and proportionately consolidated joint ventures

The Board discussed the following alternatives:

Alternative 1:

Allocate FCTAs to the categories in which assets and liabilities of the subsidiaries and joint ventures are classified in the statement of financial position.

Alternative 2:

Do not allocate FCTAs but classify them in:

• (a) the operating category within the business section
• (b) a new FCTAs section.

There seemed to be consensus that alternative 1 would not be practicable for all entities. One Board member suggested to give entities the choice to apply alternative 1.

The Board agreed to include alternative 2(b) as the preferred view in the initial discussion document. However, both alternatives should be explored and constituents should explicitly be asked for their views.

FCTAs relating to equity method investments

The Board considered the following alternatives:

Alternative 1:

Classify FCTAs in the category in which the equity method investment is classified in the statement of financial position.

Alternative 2:

Classify FCTAs in a new FCTAs section.

The discussion focused on the question whether proportionally consolidated joint ventures and equity method joint ventures should be treated differently (which would be the case under alternative 1).

Finally, by majority vote the Board decided in favour of alternative 1. Board members in favour noted that this alternative is in compliance with the governing cohesiveness principle and that exceptions to this principle should be kept to a minimum.

Basket transactions

For the purpose of this project, basket transactions are defined as single transactions that involve multiple assets (or a combination of assets and liabilities) that would be classified in more than one category under the proposed presentation format.

The Board discussed whether the effects of basket transactions (revenues, expenses, and gains and losses in the statement of comprehensive income, and cash flows in the statement of cash flows) should be allocated to multiple categories.

The discussion focused mainly on the presentation of basket transactions in the statement of cash flows. Some Board members raised the concern that such an allocation may be arbitrary and/or burdensome and asked the staff whether an allocation method has been developed. The staff responded that it was seeking the Board's general view on allocation before continuing to develop an allocation method.

The Board tentatively decided to include the allocation requirement in the initial discussion document and directed the staff to develop an allocation method. Some Board members in favour of allocation noted that their views are subject to the development of a practicable allocation method.

Financial Instruments – Comprehensive Project

The staff presented a summary to the Board on discussions between an IASB team (consisting of selected Board members and staff) and a number of banks in July and September 2007. Those meetings were an outcome of the deliberations between the European Banking Federation (FBE - a banking representative body) and the IASB team which resulted in a presentation by the FBE at the IASB Board meeting in December 2006.

The discussions were aimed at identifying any issues arising from the application of the cash flow hedge accounting model in IAS 39. The staff sought opinion as to whether any clarification of IAS 39 was necessary.

The main issues potentially requiring clarification are:

• What is meant by a 'hypothetical derivative' for testing effectiveness?
• Improvement of the documentation/effectiveness methodology applied to existing hedging relationships.
• Designation of sub-benchmark interest rate items.
• The period in which deferred gains/losses should be reclassified if a hedging instrument is dedesignated.

Staff indicated that three of the above items could potentially be clarified without consuming excessive staff resources. It was noted that the formal process of bringing these clarifications in the standard could (at least partly) be done via the Annual Improvements Process. It was suggested that the points should be addressed in order of priority.

One Board member noted that the banks had no application issues in relation to some of the points raised by the FBE. It was suggested that a possible solution to deciding whether the issues were widespread in the banking sector would be a further meeting with the banks. It was noted by one Board member that if some constituents struggle with applying the cash flow hedge accounting provisions in IAS 39 the Board should provide clarification.

One Board member reckoned that the true issue facing the banking sector was the designation of demand deposits within the cash flow hedge accounting model under IAS 39 (the treatment of those under the current IAS 39 model led to the 'carve out' of the respective sections within the EU). The Board reaffirmed its previous decision that they will not change that principle.

To gain a common understanding of what are problems for the banks, it was suggested that a letter would be sent to the banks listing all the issues raised by the FBE, including an analysis of why some issues were not addressed in the Agenda Paper, either because it is not an issue that emerged from the talks with the banks or the Board is of the opinion that the standard is clear.

The Board did not make any decisions.

Thursday 18 October 2007

Fair Value Measurements – Measurement methodologies employed by valuation professionals (Education session)

This was an education session and accordingly no decisions were made.

The session was led by representatives of the valuation profession to illustrate practical valuation concepts and issues (the complete presentation [Agenda Paper 11A] can be obtained from the Observer Notes section on the IASB Website). The focus was on the valuation methodologies used in the measurement of tangible and intangible non-financial assets.

The background of the session was the Discussion Paper on Fair Value Measurements that was issued by the IASB in November 2006.

The main topics of the presentation were:

• Value concepts in IFRSs
• The purchase price allocation process
• Overview of valuation methodologies (that is cost approach, market approach, income approach)

The presenters' main focus was the valuation requirements resulting from a business combination and what are the factors valuation professionals consider in such transactions.

Although this was an education session only the Board showed particular interest in certain topics of the presentation:

• If and how appraisers exclude entity-specific factors from their valuation models
• Customer-related intangible assets (separation and assumptions used in valuation)
• Consideration of tax in the valuation process
• Separation and valuation of contingent liabilities

On the last point, the representatives of the valuation profession admitted that they have difficulties identifying all contingent liabilities and how to value them based on a transfer notion (that is what would an entity have to pay to pass on the risk – in contrast to a settlement notion).

Liabilities – Amendments to IAS 37

Uncertainty about the existence of a present obligation

In May 2007, the Board considered an example that illustrated uncertainty about the existence of a present obligation. The facts of the example were:

The Board decided that on 31 December 200X the vendor would have a present obligation only if it had supplied a contaminated hamburger. However, the Board did not reach any conclusions on how to address the uncertainty in this example. Three possibilities were discussed by the Board:

• View A: The event that gives rise to the obligation is the supply of a contaminated hamburger. It is uncertain whether this event has occurred so it is uncertain whether an obligation has arisen.
• View B: The event that gives rise to an obligation is the inception of the contract to sell a hamburger. The obligation is the unconditional promise that the vendor makes to the customer: to supply a good hamburger or pay compensation if the hamburger supplied is contaminated.
• View C: A third possible view is that the event that gives rise to the obligation to pay compensation is the supply of a hamburger to the customer. This view was not explored in the papers for the May meeting, but has been discussed by the staff since.

The Board also discussed additional examples relating to a hospital death, libel claim and speeding fines (outlined in Agenda Paper 13 available on the IASB's website).

The Board agreed to reject View B, and went on to discuss views A and C in detail. Some Board members favoured the approach in View A. In terms of measurement, View A was further disaggregated into View A1 and View A2:

• View A1: Measurement under View A1 assumes that management have judged the obligation correctly.
• View A2: View A2 measurement reflects uncertainty about existence using expected values.

The Board discussed the fact that an event or activity must have occurred. Further, the Board indicated that there would need to be some kind of evidence that a liability has arisen. The Board did not conclude on a view and directed staff to prepare a paper to clarify how element uncertainty is taken into account in measurement.

Leases

Other Lease Obligations

At its meeting in March 2007, the Board tentatively concluded that a lessee's obligation to return the leased item at the end of the lease term does not meet the definition of a liability. However, a number of Board members noted that the terms of the lease contract might give rise to other obligations that meet the definition of a liability. For example, an obligation to return the leased item in a specified condition may meet the definition of a liability.

At the current meeting the Board analysed a number of lessee obligations to determine if they meet the definition of a liability and, if so, what shold be the appropriate accounting treatment. In particular, the Board considered:

• Lessee obligations to incur costs to return the leased item.
• Lessee obligations to return the leased item in a specified condition.
• Lessee obligations to maintain the leased item.

The objective of the discussion was to provide feedback to the staff, rather than make formal Board decisions.

Lessee obligations to incur costs to return the leased item

The Board agreed that such obligations meet the definition of a liability. The Board noted that the treatment of the debit arising on recognition of the liability should be same as if the asset was owned.

Lessee obligations to return the leased item in a specified condition.

The Board were presented with three alternative views of when an obligation could arise in these circumstances:

• View A: At the end of the lease term.
• View B: When the leased item falls below the contractually specified condition.
• View C: When the leased item is delivered or made available to the lessee.

The majority of the Board members were inclined toward View B. One Board member noted that this may be at the beginning of the lease.

Lessee obligations to maintain the leased item

The Board were presented with two alternative views of when an obligation could arise in these circumstances:

• View A: When the leased item falls below the specified maintenance standard.
• View B: When the leased item is delivered or made available to the lessee.

The Board noted that these liabilities were similar to lessee obligations to incur costs to return the leased item and therefore the majority of the Board members were inclined toward View A.

Measurement of the liability – Initial measurement

The Board discussed initial measurement of liabilities, specifically whether they should be measured at fair value or at the expenditure required the settle the present obligation. The Board noted that other liabilities within the leases project have been recognised at fair value. Some Board members indicated that they did not believe there would be a difference between fair value and the treatment under IAS 37. No decisions were made.

Measurement of the liability – Subsequent measurement

The issue of subsequent measurement of such liabilities was not discussed.

Do lessee obligations give rise to assets for the lessor?

The Board briefly discussed whether terms in a lease contract that require a lessee to either return the leased item to the lessor in a specified condition or maintain the leased item would appear to create valuable rights for the lessor. The Board agreed that no additional asset would arise.

Variable Lease Payments

The Board briefly discussed agenda paper 12B.

In relation to lease payments with a variable factor based on price changes or an index, the Board agreed that the lessee has a liability that includes both fixed and variable components of the future rentals. No decisions were made in relation to subsequent measurement.

In relation to lease payments with a variable factor based on the lessee's financial or operating performance from the leased item the Board noted that this issue was similar to the 'sale of future revenues'. The Board noted that such sales were unlikely to be an obligation, however no decisions were made.

Friday 19 October 2007 (morning only)

12 Board Members were present (Sir David Tweedie was not present).

XBRL (eXtensible Business Reporting Language) (Education session)

The Board participated in a session on the eXtensible Business Reporting Language (XBRL) project led by staff of the XBRL team of the IASC Foundation. The session was designed to refresh Board members' knowledge of the XBRL project and to bring them up to date on developments within the IFRS-related aspects of the project.

In particular, the IASCF staff noted that its XBRL project team has expanded and now includes technical, accounting, and translation specialists. The XBRL team has put in place procedures that should enable it to ensure that revised IFRS XBRL taxonomies are released at the same time as the annual Bound Volume.

Although the session was informational, several Board members expressed the hope that there could be even more cooperation between the XBRL project team and the IASB staff such that potential problems or inconsistencies in IASB standards could be identified through the XBRL tagging/taxonomy process, before the standard is issued.

Related Party Disclosures – Amendments to IAS 24

Objective and Scope

The Board agreed that:

• The exemption proposed in the Exposure Draft (ED) should not be extended to entities controlled by an entity that is not a State.
• The exemption from disclosure proposed in the ED should not be extended to other related party relationships.
• It would not reconsider fundamentally the definition of a related party. Such a re-consideration was beyond the scope of this project.
• It would not permit an entity to avoid disclosure on the basis that, notwithstanding its 'best endeavours', it had been unable to obtain the necessary information on related party relationships.
• It would not provide any materiality guidance in IAS 24.
• It would not provide any exemption from IAS 24 disclosure for subsidiaries whose parents prepare consolidated financial statements that are available for public use.

State-controlled entities

The Board redeliberated the fundamental issue raised in the ED, in particular, how to determine whether an entity related to the State should be exempted from IAS 24's disclosure requirement. The staff had proposed an approach that was different in certain respects from that proposed in the ED. However, it was apparent very quickly that Board members were not in favour of the staff recommendations and were in favour of an approach very similar to that proposed in the ED.

The Board concentrated on the following paragraphs from the ED:

The staff noted that comment letters had identified a confusion in paragraph 17A as to whether 'influence' was 'significant influence' as used in IAS 28 Investments in Associates or something else (presumably a lesser degree).

Board members noted that, read in context, ED paragraphs 17A-17E demonstrate that 'influence' in IAS 24 need not be 'significant influence' as that term is used in IAS 28.

After an extended discussion, the Board agreed (one opposed) that:

• If the State controls or exercises significant influence over the reporting entity (that is, the State actively participates in the policies and affairs of the associate) and the counterparty [17A(a)], the exemption would not apply;
• If there are indications that there are 'influenced transactions' [17A(b)], the exemption would not apply.
• When related parties transact business at non-market rates (otherwise than by way of regulation) [17B(a)], the trigger in 17A(b) is deemed to be met by definition and the exemption would not apply.

  The Board agreed to clarify in paragraph 17E that once it is determined that the exemption does not apply, all disclosures required by IAS 24 are required (that is, the disclosures are not limited to 'influenced transactions').

  The Board agreed that, with respect to paragraph 17A(a), if the State does not exercise significant influence (that is, it could but does not participate in determining the operating and investing policies of the associate) and there are no 'influenced transactions', the proposed exemption would apply and no IAS 24 disclosures would be required.

  The Board acknowledged that its approach would create disclosure 'penalties' for off-market transactions. However, it also noted that it did not intend by its vote to scope in government incentives, including low-interest loans and regional development programmes, offered by a State acting as the State.

  The Board agreed that the indicators in 17B(b) and (c) were equal in weight and that the staff should investigate combining those indicators with those in 17C. The staff will bring this issue to a subsequent meeting.

  The Board will continue redeliberations at a subsequent meeting.

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