Tuesday 11 March 2008 (afternoon only)

Financial Statement Presentation

Presentation of Income Tax Information

(FASB staff joined by video conference)

The staff introduced a paper which considered two issues:

1. Revisiting the Board's view, expressed in September 2006, that income taxes should be presented in a separate section in the financial statements, eliminating the need for intraperiod tax allocation.
2. The information an entity should disclose in the notes if income taxes are no longer allocated.

Issue 1: Presentation of income taxes

This issue was brought back to the Board for consideration as some IASB members have questioned the Board's preliminary view on the issue. The staff believed that given the amount of constituent input into the issue it would be helpful for all Board members to be reminded of the reasoning behind their views.

In presenting the paper the staff changed their stated recommendation. Their original recommendation was to not revisit the issue of income tax presentation until the Board has received comments on their preliminary view regarding the presentation of income taxes and related note disclosures through the normal due process procedures. The revised staff recommendation was that an analysis should be included within the discussion paper which expresses no preferred view, and includes at least one alternative.

The staff asked the Board to consider this recommendation.

One Board member noted that the issue to be addressed was one of disaggregation of the income tax number - whether the Board will require, prohibit or encourage disaggregation. A number of Board members expressed the view that some form of disaggregation is useful, and that it is not always arbitrary.

Four alternative methods of allocating (or disaggregating) income taxes was presented in the staff paper:

Alternative A. Allocate all income tax effects to each category/section in the basic financial statements. As a result, every category/section would be calculated on an after-tax basis.

Alternative B. Allocate income tax effects to selected categories, such as the operating category, and the other comprehensive income (OCI) and discontinued operations sections. Allocation to those categories/sections would be similar to the allocation that is done under existing standards (allocation to the operating category would be instead of allocation to continuing operations).

Alternative C. Allocate income tax effects to OCI items (or to the OCI section as a whole) and present the remaining income tax amount in the income tax section. (This would be a transitional alternative, only for the purpose of preserving a net income subtotal.)

Alternative D. Present on a net-of-tax basis transactions for which the income tax effect can be objectively calculated (a discrete transaction). The remaining income tax expense/benefit for the period would be presented in the income tax section as a single, unallocated amount. Example of discrete transactions that could be presented on a net-of-tax basis are a gain on the sale of real estate held for investment purposes or a gain on the sale of a business.

In addition, one Board member noted that a fifth alternative was also possible in which income tax effects were allocated, and net income was presented.

The Board discussed whether they supported the allocation of income tax effects or not. Views around the table were split, with some Board members expressing support for the Board to retain its original decision not to allocate income taxes, whilst others were in favour of allocating. Those Board members in favour of allocation suggested that in the vast majority of cases allocation can be achieved and, if allocation is required within the note disclosures to the financial statements, they see no reason why this cannot also be done for the financial statements. Other Board members expressed support for the revised staff view that an analysis should be included within the discussion paper which expresses no preferred view, and includes at least one alternative (a 'neutral' view).

The Board were asked by the staff to vote on how the discussion paper should proceed. They were asked (in three separate votes) to vote as to whether the discussion paper should provide a 'neutral' view, a preferred view of not allocating, or a preferred view of allocating. A simple majority (7 in favour) voted in favour of expressing a 'neutral' view. No majority was gained in voting for a preferred view of not allocating (4 in favour), or a preferred view of allocating (6 in favour). The Board therefore, agreed to include an analysis within the discussion paper which expresses no preferred view, and includes at least one alternative (a 'neutral' view).

The Board then moved on to discuss which of the five alternatives (outlined above) might be Board prefer to include in the discussion paper in relation to the possible methods of allocating income tax effects. Board members expressed mixed views and no conclusions were made. Staff were asked to produce a number of examples illustrating how the alternative allocation methods might be applied, and to include these in the discussion paper. The Board will reconsider the issue once the examples are completed.

Issue 2: Note disclosure if income taxes are not allocated

The Board then moved on to consider what information an entity should disclose in the notes if income taxes are no longer allocated. One Board member expressed the view that if the intention is not to allocate then requiring detailed disclosure is just another way of requiring allocation - albeit the information is just more difficult for users to find. Overall the Board was supportive of the staff view that an entity should disclose information in the notes to financial statements that will assist users in analysing income tax information, although the final format of that disclosure was not decided. Disclosures recommended by the staff (in addition, or as a replacement to IAS 12 and FASB Statement 109) included:

• (a) An explanation of the relationship between income tax and comprehensive income.
• (b) A qualitative discussion about each significant reconciling item in the reconciliation.
• (c) A qualitative discussion that explains the impact of income taxes on the operating, investing, financing, discontinued operations and other comprehensive income categories/sections of the statement of comprehensive income (to the extent not already covered by (b) above).

The staff advised that the next steps in the process was for a pre-ballot draft of the discussion paper be sent to Board members for the April Board meeting.

Annual Improvements Project – 2007

Analysis of Comments on the ED

This session was a continuation of the redeliberations from the February Board meeting on the Annual Improvements exposure draft published in October 2007.

The purpose of this session was to get Board approval for another ten staff recommendations in response to comment letters received from constituents to allow proceeding to balloting for these amendments. The items presented to the Board at this meeting were:

• Government loans with a below-market rate of interest (IAS 20)
• Unit of production method of amortisation (IAS 38)
• Components of borrowing costs (IAS 23)
• Disclosure of estimates used to determine recoverable amounts (IAS 36)
• Current/non-current classification of derivatives (IAS 1)
• Measurement of subsidiary held for sale in separate financial statements (IAS 27)
• Presentation of finance cost (IFRS 7)
• Status of the Implementation Guidance (IAS 8)
• Point of sale costs (IAS 41)
• Biological transformation (IAS 41)

The Board reaffirmed that it plans to publish the final Annual Improvements document in May.

Government loans with a below-market rate of interest (IAS 20)

The purpose of this amendment is to remove an inconsistency between IAS 20 Government Grants and Disclosure of Government Assistance and IAS 39 Financial Instruments: Recognition and Measurement with regard to imputation of interest on below-market interest rate loans. The amendment would change IAS 20 to require imputation of interest on such loans and that the difference between proceeds received and carrying amount on initial recognition is a government grant.

Commentators raised practical difficulties as such loans include specific terms that are not present in commercial loans and that subjective adjustments would have to be made by preparers to arrive at fair value. The staff acknowledged those concerns, but expressed doubts about practical difficulties making the amendment impracticable and noted that it believed the benefits outweigh the cost.

One Board member asked how this imputation is done in practice. The Board had a short discussion on this. Another Board member noted that the amendment addresses two issues: the loan and the government grant. It was noted that constituents might be concerned with recognising a profit on day one and interest expense in later periods.

The staff then noted that it proposes to change the drafting of new IAS 20.10A based on the comment letter of one constituent as it would avoid using the term 'imputation of interest', which is a term not used in IAS 39. Furthermore, it proposed to require prospective application of the amendment, that is, the amendment is applicable only to new government loans.

The Board agreed.

Unit of production method of amortisation (IAS 38)

The amendment proposes to remove the last sentence in IAS 38.98 as the term 'rarely, if ever' is interpreted in practice as meaning 'never'.

The comment letters received raised concerns about the continuing divergence as 'expected pattern of consumption of the expected future economic benefits embodied in the asset' would need clarification and about the possible implication from the Basis for Conclusions of this amendment that the change could only apply to service concession arrangements.

The staff noted that it will circulate proposed changed wording for the Basis for Conclusions to address the last point. Regarding the first issue staff highlighted that amortisation, by its very nature, is an estimate and recommended to continue with the amendment.

The Board agreed.

Components of borrowing costs (IAS 23)

No Board member requested to discuss this issue further. Accordingly, the proposed amendment will go directly to balloting.

Disclosure of estimates used to determine recoverable amounts (IAS 36)

No Board member requested to discuss this issue further. Accordingly, the proposed amendment will go directly to balloting.

Current/non-current classification of derivatives (IAS 1)

The proposed amendment aims to address inconsistent guidance in IAS 1 regarding the classification of derivatives as current or non-current. IAS 1.68 and IAS 1.71 seem to imply that derivatives always have to be classified as current.

Constituents were concerned that the issue arises from the presumption that 'held primarily for the purpose of trading' in IAS 1 is equivalent to 'held for trading' in IAS 39 and that the amendment proposed would not resolve this issue. A second concern was that the label 'held for trading', which is used as a heading for a measurement category in IAS 39, causes the confusion and IAS 39 should be amended as appropriate.

One Board member expressed some sympathy over the comment on changing IAS 39. The staff noted that IAS 39 could not be easily fixed and that the approach taken in the exposure draft comes to the same result.

The staff proposed to proceed with the amendment but to revise the wording in IAS 1.68 and IAS 1.71 to better explain the differences in the similar terminologies. The staff provided proposed wording, but this wording was omitted from the observer notes.

The Board agreed to the revised wording and to proceed with the amendment.

Measurement of subsidiary held for sale in separate financial statements (IAS 27)

The amendment changes IAS 27 to clearly state that an investment in a subsidiary for which an entity opts to account for under IAS 39 in the entity's separate financial statements is continued to be accounted for under IAS 39 when it is classified as held for sale.

The Board had a short discussion on the implications of those amendments on the separate and consolidated financial statements of the same entity.

The staff recommended proceeding with the amendment. The Board members were also presented with drafting changes that should clearly state the accounting for investments in subsidiaries accounted for using the IAS 39 model. These changes were omitted from the observer notes.

The Board agreed.

Presentation of finance cost (IFRS 7)

No Board member requested to discuss this issue further. Accordingly, the proposed amendment will go directly to balloting.

Status of the Implementation Guidance (IAS 8)

The amendment aims to clarify the status of implementation guidance as the current wording of IAS 8.7 could be misinterpreted as requiring mandatory application of the Implementation Guidance.

Respondents to the Exposure Draft expressed concerns over the perceived reduction of weight of the Implementation Guidance in IFRSs.

The staff proposed two possible approaches to address concerns by constituents:

• View A: Retain paragraph 9 to IAS 8 largely unamended; and proceed to amend only IAS 8.7 and IAS 8.11.
• View B: Redraft the amendment to IAS 8.9 to take into consideration the varying context and weight of different types of guidance between standard; and proceed with amendments to IAS 8.7 and IAS 8.11.

The proposed changes to the amendments for both view A and view B were omitted from the observer notes.

The staff recommended proceeding with the approach taken in view B.

The Board had a short discussion to understand constituents' concerns and agreed to proceed with view B.

Point of sale costs (IAS 41)

The amendment proposes to remove the term 'point of sale costs' with the notion 'costs to sell'.

Some constituents expressed concerns that the new term 'costs to sell' does not have the same meaning as 'point of sale costs'.

The staff presented in the Agenda Paper a detailed analysis of both terms and concluded that the terms have the identical meaning in the context of the standard. It accordingly proposed to continue with the amendment as drafted, but also proposed to expand the Basis for Conclusions to clarify that incremental costs refer to costs that arise on sale.

The Board agreed.

Biological transformation (IAS 41)

The amendment proposes to remove the prohibition on taking 'additional biological transformation' into account when determining fair values using discounted cash flows.

Respondents that were not supportive of the amendment highlighted that it would conflict with the objective of measuring the fair value of the asset in its current location and condition. Other respondents expressed concerns over the proposed inclusion of harvesting in the definition of biological transformation on the basis that harvesting is carried out by humans and is therefore not part of the biological transformation process.

The staff proposed to finalise the amendment but to make the following changes to the ED:

• Expand the Basis for Conclusions to make clear that the reason for using a discounted cash flow model is to estimate a market based value of the asset in its current location and condition
• Remove the word harvest from the proposed change of the definition of 'biological transformation' and replace the term 'biological transformation' with the term 'biological transformation or harvest' throughout the standard where appropriate
• Require prospective application of the amendment

With regard to the first point one Board member stated that this clarification would better be placed in the main body of the standard. The staff agreed and noted that it would change the drafting accordingly.

The Board agreed to proceed with the amendment.

Way forward

All items discussed at this meeting will go to balloting on an item by item basis (after redrafting, if applicable). The staff noted that it might not need the April Board meeting to discuss sweep issues.

Wednesday 12 March 2008

IFRS for Small and Medium-sized Entities (SMEs)

The Board held an initial discussion on the responses to the February 2007 Exposure Draft of a Proposed IFRS for Small and Medium-sized Entities (the ED) based on a high-level comment letter analysis prepared by the staff. No decisions were made. The staff noted that 162 comment letters have been received and that 116 companies from 20 jurisdictions participated in the field tests. In addition, the staff pointed out that approximately 50 roundtable discussions were held around the world.

The Board was particularly interested in the outcome of the field tests, that is, the problems encountered in implementing the ED. The staff responded that the quality of implementation varied, but that the problems encountered by the field test companies were relatively minor; in particular, no company was unable to implement the ED.

One Board member asked whether there is a correlation between the quality of implementation and the proximity of the respective national GAAP to IFRSs. The staff said they would try to include this information in the detailed field test analysis.

General issues raised in the comment letters

The staff highlighted the following key issues raised by constituents.

Need for an IFRS for SMEs

Some comment letters still questioned the need for an IFRS for SME even though this issue was not addressed in the invitation to comment. These respondents suggested that SMEs should follow tax accounting requirements and should not keep two sets of books.

The staff pointed out that it is not the IASB's decision which entities have to apply an IFRS for SME but that this decision has to be made in each jurisdiction. The staff expressed the view that the IFRS for SME is intended for those entities that are required to prepare general purpose financial statements that are used by lenders, vendors, credit rating agencies, outside shareholders, and other capital providers.

The Board agreed.

One Board member requested that the final standard should clarify what general purpose financial statements means to avoid any confusion.

Cross references to full IFRSs / Accounting policy options

A vast majority of respondents recommended that the IFRS for SME should be a (fully) stand-alone standard and therefore suggested to remove all cross references to full IFRSs or to keep the number of cross-references to an absolute minimum. Further, a majority of constituents expressed the view that all or most options in full IFRSs should also be available to SMEs. Some of these respondents noted that this would be particularly important for subsidiaries of entities reporting under full IFRSs.

The staff raised the concern that having a stand-alone standard including all or most options available under full IFRSs could significantly increase the size of the IFRS for SMEs. This would contradict the goal of keeping the standard simple which was also required by these constituents.

It seemed that a majority of Board members was in favour of keeping the options and cross references, though no formal decision was made.

One Board member suggested to keep the printed version of the Standard as simple as possible but to include links to full IFRSs relating to the options in an electronic version. The Board agreed to take this proposal into consideration.

Anticipating changes to full IFRSs

Some respondents pointed out that anticipating decisions made in current Board projects would not be an appropriate policy because such potential changes have not yet been through a complete public due process.

The staff noted that in the ED the elimination of the corridor approach and the elimination of certain exceptions to recognition of deferred taxes could be seen as anticipated changes.

No strong views were expressed.

Disclosure requirements

Many constituents suggested making further simplifications to the disclosure requirements.

The staff pointed out that the respondents often did not specify which disclosures they consider as being not helpful or too complex.

One Board member expressed the view that there are areas where even more disclosures should be required for SMEs, for example, significant customers and other economic dependencies. The staff responded that it will consider this issue in the recommendations that it will bring to the Board in May.

The Board encouraged the staff to address the disclosure issue with the working group, in particular, to seek input from the representatives of users on this topic.

Title of the standard

Many constituents noted that the term 'small and medium-sized entities' implies a size test because it is defined by using quantitative thresholds in some jurisdictions. Therefore, these respondents suggested alternative terms such as 'non-publicly accountable entity' or 'non-public-interest entity'.

The Board acknowledged these concerns and asked the staff to find a more appropriate title for the standard.

Scope

Some constituents recommended reconsidering whether the IFRS for SMEs is suitable for micro-entities, small listed entities, and other entities that have public accountability because they act in a fiduciary capacity such as travel agencies and unit trusts managed for a small number of investors.

With regard to the micros, Board members noted that jurisdictions will decide which entities should use the IFRS for SMEs and that, in turn, will depend on whether the micro-sized entity is required to produce general purpose financial statements. With regard to the small listed entities and others that act in a fiduciary capacity, there seemed to be no willingness among Board members to widen the scope of the IFRS for SMEs for any of these entities.

Use of fair value in general

Many respondents suggested restricting the use of fair values to situations where a market price is quoted or readily determinable, plus all derivatives.

The staff noted that in the ED the mandatory use of fair values as the basis for measuring non-financial assets is already restricted to agricultural assets. However use of a current valuation cannot be avoided for impairment testing and valuation allowances for many both financial and non-financial assets.

No strong views were expressed and the staff will prepare a detailed analysis on this topic for discussion at a future meeting.

Post-issuance review / Interpretations of the IFRS for SMEs

Some constituents recommended that the Board commit to conduct comprehensive post-implementation reviews on a regular basis (approximately every two years). In addition, a formal process should be implemented for amending the Standard and developing Interpretations.

Regarding the first issue there seemed to be consensus to conduct such a review after two full years of implementation. The staff noted that the second issue is also a 'version control issue' when an IFRS is amended – do cross references continue to refer to the old version or automatically refer to the revised IFRS.

Regarding the second issue the Board did not support developing a formal process for publishing interpretations of the IFRS for SMEs. The Board noted that substantial guidance for implementing the IFRS for SMEs will be provided by the IASC Foundation Education Team's planned IFRS for SMEs training materials, which are expected to be released in mid- to late-2009. Further, the implementation guidance in full IFRSs can be used by SMEs under the hierarchy in paragraph 4 of section 10 of the ED. It was decided to clarify this in the standard.

Key issues related to specific sections in the ED

The staff highlighted the following key issues arising from the comment letters:

• Format of financial statements
• Requirements for statements of cash flows
• Requirements for consolidated financial statements
• Amortisation of goodwill and other indefinite life intangibles
• Default measurement basis for financial instruments
• Measuring stock options if equity instruments are not traded (intrinsic value)
• Proposed simplified value in use calculation for impairment test
• Accounting for employee benefits
• Accounting for deferred taxes

The topics were discussed in detail, but will be part of the detailed comment letter analysis to be presented at the April 2008 Board meeting.

Work plan

The Board agreed to proceed with the project as follows:

• April 2008: Second education session including a detailed comment letter analysis and report on field tests
• May to July 2008: Decisions on technical issues
• September or October 2008: Deliberation of revised draft of the ED
• December 2008: Vote on final standard

IFRS 1: First time adoption of International Financial Reporting Standards – Transitional issues faced by jurisdictions expected to adopt IFRSs in coming years

The Board discussed submissions received from the Canadian Accounting Standards Board (AcSB) and the Canadian oil and gas industry. The submission of the AcSB addresses IFRS 1 issues of jurisdictions expecting to adopt IFRSs in the near future. The issue raised by the Canadian oil and gas industry relates to practical difficulties encountered by Canadian entities applying full cost accounting under Canadian GAAP.

The issues were presented by AcSB staff and a representative of the Canadian oil and gas industry and propose amendments to IFRS 1 in relation to:

• Derecognition of financial assets and liabilities
• Reassessment of accounting under previous GAAP
• Retrospective restatement of fair values
• Oil and gas industry issue: Full cost accounting

Derecognition of financial assets and liabilities

The AcSB staff recommended that the exception regarding the derecognition requirements of IAS 39 in paragraph 27 of IFRS 1 be revised to refer to transactions that occurred prior to 'the date of transition to IFRSs' in order to address the transitional issues of countries whose transition date to IFRSs is significantly later than 1 January 2004 (such as 1 January 2011 for Canada).

The IASB staff noted that 1 January 2004 is the date the derecognition requirements of IAS 39 became effective and is therefore not related to transition dates. In addition, the IASB staff was of the view that the practical problems raised may be covered by other exemptions in IFRS 1 relating to retrospective application of IFRSs.

The Board agreed and decided not to change paragraph 27 of IFRS 1.

Reassessment of accounting under previous GAAP

This proposal relates to jurisdictions that have been gradually phasing-in IFRSs rather than making a one-time complete changeover. Under a phase-in approach, individual IFRSs will be incorporated into national standards before entities are able to claim full compliance with IFRSs.

The AcSB staff proposed precluding reassessment of previous GAAP accounting when that previous GAAP adopted the respective IFRS word for word and provided the same transitional provision as in accordance with IFRS 1 except for the transition date. The AcSB staff noted that in these cases, even though the accounting under previous GAAP is identical to that in accordance with IFRSs, IFRS 1 would require an entity to again reassess that accounting retrospectively.

Some Board members disagreed and stated that the type of previous GAAP should not influence the first-time adoption. Other Board members acknowledged that the efforts of reassessing things twice (e.g. all leasing contracts of an entity) may outweigh the benefit.

Eventually, by majority vote the Board decided to proceed with the proposal. The AcSB staff was asked to redraft the proposal, in particular, to clearly identify the scope of such an amendment. There seemed to be a consensus that any amendment should only apply when the previous GAAP adopted the respective IFRS word for word and that reassessment should 'not be required' but not 'precluded'.

Retrospective restatement of fair values

The AcSB staff recommended adding a principle to IFRS 1 prohibiting the retrospective restatement of fair values unless the fair value information was determined or was available as at the date IFRSs required the fair value to be determined. The Board agreed and asked the AcSB staff to draft an amendment for discussion at a future meeting.

Oil and gas industry issue: Full cost accounting

The representative of the Canadian oil and gas industry pointed out that this issue appears to be country specific. The representative explained that under full cost accounting, costs incurred during the exploration and evaluation phase are accounted for in a manner substantially consistent with IFRS 6 Exploration for and Evaluation of Mineral Resources. Once it is determined that the exploration has been successful, the accumulated costs are accounted for in a single cost centre for each country and as a single amount. He pointed out that consequently the unit of account under IFRSs is smaller than under full cost accounting and that recreating the historical cost or determining the fair value for each oil and gas asset would be impractical.

The proposal was to allow these entities allocating the existing carrying amount of each cost centre to the oil and gas assets within that cost centre (a so called 'CGU approach').

Most of the discussion was spent on understanding the implications of cost accounting. Finally, the Board decided to proceed with this proposal and asked the AcSB staff to prepare a comprehensive description of the issue.

The Board postponed the decision in which type of project any amendments should be addressed.

IFRIC Update

IFRIC staff presented an update to the Board from the March 2008 IFRIC meeting. Deloitte observer notes from the March IFRIC meeting are Available on IAS Plus.

The Board was informed that the IFRIC expects to finalise its work on D21 Real Estate Sales and D22 Hedges of a Net Investment in a Foreign Operation in May 2008 and to send the Interpretations to the Board for approval in June 2008. IFRIC staff noted that the consensus in D21 may require a subsequent amendment to IAS 18 Revenue and asked the Board for short-term feedback on this issue.

Thursday 13 March 2008

IAS 39: Financial Instruments Recognition and Measurement – Responses to ED on exposures qualifying for hedge accounting

The staff presented the Board with an analysis of the comment letters received on the Exposure Draft (ED) on proposed amendments to IAS 39 Financial Instruments: Recognition and Measurement – Exposures Qualifying for Hedge Accounting. The exposure draft aims to clarify the Board's original intentions regarding risks and portions of financial instruments that are eligible for hedge accounting.

The staff informed the Board that it would provide an overview of the main issues raised by respondents, but that it would not express recommendations or ask the Board to make decisions. It noted that this would be part of a future Board meeting.

The staff provided the Board with some background information to the amendments and informed the Board that it commentators expressed overall support for the aim to clarify the requirements for hedge accounting under IAS 39. The staff noted that whilst most respondents supported the ED, they did so only as it represented a practical and interim solution, but would prefer a principle-based approach.

Further areas of concern were non-financial items and impact of the requirements in AG99E in the exposure draft on using purchased options.

On the issue of principles versus rules, one Board member noted that no one could really articulate a principle, and that this would be the reason one needs rules. The IFRIC chairman highlighted that IFRIC was not looking for a new principle but for the principle underlying the Board's original intentions when drafting IAS 39.

The staff noted that many entities would apply the requirements in IAS 39 regarding portions appropriately with the possible exception of hedge accounting with an option.

The staff then turned to the questions asked in the ED. The first question asked if constituents agree with the restriction of the risks eligible for hedge accounting. The main concerns were:

• Having a closed list of risks
• Contradiction with the IASB's goal of principle-based standard-setting
• 'Missing' items: equity price risk denominated in foreign currency, inflation risk, and risks in non-financial items

Some Board members expressed their concern about extending the list and that some of the issues were very fact-specific.

The second question asked constituents to comment on the ED specifying the portion of cash flows that can be designated. Many constituents expressed concerns about the exclusion of non-financial items and proposed possible 'principles' in their comment letters. One Board member noted that those commentators would like to have a principle that would only require the existence of a correlation to qualify for hedge accounting.

The staff then proceeded to the third question in the ED. Constituents were asked if they expected major impacts on existing practice. The staff noted that overall respondents would not expect a major impact with the exception of the use of purchased options for hedge accounting (aswsuming the ED makes clear that the time value of the purchased option could not be deferred).

The fourth question asked constituents on the appropriateness of the transition provisions of the ED. Constituents commented that instead of full retrospective application it would be desirable to have prospective or limited retrospective application for the amendments.

One Board member pointed out that the only real issues were hedging with purchased options and inflation hedging. This Board member noted that the approach to hedging with purchased options that has evolved in practice was wrong in the first place and that this means retrospective application would be appropriate. The Board member noted further that the issue on inflation hedging was raised when such product were developed so the impact from retrospective application should be low.

The staff informed the Board that it would return at the April meeting to give the Board a plan how to proceed with the ED.

Fair Value Measurement – Whether the fair value measurement project should have a working group or other type of specialist advisory group

The Board has on its agenda a project on fair value measurement that aims to provide guidance on how to determine fair value if a standard requires or allows fair value measurement.

The staff informed the Board that it worked under the assumption that a working group would not be required as there is an overlap with existing working groups that could be involved as required. On further reflection, the staff has concluded that this approach does not work as it proved difficult to involve the other working groups without a clear mandate.

The staff also believes that it would not be necessary to set up a formal working group but instead to establish a 'technical advisory group' (TAG) that could work on a informal, as-needed basis. Information exchange could be done in person or via electronic communication. However, the IASB Due Process Handbook requires the Board's consent for not establishing a working group for a major project.

One Board member raised the question whether the Valuation Resource Group of the FASB could be involved. The staff answered that this group would interpret and implement SFAS 157, the US standard providing fair value measurement guidance. The Board agreed not to establish a working group, but to form a technical advisory group instead.

Extractive Activities Research Project – Definitions of reserves and resources

The IASB were joined by members of the IASB's Extractive Activities Research Team and by staff from the Office of the Chief Accountant, US Securities and Exchange Commission (SEC).

The session was an opportunity for the Board to hear about developments occurring in the United States of America in relation to oil and gas reserve definitions and disclosure requirements. In particular, the SEC staff outlined the content of the recent Concept Release on Possible Revisions to the Disclosure Requirements Relating to Oil and Gas Reserves (PDF 380k). The Concept Release was issued to gauge the interest in a revision of the current requirements for oil and gas reserve disclosures, which date from between 1978 and 1982. In particular, the SEC was aware of concern that their rules had not adapted to current practices and might not provide investors with the most useful picture of oil and gas reserves. This issue is relevant to the IASB's research project on extractive activities, because a central issue in the IASB's project is the definition of reserves and resources. The session shared information, and no decisions were made.

Subject to the usual SEC disclaimers, the staff noted that their preliminary analysis of the comments they have received fell broadly into three groups:

• those who thought that the current requirements gave a degree of standardisation that was desirable and need not be changed dramatically;
• those who favoured more radical change, perhaps adopting the approach to reserve evaluation developed by the Society of Petroleum Engineers, in particular the SPE's Petroleum Resource Management System (PRMS); and
• those who wanted something somewhere in between.

Contentious areas included the classification and disclosure of reserves; whether disclosure of reserves other than 'proved reserves' should be permitted; pricing; and issues related to 'unconventional' reserves (for example. tar sands and oil shale).

The SEC staff noted that the comment letter analysis was still under way and that the Commission had not yet determined whether any rulemaking is necessary.

A Board member asked the SEC staff what was meant by the Concept Release's Question 1, which asked whether the SEC should develop a 'principles-based rule'? The staff responded that the Commission were trying to find a way to ask registrants 'to do the right thing in good faith'. The Board member was relieved that the SEC "had no more idea of what 'principles-based' meant" than he did.

Another Board member asked whether the SEC had given thought to whether any rules it might issue, especially with respect to unconventional mineral resources and means of extraction, would become the standard for mining companies also, or whether mining entities would continue to have more latitude with respect to reserve disclosure. The SEC staff acknowledged the issue but had no ready answer (nor, the Board member noted, does the IASB).

With respect to pricing reserves, the same Board member noted that the current SEC rules require a trailing twelve-month average, whereas oil is priced on a forward basis. He was concerned that the SEC might continue to insist on historical information, while most market participants were interested in forward-looking information. Again, the SEC staff acknowledged the trade-off between the consistency that historical information would give and the decision-usefulness for forecasting future cash flows that forward-looking pricing would provide. This would be an issue for the Commission to decide.

The coordinator of the Research Team noted that of the 80 letters received by the SEC, 12 had been submitted by entities represented on the IASB's advisory panel and a further two had participated in the development of letters submitted by professional organisations.

Friday 14 March 2008 (morning only)

Extractive Activities Research Project

Reserve and Resources Definitions and Asset Recognition

The Board was joined by members of the IASB's Extractive Activities Project Team, representatives of the Society of Petroleum Engineers' Oil and Gas Reserves Committee (SPE) and (by video link) the Committee for Mineral Resources International Reporting Standards (CRIRSCO).

The meeting discussed progress made by the SPE and CRIRSCO towards convergence of their respective definitions of reserves and resources and whether those definitions might be suitable for use in a future IFRS addressing 'upstream' mineral and hydrocarbon/ petroleum extractive activities. This review was undertaken at the IASB's invitation.

The SPE and CRIRSCO convergence team determined that there was 'a high degree of compatibility in the classification logic that petroleum and minerals evaluators apply in determining quantities of their respective materials that reside in a field or deposit and can be extracted and marketed'. However, 'full convergence' was not justified.

The alignment was illustrated by the following diagram:

Petroleum and minerals both use 'proved and probable' reserves and resources to mean reserves that are 'more likely than not' (to use the IASB term). The petroleum sector uses 'possible' resources to describe what the minerals sector call 'inferred' resources, although for practical reasons the mineral sector does not assign a high degree of confidence to such resources.

The Board discussed issues surrounding the definitions proposed by the SPE/CRIRSCO and posed questions to the representatives present. It was noted that, although the definitions were relatively fixed, the guidance to apply the definitions was more easily changed. In particular, the ongoing work of the US Securities and Exchange Commission with respect to disclosures by oil and gas entities (see IASPlus.com for 12 March 2008) might have an effect on the model as it is today. In particular, the CRIRSCO representative noted that mineral exploration entities commenting to the SEC's Concept Release urged that minerals and oil and gas should have a common disclosure regime.

It was noted that the mineral and petroleum sectors view proved and probable reserves slightly differently for financial reporting purposes (primarily because of the SEC rules), but operationally they are a continuum that is constantly reassessed under their respective business models.

This part of the session was informational and no decisions were made. However, the IASB Chairman thanked the SPE and CRIRSCO for rising to the challenge posed to them by the IASB and for the significant contribution their report had made to the IASB's research project.

The Board approved a staff recommendation that the forthcoming IASB research discussion paper be drafted on the basis that the best prospects for defining minerals and oil and gas reserves and resources, at this stage, appears to be with using the CRIRSCO and SPE definition systems. This would enable the IASB to propose, where appropriate, comparable accounting and disclosure requirements across the minerals and oil and gas industries. In addition, the progress of the SEC and UN Framework Classification for Fossil Energy and Mineral Resources (UNFC) processes be monitored to confirm whether those systems might offer viable alternatives for defining reserves and resources in an IFRS.

Applying the Asset Definition and Recognition Criteroa

The Board discussed alternatives identified as to what might constitute control of a mineral resource by the research project team.

View A

View A is that control is the absolute right to extract the mineral or oil and gas from the ground. This view implies that all the rights (including permits, licences and approvals) necessary for development and production must be in place, including governmental and environmental approvals, agreements with landowners and others with rights.

View B

View B places more emphasis on the unconditional ability to apply for any additional rights, denying other entities access to the future economic benefits. Under View B, control over minerals or oil and gas reserves and resources exists where the entity holds some present legal rights (for example, the unconditional right to explore according to the terms of an exploration permit) and the right to apply for the outstanding rights that are a prerequisite to having the absolute right to extract the mineral or oil and gas (for example, the conditional rights to develop and produce the minerals or oil and gas located on the property). By definition the entity controls the unconditional rights. Development may be conditional on several factors, including determination that there is a resource that is suitable for development (size, structure, mineralisation etc) and the obtaining of the necessary permits etc.

The Project Team favour View B, which they see as more aligned with how such projects are managed in practice. Some Board members were sympathetic but disagreed with the conclusion, particularly because they saw problems with the unit of account (the right to exploit the mineral vs the right to apply to exploit the mineral). Board members wanted to know the unit of account before agreeing to the Project Team's recommendation. The Project Team will return later with a revised recommendation.

Post-employment Benefits

The Board held a very brief discussion of a sweep issues arising on the forthcoming Discussion Paper of Preliminary Views on Amendments to IAS 19 Employee Benefits.

The Board agreed to amend the definition of contribution-based promises such that it is clear that the features of a contribution-based benefit promise is that it is independent of both longevity risk and demographic risk. The exact wording was to be agreed out of session.

The Discussion Paper is expected to be published on 27 March 2008.

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