Tuesday 17 February 2009 (afternoon only)

Annual Improvements 2008-2009

Proposed amendment to IFRS 8 Operating Segments: Disclosure of information about segment assets

The Board agreed to amend IFRS 8 paragraph 23 to clarify that a measure of total assets shall be reported if such a measure is reported to the chief operating decision maker. This was the Board's intent when it issued IFRS 8 but some constituents found the wording of the requirement confusing. The reasoning in BC 35 will also be amended to explain the change.

Proposed amendment to IAS 39: Financial Instruments: Recognition and Measurement - Cash flow hedge accounting

The Board agreed to amend IAS 39 paragraph 97 to clarify when gains or losses on hedging instruments should be reclassified from equity to profit or loss as a reclassification adjustment, as the amendment was exposed in the August 2008 exposure draft. Conforming amendments to IAS 39 IG F.6.2 were also approved.

Annual Improvements 2009-2010

IAS 1 Presentation of Financial Statements: Presentation of the statement of changes in equity

The Board agreed to propose an amendment to IAS 1 paragraphs 106 and 107 to allow the reconciliation for each class of accumulated other comprehensive income either on the face or in the notes to the financial statements. The proposed effective date is 1 January 2011.

In addition, the Board agreed that it should not modify the Implementation Guidance accompanying IAS 1.

Post-employment Benefits

Project timetable

The staff presented the most recent proposed project timetable for this phase of the post-employment benefits project. The plan provides for an exposure draft to be published in November 2009 with a 120-day comment period and a final IFRS in the first half of 2011.

Defining the remeasurement component

The staff reminded the Board that in January 2009, it had decided that the change in a post-employment benefit obligation should be disaggregated into employment, financing, and remeasurement components. At this meeting the Board decided that it should specify what was included in the remeasurement component.

The Board agreed also that the current service cost component of the IAS 19 pension cost should be presented on a separate line within profit and loss.

Thereafter, achieving consensus was more difficult. The Board appeared to be confused about what the staff was proposing and how it was consistent or inconsistent with the principles of the current project. The staff proposed that the Board require that interest income be calculated on an expected rate of return. Several Board members disagreed with this suggestion, or at least with how the staff had expressed it. Some of these Board members could accept the method if the expected rate of return was based on the actual assets in the pension plan. One Board member thought that the 'remeasurement' component of the pension assets was a matter of fact – there were no assumptions such as those that are inherent in estimating the benefit obligation. Assets went up or down in value. Disaggregating that movement in to classes of assets (government bonds, corporate bonds, quoted equity, non-quoted equity, real estate, etc) was more likely to provide useful information to users than the expected rate of return. Not all Board members agreed with this analysis.

In an attempt to close the debate, the Chairman asked the Board whether the interest cost component should include a notional cost or return on the pension surplus or deficit (the 'net pension position'). The Board voted (by a significant majority) that interest cost should be reported separately from remeasurements and should not include any return on plan assets.

In addition, the Board agreed that the change in plan assets and the change in the actuarial gain or loss on the defined benefit obligation should be in the remeasurement component.

A Board member noted that this decision would have the effect of reporting the total change in the pension fund through profit or loss, a position that alarmed him.

The Board did not have time to discuss the presentation of past service cost, the effects of settlements and curtailments, and the effect of the asset ceiling, although one Board member noted that (in a 'no deferral' world) the distinction between current service cost, past service costs, and settlements/curtailments had no effect.

IFRS for Non-publicly Accountable Entities (formerly SMEs and Private Entities)

The Board discussed the simplification of defined benefit pension accounting. In the Exposure Draft (ED) of a Proposed IFRS for SMEs, the requirements proposed for defined benefit plans were similar to, but condensed from, those in IAS 19 Employee Benefits.

At the July and November 2008 meetings the Board considered, but did not support, staff proposals to measure the pension obligation at a current termination amount. The Board asked the staff to return with an approach that was more in line with the IAS 19 approach, but with simplified calculations that would reduce the need for non-publicly accountable entities to engage external specialists (such as actuaries). At this meeting the staff presented a revised approach, based on input from the IASB's Employee Benefits Working Group.

The Board made the following tentative decisions:

• If information based on IAS 19 (using the projected unit credit method, etc.) is already available or can be obtained without undue cost or effort, a NPAE should use that method.
• If information based on IAS 19 is not available and cannot be obtained without undue cost or effort, a NPAE would apply an approach based on IAS 19 but that does not consider future salary progression, future service, or possible mortality during an employee's period of service. This approach would still take into account life expectancy of employees after retirement age. The resulting defined benefit pension obligation would reflect both vested and unvested benefits. This would result in recognising something similar to the accumulated benefit obligation.
• Clarify that comprehensive valuations would not normally be necessary more frequently than once every three years. In the interim periods, the valuations would be rolled forward for aggregate adjustments for employee composition and salaries, but without changing the turnover or mortality assumptions.
• Add further guidance for entities that pay insurance premiums to fund a post-employment benefit plan (insured benefits).

The staff noted that tentative decisions had been reached on all substantive issues to be included in the IFRS. In March 2009, the Board will consider whether or not there is a need for re-exposure before a final Standard is issued.

Wednesday 18 February 2009

Rate-regulated Activities

The purpose of this session was to set the scope of the project. The Board had added rate-regulated activities to its active agenda in December 2008. Further the staff informed the Board that at this meeting it will propose scope exemptions, provide illustrative examples for applying the scope and a comparison to the US guidance.

Scope

The staff identified two criteria for a rate regulation to be in scope of any future IFRS guidance:

1. Rate-setting mechanism: rates must be set by an independent regulator; and
2. Cost-of-service regulation: the rate mechanism must be designed to reimburse the regulated entity for costs incurred for the goods/services plus a specified return (similar to a guarantee).

Board members asked questions about specific designs of rate regulation, but agreed with the scope definition in principle.

Definition of an asset or liability

The staff continued to explain to the Board why it believed that rate regulation can create assets or liabilities. The analysis was mainly based on the definitions of an asset and a liability under the Framework.

Some Board members expressed their support for the analysis, while others were concerned over the possible interaction with other assets (for example, a licence – is the rate regulation part of the valuation of a licence?). The staff responded that they are different, because the licence granted the right to provide goods or services compared to the goods or services themselves, where the regulatory assets/liabilities are derived from. This could lead to a licence being impaired, but the regulatory asset actually increasing in value.

There seemed to be consensus around the table that the definition is met at this point.

Scope exclusions

The staff presented the Board with its thinking on scope exclusions. It proposed to exclude regulations that are not akin to a guarantee to recover incurred costs plus a specified return and situations where the definitions of a financial instrument would be met as this would be covered by IAS 32/39.

Illustrative examples

The Board was presented with some examples on the application of the scope. Some Board members highlighted a potential issue as they believed while the rate regulation set price for goods/services, those would still have to be consumed by customers (that is, they are contingent on events outside the control of the entity). The staff responded if one went down that route, none of the schemes within the scope would meet the definition of an asset/a liability.

Comparison to US GAAP

The Board was informed that while there were minor differences to SFAS 71 due to the interaction of other pronouncements under US GAAP vs. IFRS, the scope was broadly aligned with the US guidance.

Derecognition

The Board continued its deliberations on an approach to derecognition of financial instruments and financial liabilities.

The notes below refer to Approach 1 and Approach 2. Briefly summarised, these are:

Approach 1

Derecognition Principle

The basic derecognition principle is that an entity should derecognise a financial asset when it no longer qualifies as an asset of the entity.

Derecognition Criteria

Approach 1 provides criteria to be used to determine when a financial asset no longer qualifies as the asset of the transferor. In particular, Approach 1 would require an assessment of whether the transferor presently has access, for its own benefit, to all of the cash flows or other economic benefits of the financial asset that the transferor recognised before the transfer.

Retained interests and beneficial interests

For transfers of part of (or an interest in) a financial asset or group of assets, Approach 1 would require the transferor to derecognise the entire financial asset (or group of financial assets) and recognise as a new financial asset (rather than as a part of the financial asset that the transferor recognised before the transfer) the retained interest in the financial asset (or group of financial assets). Similarly, Approach 1 requires a transferor to recognise as a new asset an investment that a transferor purchases from a transferee securitisation entity.

Approach 2

Derecognition Principle

Approach 2 requires an entity to derecognise a financial asset or a pre-defined component thereof if:

• a. the contractual rights to the cash flows from the asset expire; or
• b. the entity transfers the asset and:
  • (i) the entity is not involved in the asset after the transfer; or
  • (ii) the transferee has the practical ability to transfer the asset for its own benefit.

The 'continuing involvement' step (b)(i) and 'practical ability to transfer' test (b)(ii) are applied to a transferred part of a financial asset (or of a group of financial assets) only if that part comprises specifically identified cash flows and/or a proportionate share of the cash flows from that financial asset (or that group of financial assets). If there is more than one transferee, each transferee is not required to have a proportionate share of the cash flows provided that the transferring entity has a proportionate share.

Similarity to Current IAS 39

Approach 2 is similar in some ways to the current derecognition model in IAS 39 in that:

• the same definition of a 'component' (or part of an asset) is used, with some clarifications to address known application issues;
• the test of control is still used, although unlike the IAS 39 model that test has primacy;
• many of the derecognition outcomes will be similar under Approach 2 as compared to IAS 39 (the notable exceptions being transfers, such as repos, involving readily obtainable assets).

Approach 2 does differ from IAS 39 in some important ways, and as a result is less complex to understand (and arguably to apply). The differences include:

• no test of ‘risks and rewards' and
• no pass-through requirements.

Extent of Changes to IAS 39

Approach 1 proposes far-reaching changes to accounting for derecognition of financial assets. Approach 2 can be seen as an evolution to IAS 39 that improves that model.

Summary of Board Discussion

This was the first of several sessions at the February meeting. At this session the staff presented remaining issues identified when applying the two derecognition approaches to more complex cases. These issues were (applicability to approach 1 and/or 2 in parentheses):

1. Scope – transfers of financial assets that should be considered for derecognition [Approach 1 and Approach 2]
2. Derecognition or consolidation analysis first [Approach 1 and Approach 2]
3. Identical transactions but non-identical accounting outcome (transfers of proportionate interests in cash flows) [Approach 2 only]
4. Transfer of subordinated ('more risky') interests in a financial asset [Approach 2 only]
5. Practical ability to transfer in the context of securitisations [Approach 2 only]
6. Remaining interest in the asset that was the subject of the transfer [Approach 2 only]
7. Transfer of a part of an equity instrument [Approach 2 only]

Scope – transfers of financial assets that should be considered for derecognition

The staff noted that the proposed scope of transactions to which the derecognition process was to be applied could potentially be too narrow as it excluded originations, issuances and expiries. This was considered to open up structuring opportunities. In the proposed change the staff also clarified that this only relates to financial instruments. This confused some Board members as they believed the broad principles should potentially be applicable to all assets and liabilities.

However, staff highlighted that due to time constraints the efforts focussed on financial instruments, but the principles are to be revisited in the future.

The Board agreed.

Derecognition or consolidation analysis first

The staff proposed that for approach 1 derecognition is assessed before consolidation while for approach 2 derecognition is assessed after consolidation (similar to existing IAS 39). The Board had a lively discussion on that and it emerged that the real issue behind this was whether there was some continuing involvement left in the entity. The Board agreed to look only at the reporting entity in all situations.

Identical transactions but non-identical accounting outcome

The staff continued to explain that some transfers of proportionate shares in cash flows can result in different accounting outcomes under approach 2. The staff proposed to add an exemption from continuing involvement in has a proportionate share of assets is transferred.

Transfer of subordinated ('more risky') interests in a financial asset

One Board member informed the staff that he believes approach 2 would prevent derecognising higher risk interests in a financial asset while allowing derecognising interests where the transferor retains more risk, because in the first case a disproportionate share was transferred. This was considered being counterintuitive. The Board agreed that the wording could be clarified to resolve this issue, but this could be taken offline.

Practical ability to transfer in the context of securitisations

The staff informed the Board that the 'practical ability' often would prevent a transferor to derecognise assets transferred into an SPE. Staff presented a simple structure to overcome this issue. Staff proposed to make clear that the transferee to which the practical ability test is applied is the entity with which the transferor had agreements that resulted in continuing involvement. The Board agreed.

Remaining interest in the asset that was the subject of the transfer

The staff recommended clarifying in the exposure draft that under approach 2 that any remaining interest in the asset subject to transfer should be accounted as part of the previously recognised asset. The Board had a lengthy discussion on this, largely because the Board is split about the approach to be taken. In the end, the Board agreed.

Transfer of a part of an equity instrument

The staff recommended to the Board that transfers of parts of equity instruments would qualify as a component under approach 2 and that the asset definition in the model should be amended accordingly.

At the end of the session the chairman took an indicative vote on the two approaches. A majority voted for approach 2 (similar to the current IAS 39 model) with a considerable minority favouring approach 1. The ED will contain both approaches - one as an alternative view.

Insurance Contracts

The staff introduced the session by highlighting the objectives. The main objective was to identify viable candidates for measurement that are worth pursuing from the pool of existing candidates:

• Current exit value as proposed by the discussion paper Preliminary Views on
• Insurance Contracts (DP).
• Current fulfilment value including a risk margin reflecting the cost of bearing risk.
• Current fulfilment value as in candidate 2 plus an additional separate margin,calibrated at inception to the premium.
• Current fulfilment value including a single margin calibrated at inception to the premium (ie similar to candidate 3, but with one overall margin, not two separatemargins).
• Unearned premium (only for the pre-claims liability of short-duration contracts).

The staff asked the Board what the measurement objective to be applied was:

• Current exit value provides a clear principle and this leads to most decision-useful information
• Fulfilment value provides the most relevant information
• Current exit value is conceptually preferable, but fulfilment value is more consistent with the Board's thinking on revenue recognition and would ameliorate practical issue when applying an exit price notion

The Board had a lengthy and lively discussion on the issue with no clear direction. It was clear that the Board was split over the 'right' measurement attribute for insurance contracts. The chairman noted that the Board now has 4 projects that seem to be inconsistent with each other.

Some Board members asked what makes insurance so special. Others expressed the view that unbundling would take away many of the issues raised during the deliberations. Board members were also concerned about creating hypothetical market transactions where such transactions rarely ever occur. One Board member noted that people were paranoid about recognising day one gains, but not losses and looked for means to avoid recognising such gains.

Finally, the chairman took an indicative vote to which measurement attribute Board members would tentatively prefer. There was a slight majority for a fulfilment value approach.

The staff continued to ask the Board which other potential candidates should be included in the narrower selection and presented them with a list. Some Board members expressed their sympathy for some of those candidates in the list (allocated transaction price approach, an IAS 37 (as currently deliberated) approach and an IAS 39 approach).

Thursday 19 February 2009 (afternoon only)

Derecognition (continued from Wednesday)

The Board continued its deliberations on its upcoming exposure draft on derecognition of financial assets and financial liabilities. This final session before the staff will finalise the exposure draft the Board discussed disclosures, comment period for the exposure draft and transition.

Staff reminded Board members that it was necessary to reach these final decisions at this meeting in order to meet the timetable for issuing an exposure draft in first half of 2009. The Board was informed that the discussions today would focus on disclosure for approach 2 as this approach gained a majority in an indicative vote taken the previous day.

Staff noted that the disclosure requirements were split up in two sections:

• Transfers of financial assets that are derecognised
• Transferred financial assets that are not derecognised

The agenda papers for this session contain worked examples for the disclosure proposals and can be downloaded from the IASB website.

Transfers of financial assets that are derecognised

For such transfers staff defined the disclosure objectives as follows:

1. Provide users with information about the nature and risks associated with an entity's continuing involvement with derecognised financial assets
2. Provide users with information that will help them reconstruct the entity's financial statements on the basis of a 'no continuing involvement' approach to derecognition

Those objectives would drive the disclosure requirements. The staff discussed with the Board in detail all proposed disclosures.

Staff noted that many of the disclosures flowing from objective 1 would already be required under IFRS 7, but on a more aggregated level (class of financial instruments). The proposal would require more granular information focusing on transfers with continuing involvement that qualify for derecognition. The Board agreed to the proposals that would address disclosure objective 1.

The staff then turned to disclosure objective 2. Some Board members noted that requiring information that would allow users to reconstruct the financial statements as if they were prepared under a different derecognition model would undermine the model the Board would has agreed on. In response, staff noted that users expressed the desire to obtain this information and it might not be sensible under the current circumstances to take away information requested by users. It was further highlighted that these disclosures would not represent pro forma information.

Board members expressed concern over several of the proposed disclosures for objective 2. They felt that it could be burdensome to gather the information and questioned the relevance. The Board discussed at length the staff proposals.

Staff noted that the main driver was to provide information on the underlying assets that determine the values of the items remaining on the balance sheet.

The Board agreed on the following disclosures:

1. at the reporting date, the fair value of the transferred financial assets, including their level in the fair value hierarchy
2. at the reporting date, the present value of any cash outflows to repurchase the transferred financial assets
3. at the date of transfer the gain or loss on derecognition, and the line item(s) in which the gain or loss is included
4. if transfer activity is concentrated around the end of reporting periods, an entity should disclose that fact and the volume (amount) of that transfer activity in those periods
5. income and expenses recognised by the entity from its continuing involvement during the reporting period and the line items in which those income and expenses are included
6. any additional information that it considers necessary to meet the disclosure objective

It was clear from the discussions that these disclosures would not be in line with disclosure objective 2 and it was decided to abandon this objective.

Transferred financial assets that are not derecognised

The staff introduced its proposals for transfers that do not qualify for derecognition. The following disclosures were proposed:

1. the nature of the assets transferred.
2. the carrying amounts of the assets and of the associated liabilities
3. when the entity continues to recognise a portion of the transferred assets, the carrying amount of the original assets.
4. the nature of the risks to which the entity remains exposed
5. when the counterparty to an associated liability has recourse only to the transferred asset, a schedule linking the fair value of the transferred asset and the fair value of the associated liability, and disclosing the fair value of the entity's net position

Some Board members were concerned that this would be 'information overkill' and whether the information is useful and not redundant compared to what is already required by IFRS 7. The Board discussed some of the worked examples on these disclosure proposals in detail.

Finally, the Board decided to keep the disclosure proposals, but ask two or three users after publication of the exposure draft to test them. The Board also decided to ask a question on the usefulness of these disclosure proposals in the exposure draft. Some Board members expressed the view that the discussions on derecognition disclosures made clear that IFRS 7 would need an overhaul. However, they acknowledged that this was a separate issue.

Comment period for the exposure draft

After brief discussion, the Board agreed to the staff recommendation to expose the derecognition document for comment for 120 days.

Transition

The staff proposed that any guidance was to be applied prospectively, but that entities would be required to disclose the type assets that they derecognised under the current IAS 39 model, but would not under the new guidance.

The Board agreed to prospective application with regard to the financial statements, but some Board members were concerned that it should be clear that the new disclosures requirements should also be required for transactions to which the current IAS 39 model applied. The Board had some discussion on this issue and finally decided to require disclosure under the new guidance for previous transactions, but monitor constituents' reactions to that proposal.

Annual Improvements Project 2008

IAS 17 Leases: Classification of leases of land and buildings – transition issues

The Board discussed two issues identified by the staff during the pre-ballot process on the modified retrospective transition provision that the Board agreed to adopt in December 2008. These issues were:

• Should an entity apply the tests to reassess lease classification based on the conditions existing on (a) the date of adoption; or (b) the inception of the lease?
• Should an entity recognise the asset and liability related to a finance lease based on amounts determined as of (a) the date of adoption; or (b) the inception of the lease?

The Board agreed a hybrid approach as follows:

For those leases for which retrospective information is available, an entity would:

• reassess classification of unexpired land leases based on conditions existing as of the inception dates of the leases; and
• recognise land leases that are now finance leases retrospectively based on the fair values as of the inception dates of the leases.

For those unexpired land leases for which retrospective information is not available, entities would be permitted to reassess lease classification and recognise lease assets and liabilities based on conditions that exist and fair values determined as of the adoption date.

In addition, the Board decided not to provide any additional transitional provisions. The revised standard would apply retrospectively as required by IAS 8 and any adjustment on adoption would be recognised in opening retained earnings of the earliest period presented.

Mr Leisenring indicated his intention to dissent from the amendment on the basis that he disagreed with the conclusion that any right to the land passes in a long lease when the title to that land does not pass.

Fair Value Measurement

Fair value of liabilities

The Board revisited the issue of how to measure fair value when there is no observable market price for a liability and whether the fair value of the corresponding asset is an input that an entity should consider when measuring the fair value of its liability. The staff had suggested that the liability value might differ from the asset value in some circumstances, including when the asset value includes:

• the effect of transfer restrictions or
• features such as third-party credit enhancements that are not part of the liability.

The Board disagreed with the staff's suggestion. Several Board members disputed the examples put forward by the staff, noting that the fair value measurement guidance that is being developed is explicit that the fair value is being determined for a transaction involving the same asset in the same market. In both cases in which it was alledged that the presumption that the fair value of the asset would not equal the fair value of the liability, the symmetry was not there. In one case, third-party credit enhancements are, by definition, separate from the asset and liability and would not affect the determination of fair value as explained in the proposed guidance. In the case of transfer restrictions, if the restrictions attached to the asset, the argument would not hold (since all market participants would face the same restrictions), and if the restrictions attached to the market participant, they would not be related to the asset and liability and would thus be excluded from the determination of fair value.

The Board noted that the proposed guidance for 'Level 2' measures goes in to considerable depth to explain how to apply the basic principle in the proposed IFRS. There is a presumption that the fair value of an asset will be the same as that of the corresponding liability, unless there are observable conditions related specifically to the transaction. Most differences that are said to exist are usually related to the counterparties not the asset or liability itself. However, the Board agreed that the assertion is a frequent challenge to the 'exit equals entry' presumption and that the Invitation to Comment should identify the issue and challenge respondents to address disprove the Board's analysis.

Day One gains and losses

The Board decided that for the initial measurement of financial instruments that will subsequently be classified as FVPL:

• An entity should apply the IASB's guidance on fair value measurement in determining the fair value of a financial instrument at initial recognition. Thus, fair value at initial recognition equals the transaction price unless one of the factors described elsewhere in the document (related parties, duress, different unit of account, different market) applies.
• If the fair value at initial recognition differs from the transaction price, the entity should recognise the resulting gain or loss as income or expense if, and only if, a specified observability criterion is met.
• If that observability criterion is not met:
  • the entity initially measures the financial asset or financial liability at fair value, adjusted to defer the difference between the transaction price and the initial fair value (a deferred gain or loss).
  • subsequently, as already required by IAS 39 paragraph AG76A, the entity recognises the deferred gain or loss only to the extent that it arises from a change in a factor (including time) that market participants would consider in setting a price. It is beyond the scope of the project on fair value measurement to reconsider the subsequent accounting for these deferred gains and losses.

The Board then discussed whether it should retain the existing wording in IAS 39 for the observability criterion. The staff noted that this approach would minimise change to existing practice. However, it would result in two different, but overlapping, hierarchies for financial instruments: the 3-level fair value measurement hierarchy and a 2-level hierarchy that determines whether day one gains or losses are deferred (for financial instruments). The staff was concerned that this might cause confusion and complexity.

After a lengthy debate, the Board decided that it should not change the guidance in IAS 39 with respect to 'Day One' gains and losses. In addition, the guidance in IAS 39 AG76-78 would remain as currently. The Board considered that the guidance being proposed in the fair value measurement guidance was address 'how to do' fair value and used different words and thresholds, but should arrive at the same answer.

Liabilities with a demand feature

After some debate, the Board decided that the fair value measurement guidance should provide a scope exemption for liabilities with a demand feature - that is, the current requirements in IAS 39 would be unaffected by the new IFRS. The Board noted that the measurement and financial reporting issues related to such instruments is unresolved at both the IASB and FASB and will be addressed in other IASB financial instrument projects. To address it unilaterally in the IASB's proposed standard would open other thorny issues and it was best left alone for the time being.

Friday 20 February 2009

IAS 39: Amendments Resulting from the Reclassification Amendment to IAS 39

The staff presented the Board with its comment letter analysis and recommendations on the IASB's exposure draft Embedded Derivatives (Proposed amendments to IFRIC 9 and IAS 39). The exposure draft proposed the following:

• an entity must assess whether an embedded derivative is required to be separated from a host contract when the entity reclassifies a hybrid (combined) financial asset out of the FVTPL category.
• this assessment is to be made on the basis of the circumstances that existed when the entity first became a party to the contract.
• if the fair value of an embedded derivative that would have to be separated cannot be reliably measured, the entire hybrid financial instrument must remain in the FVTPL category.

The Board agreed without discussion to proceed with the proposed amendments subject to drafting changes as a clear majority of constituents agreed with the proposals.

The staff then informed the Board that some constituents were concerned over the effective date of 15 December 2008, particularly because of the implications of backdating the effective date. It was noted that this causes difficulties in jurisdictions where IFRSs become part of the law, which in some instances prohibits backdating. One Board member noted it was a good time to go back to normal and propose an effective date of at least 3 months after publication of the final amendments. Other Board members were generally sympathetic to this view. Some believed a different accounting treatment than the one proposed in the exposure draft was an accounting error, admitting that then there would be no reason for an amendment.

In the end, the Board decided that the amendments were to be applied retrospectively for accounting periods ending on or after 30 June 2009.

On this occasion, the staff provided a brief update on the issue of accounting for certain credit-linked instruments, commonly referred to as synthetic collateralised debt obligations (CDO), that do not have the actual assets the credit risk is referenced to in their asset pool.

The issue is whether the credit derivative embedded in the notes issued by such structures have to be bifurcated. Under IFRSs, common practice is to separate the embedded credit derivative in the notes issued by such a structure. Under US GAAP practice has evolved that would not bifurcate. Constituents noted that this would create an unlevel playing field. In December 2008 the Board decided there is no need to change IAS 39 as there is no diversity in practice under IFRS. The FASB has proposed guidance that would clarify the FASB's intentions when bifurcation was required.

Staff noted that the proposed guidance DIG C22 would be different from practice under IFRS in certain scenarios. However it also noted that this might in practice be a small difference (mainly due to the subsequent accounting for some of the beneficial interests issued by a synthetic CDO under US GAAP) and warned the Board not to make further piecemeal amendments to IAS 39 at this stage. If US GAAP wanted to fully align to IFRS this would require fundamental changes to the US guidance.

Some Board members were concerned over this update noting that certain constituents will pick this up. It was suggested to make clear in the IASB Update and on the IASB website about the current status, the practical implications, and the remaining differences on this issue.

IAS 34 Interim Financial Reporting Issues

The staff introduced the topic by reminding Board members why this issue had been raised. It noted that some constituents have asked the Board to mandatorily require particular IFRS 7 disclosures (for example, fair values) in interim reports.

The staff identified four possible courses of action:

• Approach A: Do nothing
• Approach B: Mandate specific information to be disclosed in interim financial statements
• Approach C: Provide further guidance on how to comply with IAS 34
• Approach D: Mandate the same disclosure requirements for interim and annual financial statements

The staff recommended Approach C.

The Board had some debate over ways to improve interim reporting in the short-term and long-term. The majority of Board members was in favour of providing more examples in IAS 34 as a short-term solution and agreed with the staff proposal. Many believed a fundamental review of the disclosure framework and interim reporting was necessary, but that this could not be pursued at this point in time.

The staff was asked to prepare possible additional examples for interim reporting disclosures and to report back to the Board.

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