The IASB and the FASB met for a special joint meeting in London to discuss issues related to several joint projects. Several IASB members, FASB members, and FASB staff joined the meeting via video link or teleconference. The first session, on Hedge Accounting, was held as a separate IASB session.
IASB meeting (12:00-13:00h London time)
 Financial Instruments: Hedge Accounting
Eligible hedged items: derivatives as hedged items
The Board discussed whether derivatives should be eligible as hedged items. The staff argued that many entities are economically required to enter into transactions that result in commodity price risk, interest rate risk, and foreign exchange risk, and they manage these risks independently of each other.
Most Board members agreed with the idea that hedge accounting should reflect the management of the risk of the underlying (including a derivative) as modified by another derivative, if that is an entity's strategy used for managing different risks. Nonetheless, many Board members were concerned that the proposed wording was too general and could allow general designation of derivatives as hedged items. Those Board members noted that although such designation would have no net effect on profit or loss, because all derivatives should be measured at fair value through profit or loss, it might decrease clarity and increase opportunity for structuring.
The staff responded that even now there are some exceptions to the general prohibition of designating derivatives as hedged items (a purchased option is eligible to be designated as a hedged item if it hedged by a written option). Moreover, some special types of derivatives might not qualify for measurement at fair value through profit or loss – for example, some embedded derivatives that are not separated from the host contract that is measured at amortised cost or contracts that are measured at fair value in their entirety as they did not fulfil the own-use exemptions.
Some Board members suggested that the wording should be tightened to reflect the concerns expressed above. Finally, the Board agreed with the general principles presented but agreed to define the eligibility more narrowly and to provide more examples.
Eligible hedged items: components of nominal amounts
The Board briefly discussed and agreed with the designation of components of nominal amounts as hedged items. Those requirements would reflect the current IAS 39 requirements.
Some Board members were concerned with clarity and suggested:
- clarification of the terms 'portion' and 'proportion', and
- inclusion of examples of nominal amounts in terms of monetary and physical metrics.
Some Board members discussed a broader issue related to proportions and their eligibility in connection with timing of the forecast transactions. The staff clarified that those issues would be addressed at a later stage as part of the effectiveness criterion debate.
Eligible hedged items: one-sided risk components
The Board agreed to carry forward the IAS 39 requirements that permit the designation of one-sided risk components as hedged items.
One Board member asked the staff whether they considered changing the prohibition to use written options as hedging instruments. The staff replied that this discussion should not imply any such change and should be limited to eligible hedged items. Moreover, they noted that they would discuss option strategies at a future meeting.
Joint IASB-FASB meeting (13:15-14:45h London time)
Financial Statement Presentation
Transition and effective date
The Boards considered the transition requirements for the project. Most Board members expressed their preference for full retrospective application of the proposals.
Some Board members were concerned by the staff's assumption that a lead time of at least 4 years after the publication of the IFRS would be necessary, particularly to enable entities to change their systems for the direct cash flow method and by-nature disaggregation. Those Board members suggested that if the direct cash flow method required additional lead time it should be applied prospectively, whereas the rest of the document should be applied retrospectively.
Other Board members warned against such an approach. They noted that in that case entities would need to change their systems twice, which would lead to additional costs.
Finally, the Boards agreed to consider the transition requirements of all Memorandum of Understanding documents together with the expected effective dates. The Board also agreed preliminarily to propose full retrospective application and to ask constituents about the required lead time and potential problem areas in implementation of the proposals.
The IASB agreed to permit early adoption for first time adopters, mainly due to the concerns that, otherwise, two systems changes within a short period might be required.
The Boards agreed to address the early adoption by the existing IFRS preparers as well as interrelationship of timing with other projects comprehensively within a special document on effective date and transition requirements of major projects that would be completed within the MoU.
Fair Value Measurement – Plan for publishing educational material to accompany an IFRS on FVM
Educational material on fair value measurement
The Boards discussed the nature and content of the planned educational guidance for measuring the fair value of difficult-to-value assets and liabilities. The IASB has solicited feedback about the practical application of fair value measurement principles in emerging and transition economies through extensive outreach and request for input. Based on the feedback received, constituents asked for further guidance on how the principles should be applied in more challenging situations.
Some Board members were concerned that the proposed guidance was too broad and would cover application of judgement. Other Board members noted that if the guidance is necessary it should be included in the Standard itself. They also expressed their concerns how such non-authoritative guidance would interact with IVSC Guidance noted (for instance, the recently published Guidance Note on valuation of intangibles).
Finally, the Boards agreed that the guidance should be similar to the guidance published by the Expert Advisory Panel and include examples (case studies) of how to apply the fair value measurement principles in practice. When preparing the guidance, the staff would consider whether some of the examples should be included in the Standard itself. Nonetheless, the staff noted that based on the IASB's approach in other Standards, the majority of the examples would be included in the educational material. The Boards expect to publish this education material a few months after publication of the final IFRS (currently planned for the third quarter of 2010).
This summary is based on notes taken by observers at the joint IASB-FASB meeting and should not be regarded as an official or final summary.
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