• Agenda decision: At the July 2006 Meeting the Board approved an ongoing process for annual improvements to IFRSs
• Discussed at October 2006 IASB Meeting
• Discussed at November 2006 IASB Meeting
• Discussed at December 2006 IASB Meeting
• Discussed at February 2007 IASB Meeting
• Discussed at March 2007 IASB Meeting
• Discussed at April 2007 IASB Meeting
• Discussed at May 2007 IASB Meeting
• Discussed at June 2007 IASB Meeting
• Discussed at July 2007 IASB Meeting
• Discussed at September 2007 IASB Meeting
• Exposure Draft published 11 October 2007. Comment deadline 11 January 2008.
  Click for IASB Press Release (PDF 51k).
• IAS Plus Newsletter on Improvements Exposure Draft (PDF 98k).
• Discussed at February 2008 IASB meeting
• Discussed at March 2008 IASB Meeting
• Final amentments to 20 IFRSs issued 22 May 2008.
  Click for More Information
• Discussed at March 2009 IASB Meeting
• Final improvements to 12 IFRSs issued 16 April 2009. Click for More Information.

Background

Each year the Board will consider minor amendments to IFRSs in an annual improvements project.

Discussion at the October 2006 IASB Meeting

The Board discussed two annual improvements topics.

Investment property under construction

The Board discussed the issue of whether investment property under construction should be within the scope of IAS 40 Investment Property instead of IAS 16 Property, Plant and Equipment.

The Board agreed that investment property should be within the scope of IAS 40 and that IAS 40 and IAS 16 should be amended to reflect this.

Contingent rents

The second issue was a recommendation from the IFRIC that the issue of whether contingent rents relating to operating leases should be recognised as incurred or amortised on a straight line basis would be most appropriately solved via the annual improvements project.

The Board discussed and agreed that contingent rents should be recognised as incurred or earned rather than on a straight line basis. IAS 17 Leases will be amended to reflect this.

Discussion at the November 2006 IASB Meeting

The Board discussed three recommendations for its annual improvements topics.

Reporting compliance with IFRS

The Board discussed whether IAS 1 Presentation of Financial statements should be amended to provide guidance on situations where the financial statements of an entity are based on, but not in full compliance with, IFRS. The issue has arisen as concerns have been expressed by the IAASB about how IFRS is referred to in financial statements and audit reports in situations in which the preparer has not adopted IFRSs in full. The concern is specifically that there is potential for misunderstanding of the information given.

The Board agreed that this was an issue and agreed that something had to be done in this respect.

The following additions were proposed to IAS 1:

14A Where the entity's financial statements are described as being based on IFRSs but are not fully compliant with IFRSs, the entity shall:

• a. disclose all instances where IFRSs are not complied with; and
• b. indicate the significance of those differences to its financial statements.

Considering the proposal, Board members expressed specific concerns about the proposal in 14A(b), and whether it would be possible for constituents to deal with the 'significance' requirement. The Board was also concerned that significance was a vague expression and discussed whether 'materiality' would be a sufficient replacement.

The Board stated that it would not take a decision at the November meeting, and decided that the staff should go back and explore whether to change the second sentence in the proposal, and whether more guidance would be necessary.

Presentation of 'net finance costs' on the face of the income statement

The Board discussed how a conflict between the requirements in IAS 1 and IFRS 7 Financial Instruments: Disclosures regarding presentation of finance costs on the face of the income statement should be resolved.

The Board decided that Paragraph IG 13 of IFRS 7 should be deleted as it is confusing. This would clarify that IAS 1 alone addresses presentation of net finance costs, and clarify that interest income and interest expense should not be presented net on the face of the income statement (unless, as previously decided by IFRIC, the gross amounts of interest income and interest expenses are also shown on the face of the income statement).

Classification of the liability component of a convertible instrument

The Board discussed whether the liability component of a convertible instrument with an obligation to deliver cash or other assets more than 12 months from the balance sheet date should be classified as current or non-current.

The Board discussed and agreed to amend IAS 1.60(d) to state that a liability would be classified as current when 'the entity does not have an unconditional right to defer delivery of cash or other assets to settle the obligation for at least twelve months after the balance sheet date'.

This would remove the conflict in IAS 1.60(d) with IAS 1.62 and IAS 32.16, which considers conversion of an obligation into equity as settlement of a liability. Basing the liability classification in the balance sheet on whether there is an unconditional right to deliver cash or other assets would better reflect the entity's liquidity situation.

Discussion at the December 2006 IASB Meeting

The Board discussed three issues for its annual improvement process.

Reporting compliance with IFRSs

The Board continued its discussion on the issue of whether IAS 1 Presentation of Financial Statements should be amended to provide guidance for situations where an entity is stating that its financial statements are in compliance, but not in full compliance with IFRSs.

The Board did not agree with the proposed amendment presented at the last Board meeting and had asked the staff to amend the wording and bring back.

Staff proposed the following revised amendment to IAS 1:

14A When an entity refers to IFRSs in describing the basis on which its financial statements are prepared but is not able to make an explicit and unreserved statement of compliance with IFRSs, the entity shall:

a. describe each difference between the basis on which its financial statements are prepared and IFRSs that is relevant to its financial statements; and

b. describe how the reported financial position and performance of the entity would have differed if the entity had complied with IFRSs.

The Board voted in favour of including the proposed amendment to IAS 1 with minor editorial amendments.

Point-of-sale costs

The Board debated an issue on whether the term 'point-of-sale costs' in IAS 41 Agriculture should be replaced with 'costs to sell' to improve consistency with other IFRSs. This issue had been referred to the Board from the IFRIC as it believed the issue would be best resolved through the annual improvements process.

The Board agreed to the proposed changes to IAS 41.

Unit-of-production method of amortisation

When the Board reviewed the IFRIC interpretation on service concessions, it raised an issue of whether IAS 38 Intangible Assets should be amended to clarify that it permits the use of production method of amortisation for intangibles.

The Board decided that the last sentence in paragraph 98 of IAS 38 should be deleted to clarify that the unit of production method could be permitted, even if it results in a lower amount of accumulated amortisation than under the straight-line method.

Discussion at the February 2007 IASB Meeting

IAS 41 Agriculture: Measurement of Biological Assets in accordance with IAS 41

The Board approved a proposal that the guidance in IAS 41.21 be amended, such that, in determining the present value of expected cash flows, an entity should include the net cash flows that market participants would expect an asset to generate in its most relevant market.

The effect of this amendment would be to ensure that a biological asset is measured during its biological transformation at an appropriate fair value.

In addition, minor modifications will be made to the definition of 'biological transformation' in IAS 41.5 and to the guidance in IAS 41.17.

Status of Implementation Guidance

The Board agreed to propose an amendment to IAS 8.7 to delete the phrase 'and considering any relevant Implementation Guidance (IG) issued by the IASB for the Standard or Interpretation'. In addition, the Board will propose amendments to IAS 8.11(a) and 12 to address more clearly where within the IAS 8 hierarchy Implementation Guidance falls.

The Board agreed that the current requirements in IAS 8 are problematic. IAS 8.7 has the effect of raising Implementation Guidance to 'standards-level' (mandatory) material, which is expressly not the IASB's intention: The current rubric in all IG sections states 'this guidance accompanies but is not part of IFRS x'. However, without addressing where within the IAS 8 Hierarchy IASB-developed material should fall would allow industry practice to override the IASB's Implementation Guidance. The IASB asked the staff to develop the wording of the amendments.

Restructuring IFRS 1 First-time Adoption of IFRSs

The Board agreed to restructure IFRS 1 by moving to appendixes the specific exemptions and exceptions, leaving the body of IFRS 1 to address the main principles of the Standard. Exemptions in IFRS 1 will be identified as either permanent (for example, IFRS 1.23) or temporary (for example, IFRS 1.25G). The temporary exemptions would be deleted from the Appendix as part of the Annual Improvements Project.

The Board discussed briefly whether, in light of experience, the general requirement to restate an entity's financial statements is appropriate and confirmed that it is, except when the use of hindsight is pervasive.

Discussion at the March 2007 IASB Meeting

IAS 39 Financial Instruments: Recognition and Measurement

The Board agreed to remove the references to segment reporting in paragraph 73 of IAS 39. These were 'missed' in the consequential amendments to the adoption of IFRS 8 Segment Reporting.

The amendment would clarify that under IFRS 8's 'through the eyes of management approach' if an entity has informal, undocumented hedges in place that would not meet the IAS 39 hedge accounting criteria, and reports its segments to the chief operating decision maker on that basis, those hedges would not be reversed in measuring segment result or segment assets and liabilities. They would be reconciling items in the reconciliation of segment information to IFRS.

IAS 16 Property, Plant and Equipment – Inconsistency in the definition of recoverable amount

The issue was whether a perceived inconsistency in the definition of 'recoverable amount' in IAS 16 should be removed. This item was removed from discussion by the staff, as it will be addressed as part of Business Combinations Phase II.

IAS 40 Investment Property – Fair value of investment property held under a lease

The Board approved a proposal that paragraph 50(d) of IAS 40 be amended, such that, "it will be necessary to add back any recognised lease liability, to arrive at the carrying amount of the investment property using the fair value model." (emphasis added)

The Board noted that the current wording in IAS 40 is misleading as it implies that the fair value of an investment property under a lease does not include its lease liability.

IAS 19 Employee Benefits – Contingent liabilities

The Board agreed to remove the reference to recognising contingent liabilities in paragraph 32B of IAS 19. The Board agreed that this paragraph conflicts with paragraph 27 of IAS 37 Provisions, Contingent Liabilities and Contingent Assets, which states that an entity should not recognise a contingent liability.

IAS 19 Employee Benefits – Short term employee benefits

The Board approved a proposal that the definition of short-term employee benefits in paragraph 7 of IAS 19 be amended, such that the term 'fall due' is replaced by 'expected to be settled'. The purpose of the amendment is to remove the perceived conflict with the term 'expected to occur' in paragraph 8 of IAS 19. The Board noted that the expected timing of settlement of the benefit should drive the classification.

Boundaries of the annual improvement process

The Board agreed that any changes to a Standard should be brought to the Board as part of the Annual Improvements Process, whereas the Director of Technical Activities could use her discretion with respect to amendments to Implementation Guidance, etc. However, given that IFRIC is often asked to resolve conflicts between Standards and Implementation Guidance, the Director of Technical Activities would work closely with the Director of IFRIC Activities in exercising this discretion.

IFRS 1 First-time Adoption of International Financial Reporting Standards

Following the decisions made in the February meeting the Board discussed the draft of a restructured version of IFRS 1. The draft itself was omitted from the observer notes.

The Board agreed that:

• The restructured IFRS 1 will be pre-balloted as part of the Annual Improvements Exposure Draft.
• The effective date will be 1 January 2009 with no scope for early adoption
• The new version of IFRS 1 will be approved as a new Standard, i.e. the current version of IFRS 1 will be withdrawn
• Any transitional provisions that are not relevant for an entity that adopts IFRSs for the first time on or after 1 January 2009 will be deleted.
• The exposure draft of the restructured Standard would be in clean-text only, except that:
  • the paragraph number in the current Standard would be included [as struck-out text] so that constituents could identify the source of paragraphs in the restructured Standard; and
  • Mark-up format would be used for deletions or amendments to existing bits of IFRS 1.
• The Basis for Conclusions and the Implementation Guidance will be excluded from the Exposure Draft [because no changes are proposed to these].
• The Appendices will be reordered as follows:
  • Exceptions
  • Exemptions (Business combinations, permanent exemptions and short-term exemptions)

Discussion at the April 2007 IASB Meeting

IAS 38 Intangible Assets - Advertising and promotional expenditures

The Board considered a proposal referred to it from the IFRIC that IAS 38 should be amended to clarify at what point training and advertising and promotion expenditure should be recognised as an expense. The issue arises from an apparent conflict in IAS 38 paragraphs 68-70. (For a detailed explanation of this issue, please see IAS Plus Notes from the March 2007 IFRIC Meeting.)

It was evident that the drafting proposed by the IASB staff did not adequately clarify the issue. IASB members who participated in the IFRIC's discussions explained what the IFRIC was trying to achieve, and the IFRIC's intention had a large degree of support around the Board table.

The Board referred the issue back to the staff, asking them to clarify the principles that the IFRIC had identified and to make drafting changes that reflected those principles.

Discussion at the May 2007 IASB Meeting

IAS 20-Terminology

The Board agreed to propose amendments to IAS 20 Government Grants and the Disclosure of Government Assistance to substitute terms used in that Standard with more widely used terms for equivalent items used elsewhere in IFRS as follows:

• 'taxable profit (tax loss') instead of 'taxable income';
• 'recognised in profit or loss' instead of 'recognised as income';
• 'recognised directly in equity' instead of 'credited directly to shareholders' interests'
• 'change in accounting estimate' instead of 'revision to an accounting estimate'.

Board members noted that the third item might better be accomplished as a consequential amendment arising from the forthcoming amendments to IAS 1.

IAS 27-Measurement of a subsidiary held for sale in separate financial statements

The Board agreed to propose an amendment to IAS 27 paragraph 37 to remove an apparent conflict between IFRS 5 and IAS 27. IAS 27.37 would be amended in a manner similar to:

37 When separate financial statements are prepared, investments in subsidiaries, jointly controlled entities and associates that are not classified as held for sale (or included in a disposal group that is classified as held for sale) in accordance with IFRS 5 shall be accounted for either:

• (a) at cost, or
• (b) in accordance with IAS 39.

The same accounting shall be applied for each category of investments. Those investments that were accounted for at cost shall be accounted for in accordance with IFRS 5 on classification as held for sale (or inclusion in a disposal group that is classified as held for sale). Those that were accounted for in accordance with IAS 39 until classification as held for sale (or inclusion in a disposal group that is classified as held for sale) shall continue to be accounted for in accordance with IAS 39. Investments in subsidiaries, jointly controlled entities and associates that are classified as held for sale (or included in a disposal group that is classified as held for sale) in accordance with IFRS 5 shall be accounted for in accordance with that IFRS.

The Board noted that the staff intends to clarify IN7 in the Introduction to IAS 27, which currently suggests that a subsidiary acquired exclusively with a view to resale is not consolidated. This is inconsistent with the requirements of IAS 27 paragraph 12 and IFRS 5 paragraph 16. As the Introduction is not part of the IFRS, this matter will be treated as an editorial change.

IAS 28-Impairment of an investment in an Associate

Impairment testing of an investment in an associate is performed by testing the entire carrying amount of the investment in the associate under IAS 36. IAS 28.33 is clear that goodwill included in the carrying amount of an associate is not tested for impairment separately under IAS 36. The guidance in IAS 28.33 treats the investment in the associate as a single asset for impairment purposes. This suggests that the fact that goodwill is included in the carrying amount of an investment in an associate does not prevent the full reversal of impairment if the recoverable amount of the associate increases in a subsequent period.

The Board agreed that there was a conflict in the guidance in IAS 28.33. The guidance should be clarified to say that the trigger for impairment testing is that in IAS 36. However, because IAS 28 treats the associate as a single asset, IAS 39 provides the more appropriate measurement guidance. This did imply that if an investment in an associate has been impaired, any reversal can be reversed against the notional 'goodwill' associated with that Associate.

The Board will discuss this proposed amendment again at a later meeting.

IAS 29-Terminology

The Board agreed to propose amendments to IAS 29 Financial Reporting in Hyperinflationary Economies to replace the term 'market value' in IAS 29.14 and .19 with 'fair value'; to replace the term 'results of operations' and 'net income' in IAS 29.20 and .28 with 'profit or loss'; and to modify IAS 29.6 as follows:

6 Entities that prepare In most countries, financial statements are prepared on the historical cost basis of accounting do so without regard either to changes in the general level of prices or to increases in specific prices of assets held. The exceptions to this are those assets that the entity is required to or chooses to measure on a fair value or revaluation basis, for example except to the extent that property, plant and equipment and investments may be revalued and biological assets must be measured at fair value. Some entities, however, present financial statements that are based on a current cost approach that reflects the effects of changes in the specific prices of assets held.

Board members noted that some of these amendments might better be accomplished as consequential amendments arising from the forthcoming amendments to IAS 1.

IAS 38-Advertising and Promotional Expenditure

In April 2007, the Board discussed a matter referred to it from the IFRIC relating to a potential proposed amendment to IAS 38 Intangible Assets paragraphs 69-70 in respect of the accounting for advertising and promotional activities. The Board was unable to reach agreement at that meeting and requested that the staff do further analysis and return with a proposal.

The Board considered that the accounting suggested by IAS 38 might seem counter-intuitive; however they were not in a position to undertake a comprehensive review of the Standard now. Consequently, the existing Standard must be the frame of reference. After a considerable debate, the Board agreed to add to the Annual Improvements Project a proposal to amend IAS 38.69-70 such that:

• IAS 38.69 would be amended to state that expenditure on advertising and promotional activities would be recognised as an expense when those activities are rendered to the entity; and
• IAS 38.70 would be clarified to state that, to the extent that there is a prepayment for such services, an entity is not precluded from recognising a prepayment asset between the time the payment is made and the time the service is rendered to the entity.

Thus, if an entity pays for the preparation of a television commercial in advance, the entity is not precluded from recognising that payment as a prepayment asset in the balance sheet. Once the commercial has been completed and is ready for transmission (that is, the service has been rendered), any prepayment asset is written off to profit or loss.

IAS 39-Inconsistency in disclosure requirements for associates and investments in jointly-controlled entities accounted for in accordance with IAS 39

The Board discussed an apparent inconsistency in the disclosure requirements for those entities that account for investments in associates and jointly controlled entities at fair value in accordance with IAS 39. Investments in associates and jointly controlled entities held by certain investment-type entities are excluded from the scope of IAS 28 and IAS 31. These entities are therefore not required to give the disclosures that those standards would otherwise require. However, IAS 32 and IFRS 7 both require entities that account for investments in associates and jointly controlled entities in accordance with IAS 39 to give the disclosures required by IAS 28 and IAS 31 in addition to the disclosures required by IAS 32 and IFRS 7. The staff had proposed to provide relief from the IAS 28 and IAS 31 requirements in the investor's separate financial statements.

The Board modified the staff proposal and agreed to propose amendments to IFRS 7 and IAS 32 to provide limited relief from the disclosures in IAS 28 and IAS 31 when investments in associates and investments in jointly-controlled entities are measured at fair value. However, the following disclosure would be retained:

• IAS 28.37(f)
• IAS 31.55-.56 (first sentence only; the second sentence is not applicable)

Discussion at the June 2007 IASB Meeting

IAS 38 – Advertising and Promotional Activities

In May 2007, the Board agreed a proposal to amend paragraph 68-70 of IAS 38 such that:

• IAS 38.69 would be amended to state that expenditure on advertising and promotional activities would be recognised as an expense when those activities are rendered to the entity; and
• IAS 38.70 would be clarified to state that, to the extent that there is a prepayment for such services, an entity is not precluded from recognising a prepayment asset between the time the payment is made and the time the service is rendered to the entity.

The draft changes submitted to the Board (omitted from the observer note) generated considerable debate. It appeared that it was unclear when the advertising and promotional activities should be considered as 'rendered' and therefore recognised as expenditures in profit or loss. Is it when they are delivered to the entity or to the targeted audience?

The Board agreed that the activities are considered rendered when they are delivered to the entity. Thus, if an entity pays in advance for the preparation and broadcast of a television commercial, the costs associated with the preparation of the commercial should be expensed on completion and delivery of the commercial to the entity. On the other hand, the air time would only be expensed when the television commercial is aired.

IAS 16 – Sale of assets held for rental

The IFRIC was asked to provide guidance on the accounting for sales of assets held for rental. The issues are whether the sales should be presented gross (revenue and costs of sales) or net (gain or loss) in the income statement and how they should be classified in the balance sheet during the renting and held for sale period (if any).

At its May 2007 meeting, the IFRIC noted that IAS 16 paragraph 68 states that gains arising from derecognition of an item of PP&E should not be classified as revenue. As IAS 16 is clear that disposal of an item of PP&E should be reported net in the income statement, the IFRIC believed that this issue would be better addressed by amending the Standards rather than by means of an Interpretation and therefore decided not to take this issue on its agenda but to draw it to the attention of the Board.

Based on the discussion at the IFRIC meetings, the staff presented to the Board two possible alternative views:

• View 1: When sales of assets held for rental arise in the course of an entity's ordinary activities and recur on a regular basis, the entity should report gross revenue from sales;
• View 2: Revenue from the sales of these assets should be reported net. No exception should be made to IAS 16.

Two possible accounting treatments would reflect that gross presentation of revenue. Under View 1A the asset is initially classified as non-current PP&E and when the asset ceases to be rented either it is immediately sold or held for sale and transferred to inventories. Under View 1B the asset is initially classified as current inventories.

The Board agreed with View 1A but suggested two editorial comments to be made. Firstly, they wanted to clarify that it is the carrying amount of the PP&E that should be transferred to inventory once the asset ceased to be rented and secondly that 'ordinary activities' should be replaced by 'routine activities'.

IAS 1 – Current or non-current presentation of derivatives that are not designated as hedging instruments

The IFRIC raised to the attention of the Board an inconsistent guidance in IAS 1 regarding the current/non-current classification of derivatives. The guidance included in paragraph 62 of IAS 1 might be read by some as implying that financial liabilities that are classified as held for trading in accordance with IAS 39 are required to be presented as current.

The Board decided to address this inconsistency by amending the examples of current liabilities in paragraph 62 of IAS 1 as follows: "Examples are financial liabilities held primarily for the purpose of being traded classified as held for trading in accordance with IAS 39, bank overdrafts," The Board also highlighted that this was not only relevant for derivatives that are not designated as hedging instruments but for all derivatives.

IAS 28 – Impairment of investment in associate

At the May 2007 meeting, the Board decided that any impairment recognised by an investor against an associate, when it applies the additional impairment test required by IAS 28, should not be allocated to goodwill and other individual underlying assets of the associate. Furthermore there should be no restrictions on the reversal of the impairment charge to the extent that the recoverable amount subsequently increases. The Board asked the staff to consider whether the impairment of the associate should be performed by applying the guidance in IAS 36 or IAS 39

At this meeting, the Board decided that the guidance in IAS 28 should clarify that the impairment test in IAS 28 refers to IAS 36 impairment testing and, for that purpose, that the investment in an associate is treated as a single asset for impairment testing. The Board also decided to specify than any additional impairment loss is not allocated against goodwill or other assets included in the investment balance. Accordingly reversals of the additional impairment should be recognised as an adjustment to the investment in the associate to the extent that the recoverable amount increases.

IAS 39 – Reclassifying derivatives on cessation or commencement of hedge accounting and reclassifying portfolio financial instruments

The staff identified an apparent inconsistency in the guidance of Paragraph 9 and 50 of IAS 39. It relates to the reclassification of certain financial instruments into or out of the category of financial asset or financial liability at fair value through profit or loss in certain circumstances. These are:

1. Reclassification of derivative that no longer qualifies as a hedging instrument in accordance with IAS 39 or vice versa; and
2. Reclassification of financial instruments that, after initial recognition, become, or cease to be, part of a portfolio of identified instruments that are managed together and for which there is evidence of a recent pattern of short-term profit-taking.

After a lengthy debate, the Board did not manage to conclude on this issue. Thus, it was decided to bring this issue back at a subsequent meeting.

IAS 39 – Applicable effective interest rate on cessation of fair value hedge accounting

The staff identified an apparent inconsistency in the guidance in IAS 39. It relates to whether the revised or the original effective interest rate of a debt instrument should be applied in the remeasurement of the instrument's carrying amount on the cessation of fair value hedge accounting.

The Board decided to address this inconsistency by clarifying that the remeasurement of an instrument in accordance with AG8 is based on the revised effective interest rate calculated in accordance with paragraph 92 of IAS 39 where applicable rather than the original effective interest rate.

IAS 39 – Treating prepayment penalties as closely related embedded derivatives

The staff identified an apparent inconsistency in the guidance in IAS 39. It relates to penalties for early repayment (that is, prepayment) of loans and whether these are classified as closely related to the loan. The Board decided to address this inconsistency by amending paragraph AG30(g) of the application guidance of IAS 39 to make an exception to the example of embedded derivatives that are not closely related to the underlying. This exception is in respect of prepayment penalties that no more than compensate the lender for the loss of interest.

IAS 39 and IAS 20 – Accounting for nil or low interest loans received from a government

The staff identified an apparent inconsistency in the guidance in IAS 20 and IAS 39. It relates to the accounting for nil or low interest loan received from a government. IAS 20 states that no interest should be imputed for such a loan, whereas IAS 39 requires that all nil or low interest loans are recognised at fair value, thus imputing interest to the loan.

The Board decided to address this inconsistency by requiring below market rate government loans to be recognised and measured in accordance with IAS 39. They agreed to have the proposed draft amended accordingly as they believe that the term nil or low interest rate loans was not specific enough. As a consequence, the benefit of the government loan is calculated by the imputation of interest in accordance with IAS 39.

IAS 39 and IFRS 4 – Accounting by holders of financial guarantee contracts

The staff has been notified of an apparent ambiguity in the scope of IAS 39. It relates to the accounting by the holder of a financial guarantee contract. Scope paragraph 2(e) of IAS 39 implicitly excludes financial guarantee contracts held by the entity because of the general exclusion of insurance contracts from IAS 39 other than those issued by the entity that meet the definition of a financial guarantee contract. The implicit exclusion by paragraph 2(e) contrasts with the explicit exclusion of such contracts by the introductory paragraph IN6 of IAS 39.

The staff noted that the clarity of the standard would be improved by making a link between the introductory paragraph IN6 and paragraph 2(e) of IAS 39. This will be achieved by including an additional sentence in the introduction of IAS 39. Note that this issue is considered to be most appropriately resolved as an editorial change. The Board unanimously agreed with the staff proposal.

IAS 39 and IAS 18 – Costs of originating a loan

The staff has been notified of an apparent inconsistency in the guidance of IAS 18 and IAS 39. It relates to the accounting for transaction costs when originating a loan. Paragraph 43 of IAS 39 requires that financial assets are recognised initially at fair value plus, in the case of financial asset not at fair value through profit and loss, transaction costs. Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial asset or liability. Paragraph A4(a)(i) of the Appendix to IAS 18 states that fees that are an integral part of generating an ongoing involvement with a financial instrument are deferred, together with 'the related costs'. This would seem to permit more costs to be deferred than IAS 39 because there is no requirement for these costs to be incremental.

The staff recommended that the Appendix to IAS 18 be amended as an editorial change in order to clarify that 'origination fees' together with related transaction costs (as defined in IAS 39), are deferred and recognised as an adjustment to the effective interest rate.

The Board disagreed with the staff recommendation to have this corrected as an editorial change considering its implication and the widespread use of the Appendix to IAS 18 in practice. The Board proposed to have this issue exposed for comments instead.

IAS 41 – Discount rate for fair value calculations

The staff identified an apparent inconsistency in the guidance in paragraph 20 of IAS 41. It relates to the guidance on which discount rate should be used to calculate the fair value of the biological assets when using expected net cash flow as the basis for the calculation. Fair value is generally viewed as a post-tax concept and so the discount rate used. However, IAS 41 currently requires the use of a pre-tax discount rate to calculate fair value.

The staff proposed to address this inconsistency by amending IAS 41 to require the use of a post-tax discount rate when calculating fair value. The Board disagreed as they consider this to be more a fair value measurement issue and, therefore, requiring a post-tax discount rate would not solve the problem. The Board proposed to replace the 'pre-tax discount rate' by the 'rate applicable by the market participant' leaving it to the entity to determine which discount rate to be used.

IAS 41 – Replanting obligations

The staff identified an apparent practical issue that arises when an entity that has biological assets also has a legal obligation to replant such assets after harvest. The issue relates to the interaction of the requirement of IAS 37 and IAS 41. Paragraph 22 of IAS 41 requires that the calculation of fair value is not reduced by future replanting costs. A provision for replanting and the associated costs is recognised at the point of harvest where there is a legal obligation to replant in accordance with IAS 37.

After a lengthy debate, the Board did not reach a conclusion on this issue. Different views were expressed, and therefore the Board agreed to discuss it again at the next meeting.

IAS 41 – Examples of agricultural produce

The staff identified that one of the examples of agricultural produce is an example of produce that has been processed rather than an example of unprocessed produce.

The Board decided to address this issue by amending this example by replacing 'logs' by 'felled trees' as agricultural produce of 'trees in a plantation forest'.

Discussion at the July 2007 IASB Meeting

IFRS 5 – Accounting in consolidated financial statements of a subsidiary held for sale

The IFRIC was asked to provide guidance on applying IFRS 5 Non-current Assets Held for Sale and Discontinued Operations when an entity is committed to a plan to sell the controlling interest in a subsidiary. The request considered situations in which the entity retained a non-controlling interest in its former subsidiary, taking the form of either an investment in an associate, an investment in a joint venture or a financial asset.

The IFRIC recommended to the Board that IFRS 5 be amended to clarify the following issues:

• What triggers classification of the subsidiary's assets and liabilities as held for sale under IFRS 5?
• When classification as held for sale is required, should all the subsidiary's assets and liabilities be classified as held for sale or only the proportion to be sold?

The Board decided to propose an amendment to IFRS 5 stating:

An entity that is committed to a plan to sell a subsidiary involving loss of control of that subsidiary shall classify the assets and liabilities of that subsidiary as held for sale, regardless of whether the entity retains a non-controlling interest in its former subsidiary after the sale.

Given that IFRS 5 and FAS 144 are to be converged and that the FASB has a project on a similar issue (Proposed FSP FAS 144-c), the Board decided to inform the FASB about the intended amendment. There seemed to be a consensus that the amendment should not be added to the omnibus exposure draft if the FASB disagrees with it.

IAS 41 – Replanting obligations

The Board continued its deliberations on an issue relating to the interaction of the requirement of IAS 37 and IAS 41. Paragraph 22 of IAS 41 requires that the calculation of fair value is not reduced by future replanting costs.

The Board discussed a number of possible solutions but did not reach a consensus. Because the Board was not able to reach consensus in two lengthy discussions, the Board concluded that this issue is not minor in nature and therefore does not qualify as an annual improvement. No further decision on how to address this issue was made.

IAS 36 – Disclosures for value in use and fair value less costs to sell

The staff identified an inconsistency in the disclosure requirements in IAS 36 Impairment of Assets.

The Board decided to address this inconsistency by clarifying in paragraph 134(e) of IAS 36 that 'if fair value less costs to sell is determined using discounted cash flow projections, the disclosures required by paragraph 134 (d) shall also be given'.

IAS 17 – Classification of leases of land and buildings

The staff was notified of a perceived inconsistency in the guidance on the classification of leases of land and buildings in IAS 17 Leases.

Paragraph 14 of IAS 17 states:

However, a characteristic of land is that it normally has an indefinite economic life and, if title is not expected to pass to the lessee by the end of the lease term, the lessee normally does not receive substantially all of the risks and rewards incidental to ownership, in which case the lease of land will be an operating lease.

The staff noted that there is concern that this additional guidance is unnecessary and potentially hinders the application of the general lease classification guidance in paragraphs 8 to 12 of IAS 17. The consequence of the current wording is that more leases of land and buildings are bifurcated between an operating lease for the land and a finance lease for the building than might otherwise arise from a simple application of the criteria in paragraphs 8 to 12 of IAS 17. Therefore, the staff proposed to delete this sentence.

The Board stated that the guidance in question was added as an improvement in 2003 and that the concern is obviously caused by reading 'normally' as 'always'.

One Board member suggested addressing this issue by rephrasing both paragraphs 14 and 15 of IAS 17 as these paragraphs nearly say the same.

The Board agreed and the Board member was asked to circulate the proposed rephrasing offline.

IAS 10 – Dividends declared after the balance sheet date

The staff identified that the reference to IAS 37 in paragraph 13 of IAS 10 Events after the Balance Sheet Date may imply that a liability can be recognised for dividends not declared until after the balance sheet date on the basis of a constructive obligation. Such circumstances may arise, for example, when there is an established pattern paying a dividend.

The Board agreed to propose the following amendment to paragraph 13 of IAS 10:

the dividends are not recognised as a liability at the balance sheet date because no present obligation exists at the balance sheet date they do not meet the criteria of a present obligation in IAS 37.

IAS 19 – Accounting for plan administration cost

The Board decided to align the definition of return on plan assets with the guidance in paragraph 107 of IAS 19 Employee Benefits by proposing the following amendment to paragraph 7 of IAS 19:

The return on plan assets is interest, dividends and other revenue derived from the plan assets, together with realised and unrealised gains or losses on the plan assets, less any costs of administering the plan (other than those included in the actuarial assumptions used to measure the defined benefit obligation) and less any tax payable by the plan itself.

IAS 23 – Definition of borrowing cost

To improve consistency between standards the Board decided to revise the components of borrowing costs given in paragraph 6(a) to (c) of IAS 23 Borrowing Costs by making reference to the guidance in IAS 39 Financial Instruments: Recognition and Measurement relating to effective interest rate.

IAS 34 – Earnings per share disclosures

The Board agreed to propose an amendment to paragraph 11 of IAS 34 Interim Financial Reporting clarifying that the requirement to present earnings per share in an interim report only applies to entities that fall within the scope of IAS 33 Earnings per Share.

IAS 1 – Reporting compliance with IFRSs

The Board redeliberated its December 2006 decision to amend IAS 1 Presentation of Financial Statements in respect of reporting compliance with IFRSs. Members of the Standards Advisory Council raised the following concerns over the proposed amendment:

• The statement of compliance with IFRSs should refer to 'IFRSs as published by the IASB' to draw a greater distinction with a statement of compliance with 'IFRSs as adopted for use in country X'. This would also align the compliance statement with the basis on which the SEC is proposing to exempt a Foreign Private Issuer from presenting a reconciliation with US GAAP.
• The ability to refer to IFRSs in the financial statements and disclose the differences between the financial statements as presented and the financial statements prepared in accordance with IFRSs as published by the IASB should be restricted only to circumstances when:
  • (i) the reporting framework which deviates from IFRSs published by the IASB is imposed by law or by an empowered authority in its jurisdiction; and
  • (ii) the reporting framework used is not significantly different from IFRSs as published by the IASB.

Some Board members noted that paragraph 14A should apply equally for all entities not only for those who are required by law/ regulation and expressed a lack of understanding for the proposed restriction. One Board member noted that it is not the business of the IASB do deal with entities that are not in compliance with IFRSs. This should be referred to regulators. The Board decided by majority vote to confirm the proposed amendment as currently drafted.

Exposure Draft

With regard to the omnibus exposure draft the following decisions were made:

• All proposed changes should be applied retrospectively
• No new reliefs should be provided for first time adopters
• Early adoption should be permitted but if the amendments are adopted early, all of the amendments should be adopted at the same time. The Board noted that a number of amendments affect more than one standard and that permission of selective early adoption would make the ED unnecessarily complicated.

The comment period will be 90 days.

Discussion at the September 2007 IASB Meeting

IAS 39 – Reclassification of financial instruments into and out of at fair value through profit or loss

One Board member and the financial instruments staff noted that the proposed annual improvement in respect of this issue, as agreed at the June meeting, was inconsistent with the fair value option.

The Board agreed to clarify paragraph 9 (a) (ii) and (iii) of IAS 39 Financial Instruments so that no changes to the basis of accounting for non-derivative financial instruments should be permitted after initial recognition (other than those required in paragraphs 50 - 54 of IAS 39) if an entity changes the way in which it manages the instrument.

This results in paragraphs 50A (c) and 50A(d) being deleted from the proposed amendment and the definition of financial assets and financial liabilities at fair value through profit and loss being amended as follows:

• (a) It is classified as held for trading. A financial asset or financial liability is classified as held for trading if it is:
  • (i) it is acquired or incurred principally for the purpose of selling or repurchasing it in the near term;
  • (ii) on initial recognition it is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking; or
  • (iii) it is a derivative (except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument).

IAS 19 – Replacement of the term 'fall due' with expected to be settled'

This proposed amendment to IAS 19 Employee Benefits was intended to introduce consistency between the terms used in the definitions and the terms used in paragraph 8.

The staff recommended that the focus should be on the timing of the entitlement of the employee rather than the expected timing of the use of the benefit.

The Board agreed that the term 'fall due' should therefore be replaced with the term 'to which the employee becomes wholly entitled'.

IAS 33 – Impact of forward purchase contracts on EPS calculation

The Board agreed, with one dissent, that shares subject to repurchase should be accounted for as a participating debt instrument and that as such, dealt with as a separate class of participating instruments in accordance with the two class method for the calculation of EPS.

The Board agreed, with one dissent, that shares subject to repurchase in accordance with a gross physically settled forward purchase contract with remittance of dividends should be accounted for as a non-participating debt instrument and that as such, dealt with as a separate class of non-participating instruments in accordance with the two class method for the calculation of EPS.

The Board's understanding was that these approaches would give the same EPS result for both IFRS and US GAAP. The Board agreed that the EPS calculations for forward purchase contracts with a choice of gross physical or net settlement, gross physically settled written put options and written put options with a choice of gross physical or net settlement should be consistent with that described above for gross physical settled forward purchase contracts. The Board acknowledged this gives a different EPS result from US GAAP and agreed that this should be identified as a known difference between IFRS and US GAAP in the Basis for Conclusions on IAS 33.

The Board did not conclude on the following issues which were raised by the staff paper:

• Whether dividends paid in respect of shares subject to repurchase in accordance with a gross physically settled forward purchase contract should be presented as an expense in profit or loss
• Whether a liability for discretionary dividends payable in respect of shares subject to repurchase in accordance with a gross physically settled forward purchase contract should be recognised when the dividends are declared, irrespective of whether those dividends are presented as a finance expense in profit or loss or as an equity distribution.
• Where the shareholder to whom the dividends are paid and the counterparty from the entity receives the remittance of the dividends are different parties, whether at the date that the dividends are declared, the liability for the dividends payable and the receivable for the dividends to be remitted qualify for an offset presentation.

IAS 41 – Miscellaneous wording revisions arising from the ballot process

The Board agreed that IAS 41 Agriculture should be amended as follows, with the exception that the final sentence should be clarified in respect of when that part of the grant retained should be recognised in profit or loss:

36  Terms and conditions of government grants vary. For example, a government grant may require an entity to farm in a particular location for five years and require the entity to return all of the government grant if it farms for less fewer than five years. In this case, the government grant is not recognised in profit or loss as income until the five years have passed. However, if the terms of the government grant allows part of the government grant it to be retained based on according to the passage of time, the entity recognises the government grant that part in profit or loss as income on a time proportion basis.

Exposure Draft published 11 October 2007

On 11 October 2007, the IASB published for comment an exposure draft (ED) of proposed miscellaneous amendments to 25 International Financial Reporting Standards as part of its first annual improvements project. The proposals range from a restructuring of IFRS 1, mainly to remove redundant transitional provisions, to minor changes of wording to clarify the meaning and remove unintended inconsistencies between IFRSs. The IASB discussed the individual proposals during the past year. The ED may be downloaded from the IASB's website www.iasb.org starting 22 October 2007.

Comment deadline

The IASB requests comments by 11 January 2008.

Proposed effective date

The proposed effective date for the proposed amendments would be 1 January 2009.

Structure of the Exposure Draft

The exposure draft includes a chapter for each IFRS for which an amendment is proposed. Each chapter includes:

• an explanation of the proposed amendment
• an invitation to comment on the proposed amendment
• the paragraphs from the IFRS or guidance that are affected by the proposed amendment
• the basis for the Board's conclusions in proposing the amendment

Topics covered in the Exposure Draft

Press Release

Click for IASB Press Release (PDF 51k).

Special Edition of IAS Plus Newsletter

On 23 October 2007, Deloitte's IFRS Global Office published a special edition IAS Plus Newsletter on Omnibus Exposure Draft (ED) of Annual Improvements (PDF 98k).

Discussion at the February 2008 IASB Meeting

The annual improvements process is a new procedure to deal with miscellaneous, non-urgent minor issues in IFRSs in an efficient way. The first annual improvements document was published in October 2007 containing 41 amendments on 25 IFRSs. The purpose of this session was to inform the Board of comments received from constituents and determine how the annual improvements process will proceed.

The staff informed the Board that it received 75 comment letters (with the majority from Europe) with nearly a third arriving after the deadline. Constituents were reminded that timely filing of comment letters is necessary.

The staff noted that it has segmented the proposed amendments into three areas:

1. Items that received broad support and, subject to minor editorial change in some cases, are ready for the Board to reaffirm without deliberation (presented in Agenda Paper 4D); those items will go directly to balloting
2. Amendments that require more staff work but can be completed in time to meet the timetable for publication in May (presented in Appendix 1 to Agenda Paper 4B and Agenda Papers 4E - 4L)
3. Amendments that require more staff work but cannot be completed in time to meet the scheduled publication date (presented in Appendix 2 to Agenda Paper 4B)

The staff also asked the Board if they would consider approving separate publication of a restructured IFRS 1 on a stand-alone basis. The Board seemed to agree.

One Board member asked when the amendments will be incorporated in the Bound Volume published by the IASB. The Director of Technical Activities informed the Board that the plan is to incorporate the amendments in this year's edition of A Guide through International Financial Reporting Standards published by the IASCF (the 'Green Book').

The staff said that it has received a significant number of general comments on the annual improvements process itself, especially in the areas of:

• Scope
• Early adoption and transitional provisions
• Consequential amendments
• Due process and procedures

Scope

Staff noted that constituents had difficulties in understanding the criteria the Board applies when determining that an amendment is 'minor'. Some respondents were concerned about changing principles in IFRSs or addressing issues new to IFRSs without the appropriate level of attention from constituents. Some respondents objected strongly to treating some of the proposed amendments as minor improvements, such as:

• Statement of compliance in IAS 1 when not all IFRS are followed
• Changed definition of a derivative in IAS 39
• Advertising and promotional activities
• Classification of land under IAS 17

Some commentators believed due process had not been followed by the Board. One Board member noted that due process is actually being followed as the annual improvements process contains all steps except a discussion paper phase (not considered necessary) in accordance with the IASB Due Process Handbook.

This member also noted that minor does not mean 'minor impact' or 'no change in practice', but minor changes in terms of the number of words in IFRSs.

One Board member proposed to have a 'biennial improvements process'. This idea was not shared by other Board members.

Early adoption

A result of the comment letter analysis was that nearly all commentators disagreed with the transitional provisions as set out in the exposure draft. The Board acknowledged those comments and will consider this in the next annual improvements cycle. The Board also accepted that sometimes specific transitional provisions might be appropriate in this year's annual improvements document.

Consequential amendments

Another area of concern for constituents was that all accompanying material (for instance, the Basis for Conclusions) should reflect the amendments. Although some parts are not mandatory, it is thought of as being helpful for the full understanding of the implications of the changes.

Due process and procedures

Commentators raised concerns that the annual improvement document confuses small editorial corrections with changes having great impact on practice. Constituents proposed that the ED should have been structured to clearly identify amendments with broader impact.

The staff informed the Board that it plans to revisit the process for the 2008 annual improvements once the amendments resulting from the 2007 ED are finalised.

The Board then was asked if it agreed to the categorisation done by the staff. The Board seemed to agree.

The staff then turned to the amendments that it classified as 'requiring some staff work but can be completed in time' and informed the Board that this is the first of two batches for redeliberation. The topics discussed were:

• Amendment to IFRS 5: Plan to sell the controlling interest in a subsidiary
• Amendment to IAS 16: Sale of assets held for rental
• Amendment to IAS 19: Curtailments and negative past service cost
• Amendment to IAS 19: Short term and long term benefits
• Amendments to IAS 28 and IAS 31: Disclosure requirements for investments accounted for under IAS 39
• Amendment to IAS 28: Impairment of investments in associates
• Amendment to IAS 38: Advertising and promotional activities
• Amendment to IAS 40: Treatment of investment property under construction

Amendment to IFRS 5: Plan to sell the controlling interest in a subsidiary

The amendment proposes to clarify that all assets and liabilities of a subsidiary should be classified as held for sale if the parent has a sale plan involving loss of control of the subsidiary.

The staff proposed adding further words to clarify the proposed changes and align the effective date of the amendment with that of the revised version of IAS 27 Consolidated and Separate Financial Statements as published in January 2008. IAS 27 (2008) is effective for annual periods beginning on or after 1 July 2009.

The Board agreed.

Amendment to IAS 16: Sale of assets held for rental

The amendment should provide clarity in the case an asset is held with the dual purpose of renting and selling as part of an entity's business model.

Particular concerns were raised about the amendment being a rule instead of a principle, the consequential amendment to IAS 7 Statement of Cash Flows to prescribe 'operating' treatment for the original expenditure for the asset concerned, and the interaction with IFRS 5.

The staff recommended continuing with the amendment as proposed but adding clarification on the non-applicability of IFRS 5 in the Basis for Conclusions. One Board member proposed to put that guidance in the main body, which seemed to be supported by the rest of the Board.

The Board agreed.

Amendment to IAS 19: Curtailments and negative past service cost

The amendment's aim is to provide clarity on what is the difference between a curtailment and negative past service cost and to remove the reference to 'materiality from IAS 19.111. One of the Board's previous decisions was that any link to future salary increases relates to future services. The staff redrafted words aimed to reflect this. Also the staff proposed to make clear in the amendment that the change in the defined benefit obligation triggers whether or not there is a past service cost. The staff also proposed that the amendments relating to negative past service cost should be applied prospectively, that is, for benefit changes occurring on or after 1 January 2009.

Some Board members raised concerns with the wording proposed by the staff with regard to the link to future salary increases, suggesting that it was not helpful. The staff said they would go back and recirculate an improved wording. One Board member stated he would like to see the whole amendment dropped as IAS 19 cannot be fixed in this respect.

The Board decided to keep the replacement of the word 'materiality' with the term 'significant', even though 'significant' is not a defined term. All other staff proposals were accepted subject to some drafting changes.

Amendment to IAS 19: Short-term and long-term benefits

The original proposed amendment stated that entitlement is the distinguishing line between a short-term and long-term benefit.

The Board had a lengthy discussion on what is the appropriate distinguishing line and if the 'wholly' criterion (that is, if the liability is settled in total) was correct.

The staff recommendation used the words 'that are expected to be settled in full' for short-term employee benefits. Some Board members suggested using the words in IAS 1 (revised 2007) paragraph 69(c) that states '...due to be settled within twelve months after the reporting period'. Other Board members seemed to agree.

Amendments to IAS 28 and IAS 31: Disclosure requirements for investments accounted for under IAS 39

The proposed amendment would require entities that apply the fair value option to their investments in associates or jointly controlled entities to make some of the disclosures as set out in IAS 28 and IAS 31 in addition to the requirements of IFRS 7 Financial Instruments: Disclosures.

Constituents questioned why those investments should be treated differently from other IAS 39 investments, since the Board decided to allow fair value treatment for such investments on the basis they are no different from other financial assets for certain entities. The staff proposed to retain the original amendments. One Board member proposed to more extensively explain the rationale for the Board's decision in the Basis for Conclusions.

The Board agreed.

Amendment to IAS 28: Impairment of investments in associates

The amendment aims to provide clarity on reversals of an impairment loss in an associate that relates to goodwill of the associate. It states that the investment in the associate is treated as a single asset, that is, an entity is allowed to fully reverse any impairment loss if the recoverable amount of the associate has increased accordingly.

It was noted that constituents had raised some concerns about this amendment.

The Board had a short discussion on the topic, and one Board member made clear he would dissent from issuing the amendment in its current version. The other Board members agreed with the amendment as drafted.

Amendment to IAS 38: Advertising and promotional activities

The proposed amendments aim to clarify the term 'as incurred' used in IAS 38.69 that covers advertising and promotional activities. The proposed change would require entities to recognise the expense once they have access to the goods or services.

The Board received a significant number of objections to this proposal. A number of commentators highlighted that this would be a major change to existing practice and, hence, should not be part of the annual improvements project. Other constituents argued that, as advertising and promotional activities are not clearly defined, it is difficult to determine what is covered by IAS 38.69, especially in the case of mail order catalogues. Some constituents referred to the guidance under US GAAP set out in SOP 93-7, which allows capitalisation of direct-response advertising expenses (for example, mail order catalogues). Another issue that was raised in the comment letters was the treatment of undelivered advertising and promotional materials. The conclusion drawn by some commentators was that the amendment should be part of a separate project of the IASB or that the issue should be referred back to the IFRIC.

The staff proposes to continue with the amendment as proposed subject to some wording changes to reflect of the issues raised by commentators.

The Board had a lengthy debate on this issue and some Board members were in strong disagreement with the amendment. One Board member questioned if this amendment really improved financial reporting. Additionally, some Board members expressed their support for the Alternative View presented in the annual improvements document that some of the issues covered in the proposed amendment would better be dealt with in Standards on tangible assets such as IAS 2 Inventories.

The Chairman took a vote on this amendment. The Board agreed to proceed with the amendment (three Board members voted against).

Amendment to IAS 40: Treatment of investment property under construction

The final amendment discussed was the proposal to treat investment property under construction in accordance with IAS 40 (and not IAS 16). As a consequence, if an entity applies the fair value model, its investment property under construction would have to be fair valued from day one.

Of 42 respondents who commented on this amendment, 26 objected. The two main reasons were:

• The amendment is a significant change and should not be dealt with as part of the annual improvements process.
• If an entity applies the fair value model, but cannot determine the fair value for the investment property reliably, cost measurement would be required even when fair value becomes available.

The Board discussed some possible ways to address the issues raised. At the end of the discussion, there seemed to be agreement that the route IAS 41 takes in paragraphs 30-33, that is, use cost as a surrogate of fair value until it comes available, was appropriate.

Project plan

At the end of the session, the staff informed the Board about the project plan. Some of the amendments that require more staff work will be brought back to the Board at the March meeting. Sweep issues will be discussed at the April Board meeting. The final annual improvements document is expected to be published in May 2008.

The Board agreed with the project plan.

Discussion at the March 2008 IASB Meeting

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.

Final Improvements Issued May 2008

On 22 May 2008, the IASB published final amendments to 20 IFRSs, and the related Bases for Conclusions and guidance, resulting from the Board's Annual Improvements Project for 2007. Some amendments, in turn, cause consequential amendments to other IFRSs. The amendments are based on proposals in an Exposure Draft published in October 2007. The IASB's annual improvements project provides a vehicle for making non-urgent but necessary minor amendments to IFRSs. The effective date for most amendments is annual periods beginning on or after 1 January 2009. The improvements are of two broad types:

1. Amendments that result in accounting changes in presentation, recognition, or measurement. The topics for these are listed in the table below.
2. Terminology or editorial changes that have no or minimal effect on accounting. These affected IFRS 7, IAS 8, IAS 10, IAS 18, IAS 20, IAS 29, IAS 34, IAS 40, and IAS 41.

Click for:

• Press Release (PDF 57k)
• Special edition IAS Plus Newsletter on Improvements to IFRSs (PDF 136k)

Discussion at the March 2009 IASB Meeting

Statement of compliance with IFRS

Under the proposals an entity would be required to make disclosures when it did not include the explicit and unreserved statement of compliance with IFRS as required by IAS 1 Presentation of Financial Statements.

The staff proposed not to finalise the proposals. The Board agreed.

April 2009: IASB Issues Final Improvements to 12 IFRSs

On 16 April 2009, the IASB issued Improvements to IFRSs – a collection of amendments to twelve International Financial Reporting Standards – as part of its program of annual improvements to its standards. The IASB uses the annual improvements project to make necessary, but non-urgent, amendments to IFRSs that will not be included as part of another major project. The latest amendments were included in exposure drafts of proposed amendments to IFRSs published in October 2007, August 2008, and January 2009. Most of the amendments are effective for annual periods beginning on or after 1 January 2010, although entities are permitted to adopt them earlier. During its deliberations of comments received on the exposure draft of Proposed Improvements to IFRSs published in August 2008, the IASB decided to postpone reconsideration of two IAS 39 issues (relating to the fair value option and bifurcation of an embedded foreign currency derivative) until more analysis could be completed. Consequently, with the document published today, all the other issues included in the three exposure drafts have been finalised or removed from the IASB's agenda. The following table lists the IFRSs and topics addressed by the amendments. Click for IASB Press Release (PDF 45k).