Start Date:
End Date:
Timezone: GMT
Location: London
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The IASB and FASB held a joint Board meeting on 26-28 October 2009. |
Monday, 26 October 2009
Tuesday, 27 October 2009
Wednesday, 28 October 2009
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Oct 26, 2009
The staff began the meeting by discussing the timetable of this project. The Boards plan to issue an exposure draft in the second quarter of 2010, and a final standard in June 2011.
Project Timetable
The staff began the meeting by discussing the timetable of this project. The Boards plan to issue an exposure draft in the second quarter of 2010, and a final standard in June 2011.
Segmentation of a Contract
The staff then explained that the purpose of the discussion was to decide on further guidance to clarify the recognition and measurement provisions outlined in the discussion paper. The primary concern relates to the extent to which an entity would be required to identify separate performance obligations and allocate consideration to each performance obligation (that is, segmentation of a contract). The model in the discussion paper directs entities to separate (or segment) contracts on the basis of when the promised goods and services are transferred to the customer.
The staff noted that comment letters indicated that the model as articulated in the Discussion Paper is not operational for contracts with many performance obligations (for example, does a performance obligation exist for each brick, nail, and labor hour?). The staff indicated that the discussion paper did not adequately convey the Boards intent and that clarifying language regarding segmentation will be necessary in the exposure draft.
The staff explained that segmentation is about measurement rather than recognition. An entity would identify the performance obligations and then aggregate based on established criteria. The staff proposed that the transaction price should be allocated to the segments of a contract rather than to individual performance obligations in the contract. Entities should separate contracts into segments when there is evidence that a market exists for those segments on a standalone basis. Standalone value as described in US GAAP is not a consideration in determining when segments exist. Rather, the entity should consider materiality, when goods and services are transferred, and the margins of the promised goods and services in determining the segments that exist within an arrangement.
While the Boards generally agreed with the staff's approach, they expressed concern that the segmentation model would add complexity to the model. Some board members requested more clarity on how an entity would determine the market to use in determining segments when multiple markets exist. For instance, two markets exist for a particular segment. One market consists of two performance obligations, and the other consists of six performance obligations. The staff noted that in this circumstance, the entity should use the market with the highest level of performance obligations (that is, the market consisting of two performance obligations).
One FASB member noted that the model should take a 'bottom up' approach. Under that approach, entities would first identify performance obligations and then determine whether or not these performance obligations should be aggregated into segments. The staff agreed that 'segmentation of contracts' could be better described as 'aggregation of performance obligations'. The Boards directed the staff members to further refine and articulate the model with respect to segmentation.
The staff proposed that allocation of the transaction price to the different segments within a contract should be based on the stand-alone selling price of the segment. If the standalone selling price is not directly observable, the entity should estimate the selling price of the segment. The staff further noted that when estimating selling price, entities should maximise the use of observable inputs, but the model should not prescribe any specific method of estimating selling price.
The staff also proposed that the residual method is not an acceptable allocation method. Instead, any discount should be allocated on the basis of the relative stand-alone selling price to the segments in the arrangement. Residual value may be used only as an input and not as a method of allocating a discount to segments within an arrangement.
The Boards agreed with the staff's recommendations. Several members of the Boards noted that the selling price hierarchy in Issue 08-1 [ASU 2009-13] should be included in this model to provide a framework for estimating selling price. Additionally, the Boards noted that robust disclosures would be needed. While the Boards agreed to that the residual method should not be used as an allocation method, several members expressed concern that if the residual method is allowed as an input, entities may not consider other inputs in allocating transaction price.
Recognising Revenue in a Segment of a Contract
The staff members proposed that an entity should exercise judgment and select from various methods of measuring goods and services transferred to a customer in a segment of a contract. The Boards agreed with the staff and instructed them to clarify that, while the general concept of recognizing revenue is based on the transfer of control, as a practical consideration, methods such as units of output, units of input, etc, may be used as a proxy in determining whether control has transferred to the customer. Once a method for recognising revenue for a particular segment is determined, that method should be used consistently for that segment within the contract and within other contracts.
Oct 26, 2009
The purpose of this session was to (1) discuss the convergence approach, if any, to be taken by both Boards in finalising their projects on consolidation and (2) identify consolidation issues for deliberation by both Boards at future joint meetings.
The purpose of this session was to (1) discuss the convergence approach, if any, to be taken by both Boards in finalising their projects on consolidation and (2) identify consolidation issues for deliberation by both Boards at future joint meetings.
The staff recommended that the Boards work together and ultimately issue a converged standard on consolidations.
The Boards deliberated various options for proceeding to finalise their respective projects. The Boards agreed with the staff on working together to issue a converged standard on consolidation. Going forward, the Boards would jointly deliberate the various consolidation issues identified before the IASB finalises its new consolidation standard. The FASB would then expose the final IASB standard, redeliberate the guidance based on public comments received on the exposure draft, and then proceed to issue a final FASB standard. The IASB final standard and FASB exposure draft should be completed by late March or early April 2010, with both Boards issuing their final standards by the end of 2010.
The IASB noted that its current model provides the same criteria for voting interest entities as it does for structured entities. The FASB indicated that in proceeding with the project, the same criteria should apply to both voting interest entities and variable interest entities.
The staff pointed out that while the basic control models were converged between FASB Statement 167 and IASB ED 10, there remained differences between the IASB's and FASB's guidance on kick-out rights that should be deliberated at future joint meetings. There are also a number of issues that both Boards had yet to consider or deliberate which also would require discussion over the next few months.
The Boards held preliminary discussions on kick-out rights regarding when they can be ignored, when they can be considered substantive, and how the kick-out right provisions should be applied to various scenarios. In particular, the IASB asked many questions about why Statement 167 requires kick-out rights be ignored unless they are held by a single enterprise. The FASB indicated that it is an anti-abuse provision because they believe kick-out rights are generally non-substantive. The Boards asked the staff to finalise the list of issues that should be deliberated and prepare to present these issues with examples at the next joint meeting in December 2009.
Oct 26, 2009
The FASB and IASB resumed their discussions around what constitutes a discontinued operation.
The FASB and IASB resumed their discussions around what constitutes a discontinued operation. The staff presented a paper discussing a proposed definition for a discontinued operation, considering:
Several members of both Boards questioned whether discontinued operations should continue to be presented on the face of the financial statements or whether footnote disclosures alone were more appropriate. FASB staff said that users overwhelmingly support showing discontinued operations on the face of the financial statements. Ultimately, both Boards voted to continue to require the presentation of discontinued operations on the face of the financial statements.
A few Board members questioned whether the proposed definition of discontinued operations was too arbitrary and would allow different users to reach different conclusions on what meets the definition. This could present opportunities for earnings management.
Some members of the IASB questioned whether the current definition under IFRS 5 was more appropriate and suggested amendments were not needed to IFRS 5. The FASB staff noted the proposed definition was similar to IFRS 5 except the staff tried to add some principles where it made sense from an analysis point of view. The IASB indicated that they would like to retain the current definition under IFRS 5.
The FASB staff outlined the next steps for this project. The FASB staff will consider differences between their proposed definition and the IFRS 5 definition and determine whether they believe that changing the current definition to the IFRS 5 definition will be an improvement to financial reporting. Further, the FASB staff will perform an analysis of the disclosure requirements under IFRS 5 and determine whether they believe those disclosures are adequate or if additional disclosures may be needed. The FASB indicated that they would like to discuss the staff's findings and considerations during November.
Oct 26, 2009
The Boards discussed whether both fair value and amortised cost information should be prominently disclosed on the face of the financial statements.
The Boards discussed whether both fair value and amortised cost information should be prominently disclosed on the face of the financial statements (for example, through parenthetical disclosure or reconciling information on the face of the financial statements). One benefit would be to allow investors to more easily compare financial statements prepared under the FASB's and IASB's respective approaches. Additionally, it was noted that some investors are looking for both fair value and amortised cost information in a timely manner. Some questioned whether providing both fair value and amortised cost on the face of the statement of financial position would be confusing to readers of financial statements.
A majority of the IASB members present indicated that they would not necessarily object to requiring entities to provide both fair value and amortised cost information on the face of the statement of financial position for financial instruments that under the IASB's approach are classified as amortised cost. The IASB agreed to consider this issue further at a future board meeting along with the issue of whether requiring prominent disclosure of changes in fair value in separate pro-forma statements to illustrate the impact on accumulated other comprehensive income and shareholders' equity. (The FASB has previously agreed to propose prominent disclosure on the financial statements of both fair value and amortised cost information for financial instruments that under the FASB's approach are classified as fair value through other comprehensive income.)
Subject to further refinement, the two Boards agreed on the following core principles for convergence of the FASB's and IASB's approaches to the accounting for financial instruments (note – the core principles outlined below are based on observer notes of the deliberations and are subject to refinement by the Boards):
Related to principle 4, some Board members expressed concern about the relevance of fair value information for financial liabilities due to the impact of own credit risk on fair value measurements of liabilities. The Boards agreed to post to their respective project websites the core principles for accounting for financial instruments after the refinements are made.
The FASB staff informed the Boards that the FASB anticipates issuing an exposure draft on the accounting for financial instruments project in the first quarter of 2010. In addition, the following work plan was identified:
The Boards exchanged questions about their respective approaches to credit impairment which focused on what information can be used to determine whether a credit impairment exists. IASB members asked whether the FASB's approach could result in the recognition of a loss on initial recognition of a portfolio of loans if there is an expectation of credit losses in the portfolio. FASB members indicated that they had not yet deliberated the details of FASB's approach. No decisions were made.
Oct 26, 2009
The staff described a new proposal (Approach 4.1) for distinguishing between liability and equity instruments and asked the Boards whether they were interested in pursuing this approach.
The staff described a new proposal (Approach 4.1) for distinguishing between liability and equity instruments and asked the Boards whether they were interested in pursuing this approach. Staff explained the difference between Approach 4.1 and Approach 4, which the Boards had discussed previously. Under Appriach 4, shares that are issued pursuant to the contract (that is, all share-settled instruments) would be classified as liabilities regardless of their terms. Under the new Approach 4.1, share-settled instruments would be subject to a separate classification principle, under which the shares that an entity is not using as currency would be classified as equity. In particular, an instrument required to be settled by issuing equity instruments would be equity unless:
This classification principle would result in equity classification of certain share-settled instruments like preferred shares convertible into common shares, forwards to sell shares, physically settled written call options, and stock options. These instruments would have been classified as a liability under Approach 4.
Puttable or mandatorily redeemable instruments would be classified as equity if they are redeemable upon death or retirement, or upon the holder ceasing to participate in the activities of an entity. All other puttable or mandatorily redeemable instruments would be separated or classified as liabilities in their entirety.
Some Board members questioned whether convertible debt instruments should be classified as liabilities as proposed under Approach 4.1 or whether the convertible instrument should be bifurcated. Some suggested that this issue may be better addressed as part of the Financial Instruments Project.
Several members raised concern about the arbitrage and structuring opportunities with Approach 4.1, including unstated cash settlement features. For example, Approach 4.1 would allow an entity to avoid liability classification by writing a gross physically settled written call option (which would be classified as equity) and not having sufficient authorised and unissued shares available to satisfy the contract, in which case the entity would pay the holder cash instead of shares. The economics of the transaction would be the same as if the issuer had written the derivative to be cash settled; the derivative to be cash settled however would be classified as a liability.
Some members from both Boards raised concerns that under Approach 4.1 the information about the effects of dilution by particular instruments to shareholders would not be reflected in the financial statements. It was suggested that shareholders should be informed about the dilutive effect of certain instruments through appropriate presentation in the financial statements.
It was also explained that in relation to developing a definition of a liability in the conceptual framework that is consistent with Approach 4.1, the staff intended to keep the definition of a liability similar to what is in the current framework (that is, a liability requires a transfer of cash or assets) and to provide exceptions to the definition for share-settled instruments classified as a liability and for cash-settled instruments classified as equity.
Most members agreed to pursue Approach 4.1 and to consider ways to resolve arbitrage issues inherent in Approach 4.1.
Oct 27, 2009
The Board discussed a proposal for limited scope amendment to IAS 1 Presentation of Financial Statements.
The staff recommended that the Board eliminate the option in paragraph 81 of IAS 1 that permits an entity to present all items of income and expense recognised in a period in two statements. In recommending that the two statement option be removed, the staff recommended that the Board decide to require that a single statement of comprehensive income be displayed with two sections: profit or loss and other comprehensive income (OCI).
The Board tentatively agreed with the staff recommendation to require a single statement of comprehensive income with the two sections (as described above). The Board also emphasised that this proposal would not change items that can or must be presented in OCI or whether an item must be reclassified upon derecognition.
The staff recommended that the Board tentatively decide to require that components of OCI that will not be reclassified into profit or loss in future periods be displayed together and that components of OCI that will be reclassified into profit or loss in future periods be displayed together. The Board agreed with the staff's recommendation to display items with similar reclassification requirements together.
Lastly, the staff recommended that the Board tentatively decide (a) to remove the option that allows an entity to display components of OCI net of income tax effects and (b) that the income tax effect of an OCI item be displayed with the related OCI item in the statement of comprehensive income. The Board tentatively agreed to remove the option to permit an entity to display components of OCI net of tax. In addition, the Board agreed that income taxes related to items reported in OCI should be allocated between those items that will not be reclassified into profit or loss in future periods and those items that will be reclassified into profit or loss in future periods.
The IASB and FASB agreed to work together to develop exposure drafts to amend their respective requirements under IAS 1 and the FASB Accounting Standards Codification in order to allow the Boards to expose the proposals at the same time. The FASB indicated that it would be beneficial if the timing of the proposal could coincide with the pending release of the exposure draft on Financial Instruments: Recognition and Measurement later this year.
Oct 27, 2009
The staff addressed the following four topics regarding the discussion paper, Preliminary Views on Financial Statement Presentation: (1) the statement of cash flows, (2) the reconciliation schedule, (3) disaggregation by function and nature and (4)classification: section and category definitions.
The staff addressed the following four topics regarding the discussion paper, Preliminary Views on Financial Statement Presentation:
Presentation of Cash Flows Using the Direct Method
The staff began the discussion with a refresher of the feedback received from preparers and users of financial statements during an April 2009 meeting. The main theme of the feedback from preparers and the users was discussed with regards to the use of the direct method of cash flow presentation. Preparers believe that using the direct method is costly and may provide little benefit while users generally believe that this method is useful when prepared using disaggregated information. In hearing both groups, the staff believes that there may be support for a direct method of presentation supplemented with additional indirect information in the financial statements.
As such, the staff presented two alternatives to present cash flow information. In the first alternative, an entity would prepare its statement of cash flows using a less disaggregated (than as described in the discussion paper) direct method of presentation while presenting indirect information in the notes to its financial statements. Under the second alternative, the entity would prepare its statement of cash flows using an improved indirect method of presentation coupled with supplemental disclosures.
The Boards agreed with the staff's recommendation of using the first alternative when presenting information on the statement of cash flows. They believe that an entity should be required to present line items for cash receipts and payments in each section (and category) of the statement. In addition, they believe that an entity should reconcile operating income to cash flows from operations because it will provide the most meaningful information to users (e.g., changes in working capital assets and liabilities). The Boards also expressed the view that the upcoming exposure draft should only require a single method of cash flow presentation and not provide alternative methods.
Disclosing Non-Cash Information
Also discussed during the staff's research and user/preparer outreach discussed above was the notion that non-cash information does not necessarily represent cash flows and as a result, reduces a user's ability to assess the quality of reported earnings. While acknowledging this concern, the staff recommended to the Boards that the requirement in the discussion paper be retained. That is, an entity should be required to disclose non-cash information in notes to financial statements. The Boards agreed with this recommendation.
Other Cash Flow Related Disclosures
The staff recommended to the Boards that disclosure of repatriation limitations and other restrictions on cash should be disclosed in the footnotes to the financial statements. The Boards agreed with the staff's recommendation as they believe the information can be useful to a capital provider.
Because many users and preparers had questioned the proposed reconciliation schedule, through comment letters and user/preparer outreach, the staff discussed whether the Boards should reconsider this schedule to reconcile cash flows to comprehensive income. Concerns were focused mainly on the scale of the reconciliation, the particular accounts being reconciled, and the notion that the focus of the reconciliation should be on the distinction of changes in assets and liabilities that are attributable to remeasurement from those that are not.
The staff recommended a proposal that includes a revised reconciliation schedule that would analyse only the changes in 'significant' line items and that remeasurements be displayed separately on the statement of comprehensive income. While not specifically defining significant, the staff recommended to the Boards the following list of factors that an entity may use when determining which changes in line items to analyse:
The Boards agreed with the staff's recommendation to revise the reconciliation schedule to only analyse changes in significant line items. However, the Boards did not reach agreement on the separate depiction of remeasurements. Some Board members questioned whether the depiction of remeasurements improved financial statement presentation while others questioned how entities would display this information (2 or 3 column reconciliations versus footnote disclosures). The staff was encouraged to consider further analysis on the merits of such information and the method for which to display it.
In light of feedback from various groups, the staff refined its thoughts on (a) the level of disaggregation an entity should present in its financial statements (Issue 1) and (b) where disaggregated information should be presented to be most decision useful in predicting future cash flows (Issue 2). The staff recommended to the Boards that in Issue 1, the discussion paper proposal that specifically requires disaggregation by function and nature on the statement of comprehensive income would be replaced by a disaggregation principle that requires an entity to consider disaggregation by function, nature, and measurement bases in the financial statements as a whole. This would mean the Boards would not specifically require an entity to disaggregate information in the statement of comprehensive income by function and nature. In Issue 2, the staff recommended that an entity that has only one reportable segment present its disaggregated information on the face of its primary statements and that an entity that has more than one reportable segment should present its disaggregated information in its segment note.
For both issues, the Boards conceptually agreed with the staff's recommendation. For Issue 1, the Boards encouraged the staff to further refine a principle for which an entity would base its disaggregation on. For Issue 2, while the Boards agreed with the staff's recommendation that an entity with multiple reportable segments present its information in its segment note, they questioned why the proposal would require an entity with only one reportable segment to present its information only on the face of the primary statements. They encouraged the staff to consider whether an entity with a single reportable segment should be allowed to present its information in its segment note as well.
The staff discussed the following recommendations, all of which the Boards agreed with, relating to the section and category definitions to be used in the upcoming exposure draft:
The staff clarified that any decisions made on the related to the section and category definitions were be used as a basis for future deliberations. As such, the staff indicated that the definitions will continue to evolve.
While not discussed at the meeting, information regarding the staff's next steps and the overall technical plan was provided in a handout at the meeting. The handout listed the following items to be discussed in November thru January leading up to the publication of an exposure draft in April 2010:
Oct 28, 2009
The Board discussed potential models that could be used for lessors in accounting for leases.
The staff began the leases portion of the meeting discussing potential models that could be used for lessors in accounting for leases. One model is the derecognition approach. Under this approach, the lessor is viewed as having transferred a portion or all of the leased asset to the lessee in exchange for a right to receive rental payments. The lessor derecognises the leased asset because it no longer controls the right to use that asset during the lease term. As such, the lessor derecognises the leased asset and recognises a receivable. The lessor continues to recognise those rights that have not been transferred to the lessee (the residual value of the asset).
Another model is the performance obligation approach. Under this approach, the lessor is viewed as having granted the lessee the right to use its economic resource (the leased asset) in exchange for the right to receive rental payments. The lessor does not lose control of the leased property and continues to recognise the leased asset. The lessor would recognise a receivable for the right to receive rental payments and a corresponding liability for the obligation to permit use of the leased asset.
The staff also discussed two other models: the current operating lease approach and the dual-model approach. The current operating lease approach would retain the current guidance for operating leases for lessors. The dual-model approach recognises that not all leases are the same and would provide guidance on when to use each model.
Both Boards decided on the performance obligation approach. Members supporting this approach noted that 'possession' of a leased asset is not synonymous with 'control' and that the derecognition approach confuses the underlying asset with a separable right to use the asset. The Boards directed the staff to perform further analysis on how this model would (a) be impacted by impairment, (b) affect manufacturing lessors, and (c) affect investment properties.
The Boards discussed the financial statement presentation of the receivable, leased asset, and obligation. Some Board members indicated that they may support a net presentation approach in which the receivable and obligation are netted, but no decision was made at this meeting. The Boards asked the staff to perform further analysis of possible presentation approaches under performance obligation approach.
The staff asked the Boards to confirm their prior decision that lessees apply a right-of-use approach for a simple lease contract. The staff did not ask the Boards to discuss the scope of the lease project, the definition of a lease, or leases with options and contingent rentals. These topics will be discussed at future meetings. The staff also acknowledged that the Boards will need to consider how lease accounting applies to short-term leases and immaterial leases. The Boards unanimously confirmed their decision to proceed with a right-of-use approach.
The staff proposed that lease contracts that are purchases/sales of the leased item should be excluded from the scope of the new lease standard. The Boards agreed that sales/purchases should be excluded from the scope of the new lease standard.
The staff next recommended that an entity should consider applicable revenue recognition guidance in determining whether a sale/purchase of a leased item has occurred. The Boards expressed concern with this approach as there are different views on what 'transfer of control' means with regard to lease transactions, and therefore they rejected this recommendation.
The Boards agreed that the determination of whether a sale/purchase has occurred should be based on the specific terms of the lease. For example, Board members generally agreed that if title transfers at the end of a lease, then a sale/purchase has occurred. The Boards decided that the new lease standard should provide guidance on how an entity should determine whether a sale/purchase has occurred and directed the staff to develop criteria that would assist entities in this assessment.
The staff also asked Board members whether they supported creating a separate accounting model for transactions that were within the scope of the new lease standard but that had sales/purchases features. The Board members affirmed that only one model (the right-of-use model) should exist in the new lease standard and that another model for leases with some sales/purchases features should not be developed.
The staff proposed to the Boards that entities should recognise assets and liabilities from the lease transaction upon contract signing. Further, the staff recommended that between contract signing and delivery of the leased asset(s), the unit of account is the contract as a whole and that the contract position should be presented net in the statement of financial position. Upon delivery, the lease asset and lease obligation would be presented on a gross basis. The Boards agreed with the staff's recommendation.
Next, the staff recommended that entities should initially and subsequently measure the assets and liabilities (the net contract position) in a contract on a cost basis. The Boards agreed with the proposal but clarified that the cost would be subject to impairment under other applicable standards. In other words, if there was impairment on a lease contract between contract signing and delivery of the leased asset, the entity would 'write-down' the asset and the contract would be in a net liability position. If the lessee decided to cancel the contract, it would derecognise the net lease contract and record an obligation in the amount of the penalty to cancel the contract. The Boards also agreed with the staff to require additional disclosures in situations where the time between contract signing and delivery is long and/or the rights and obligations are significant.
Oct 28, 2009
The Board discussed different approaches under fair value measurement which could possibly result in different fair value conclusions if following IFRSs versus US GAAP.
The IASB published the exposure draft Fair Value Measurement in May 2009 and received 156 comment letters at the time of the posting of the agenda paper.
Most respondents to the exposure draft urged convergence on the guidance for fair value measurement under IFRSs and US GAAP. The respondents were concerned with the use of different words in IFRSs and US GAAP might result in different approaches under fair value measurement and possibly different fair value conclusions. The staff presented three types of differences (please refer to the IASB Agenda Paper 11 for further details on each of the differences noted below):
The staff then presented three approaches to the Boards on dealing with the differences that currently exist in the fair value measurement guidance. The approaches were:
However, both Boards would monitor the activities of the other to minimise differences between the two standards. This is the approach undertaken so far in the project.
The Boards agreed to follow Approach 1 for the fair value measurement project moving forward.
Oct 28, 2009
The Board discussed three areas of the insurance project where they had reached different conclusions: (1) policyholder accounting, (2) measurement objective and (3) acquisition costs.
The staff used this meeting to reconcile the significant areas where the Boards have reached different decisions. The resolution of the differences on the project is integral to the timely completion of deliberations and subsequent issuances of an exposure draft. The staff presented three areas where the Boards had reached different conclusions:
The scope of the project initially included accounting by both the issuer of the insurance contract (the insurer) and the purchaser of the insurance contract (the policyholder). However, the IASB tentatively decided at a previous meeting not to address policyholder accounting in the exposure draft. The FASB had not yet discussed whether policyholder accounting should be included or excluded from the exposure draft.
The Boards discussed whether policyholder accounting should be included or excluded from the exposure draft. The Boards agreed that the staff should further evaluate the potential scope of the project and come back at a later Board meeting to discuss whether policyholder contracts should be within the scope of the Exposure Draft.
The Boards discussed the measurement approaches for insurance contracts. At previous Board meetings, the IASB tentatively selected the measurement approach being developed in the project to amend IAS 37, modified to exclude day one gains, and the FASB tentatively selected a current fulfilment approach with a composite margin.
The Boards discussed the similarities and differences between the two measurement models. The Boards noted that the words used to describe the models were causing confusion and emphasised the importance of using the correct words. The Boards agreed that the staff would present to the Boards at a future meeting the concepts of both measurement models, using the correct words to describe each model.
Previously both Boards had reached a tentative decision that acquisition costs should be expensed. Subsequently, the IASB had tentatively decided that at inception an insurer should recognise revenue premium to cover acquisition costs incurred. Therefore, acquisition costs should be limited to the incremental costs of issuing (that is, selling, underwriting, and initiating) an insurance contract and should not include other direct costs. In contrast, the FASB had believed the insurer should not recognise any revenue (or income) to offset the acquisition costs incurred.
The Boards extensively questioned why insurance contracts would recognise revenue differently from other industries. Many Board members believe that no performance obligation is satisfied upon signing of the contract and, therefore, no revenue should be recognised at inception. It was tentatively decided by the Boards that an insurer would not recognise any premium at inception to offset the acquisition costs.
Oct 28, 2009
The IASB staff indicated that the IASB website will be updated next week to reflect any changes in the timing of projects as a result of decisions reached over the last three days.
The IASB staff indicated that the IASB website will be updated next week to reflect any changes in the timing of projects as a result of decisions reached over the last three days.
Oct 28, 2009
The Board discussed comment letters received on the Income Tax exposure draft.
The IASB staff began the meeting by providing a summary of the general comments received from constituents on the IASB's Income Tax exposure draft (ED). The ED was published on 31 March 2009, with comments due on 31 July 2009. The IASB received 168 comment letters.
The IASB staff pointed out that most respondents supported the two objectives of the project, which were convergence with US GAAP and improvements to the current accounting in IAS 12. However, the IASB staff explained that while most respondents were supportive of the overall objectives, many respondents felt that the ED failed to achieve these objectives due primarily to the following two reasons:
The IASB staff then noted that as a result, there was very limited support amongst respondents for finalising the ED in its current form. Rather, many respondents suggested making certain improvements to IAS 12 in the short-term while also adding a new longer-term joint project with the FASB and/or a fundamental review of accounting for income taxes.
The Boards then discussed the direction of the income tax project. Some Board members expressed concern that not moving forward with the income tax project could be perceived by some that the FASB and IASB aren't committed to the convergence effort, as this was a project outlined in the Memorandum of Understanding. They further noted that not reaching convergence on income tax accounting could become a stumbling block to the US adoption of IFRS. Most Board members agreed that while a fundamental review and overhaul of accounting for income taxes is needed, the resources and time required for such an undertaking are not currently available. As such, the Boards agreed to delay such a fundamental review until some of the other existing projects are completed and discussed the possibility of the IASB making a few amendments to IAS 12 in the short-term.
The potential short-term amendments to IAS 12 that were discussed focused on convergence with US GAAP, specifically regarding the current recognition exceptions contained in IAS 12. Board members expressed differing views on how practical it would be to make these short-term amendments. The IASB staff pointed out that a majority of respondents to the ED were not in favour of making changes to the recognition exceptions currently contained in IAS 12 and noted that the FASB and IASB would need to work together and both amend their respective standards to reach full convergence in this area.
The IASB staff closed the discussion by mentioning that the direction of the IASB's income tax project will be discussed further at the IASB meetings over the coming month.
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