The Board had an introductory education session on mineral and oil and gas reserves and resources, focussing on the factors influencing the estimation of reserves and resources and the major reserve reporting codes and classification systems used in the extractive industries.

The first presentation on Resource / Reserve Reporting Standards for Minerals was done via video link from Melbourne by Pat Stephenson, Member and past Chairman of Joint Ore Reserves Committee (JORC).

The other presentation on Resource and Reserve Classification and Reporting Standards for Oil and Gas was done by Duncan Frost, Member of The Society of Petroleum Engineers (SPE) Oil and Gas Reserves Committee.

No decisions were made.

Following the public round-table meeting in March on this issue, the IASB staff posted a paper on the IASB website and requested comments on three proposed Alternatives regarding effective date and transition issues.

The staff provided an overview of comments received, with many respondents noting that Alternative A would unfairly penalise existing IFRS preparers. In addition, many respondents expressed a preference for Alternative C over Alternative B. Alternative C was widely viewed as 'permissive' in that it allowed more entities to have a 'free choice' over designation of financial instruments.

Respondents also encouraged the Board to reconsider its tentative decision not to permit the restatement of comparatives.

It was indicated that letters of support for the current proposals had been received from various regulators.

The staff proposed Alternative C on the basis that it was the 'fairest' in terms of effect on existing IFRS preparers and first-time adopters. The Board agreed with Alternative C (vote 13-1) on the basis that existing IFRS preparers should not be prejudiced for applying the original guidance. A 'free-choice' would therefore be granted to early adopters of the amended fair value option.

In reacting to the overall proposals, some Board members indicated:

• preference for the original unrestricted fair value option as that was conceptually superior but would vote for the current proposals as they are better than the proposals contained in the first exposure draft and given the current situation coupled with the fact that this issue had to be resolved;
• some concern over certain jurisdictions in which regulators require management of certain financial assets and liabilities on a fair value basis as well as fair value accounting and the impact that the restricted fair value option, which is viewed as a retrospective step, would have on financial reporting;
• the restrictions placed on the fair value option were introducing unnecessary complexity into an already complex standard.

Following the general discussion, three Board members indicated their intention to vote against the restricted fair value option, some citing the fact that accounting is better served with an unrestricted fair value option as currently drafted in IAS 39. The amended fair value option would therefore proceed as an amendment to IAS 39 (vote 11-3).

The Board confirmed that the effective date of the amendment to IAS 39 would be 1 January 2006, with earlier application permitted. The period in which the 'free-choice' would be applied would be set as the three months following the date of publication of the amendment. The proposed publication date is June 2005. The staff indicated that this three month window was a subjective timeframe guided by IFRIC practise on Interpretations. It would be during this time that preparers would designate financial instruments as at fair value through profit and loss as well as consider those instruments that do not meet the criteria in the restricted guidance resulting in de-designation.

The Board agreed that pre-existing financial instruments at 1 January 2005 would be eligible for a three month window period in which the 'free-choice' could be applied. In addition, the Board agreed that instruments could be de-designated as at 1 January 2005, from fair value hedges, only if the reason for it is to apply the amended fair value option.

The Board indicated that the drafting of the amendment as regards the 'free-choice' would be so as not to prejudice quarterly reporters.

As regards restatement, the Board was persuaded by respondents and the staff and therefore agreed to allow restatement of comparative information. An entity can therefore apply the amended fair value option as at 1 January 2004 (transition date for a number of first-time adopters in Europe) provided they met the criteria of the amended fair value option at that time.

Where an entity, in adopting IAS 39, chooses to restate comparatives as permitted in that Standard, it would be required to restate that comparative information taking into account the requirements of the amended fair value option.

At the March meeting, a suggestion was made that would result in guidance prepared using a business model-approach, that is, if the issuer of a contract within the scope of the exposure draft had previously asserted that such contracts were insurance contracts and had used accounting applicable to insurance contracts, the issuer could apply either the approach proposed in the exposure draft or IFRS 4.

The Board discussed the fact that it would not be clear in which way an entity had to 'assert' that such contracts were insurance contracts. The staff indicated that in practice, it may be sufficient that the entity treated the contracts as insurance contracts in the last financial statements or, for example, it has to prove that it sold those contracts under the name 'insurance contract' or called itself an 'insurance company'.

Board members indicated that the proposal was not 'pretty' but this was probably the only way to achieve the Board's objectives, which are to have insurance contracts accounted for in accordance with IFRS 4, and the rest in accordance with IAS 39.

The staff recommended that the Board discontinues this project. The Board decided (vote 8-6) to continue with the project using the business model-approach.

A technical correction was proposed to IFRS1.36B to give effect to the intent of the Board as outlined in BC65, to provide relief from restating comparative information (rather than just producing comparative disclosures).

After some discussion, the Board concluded that IFRS1.36B did not correctly reflect the intention of the Board and that the correction should be made. The Board did not believe this issue warranted an exposure draft therefore, it would proceed as follows:

• Include this issue in the next IASB Update publication, as well as highlight the issue on the IASB website.
• Consider any reactions from constituents at the next Board meeting.
• Subject to comments received, the correction would be made to the literature.

The new paragraph (36B) would be as follows:

36B. An entity that adopts IFRSs before 1 January 2006 and chooses to adopt IFRS 6 Exploration for and Evaluation of Mineral Resources before 1 January 2006 need not apply the requirements of IFRS 6 to comparative information in its first IFRS financial statements.

The chairman of IFRIC gave an update of IFRIC activities.

• Two Interpretations on IFRS 2 would soon be with Board members for their review and approval.
• Comments received on IFRIC D11 were consistent in that respondents believed the cancellation provisions only applied where an entity cancelled a scheme. Read literally, this would not include a situation where the employee cancelled participation in a scheme. Board members roundly dismissed that notion, indicating that employees could cancel a scheme. The point was made that such a narrow reading of the cancellation provisions in IFRS 2 was inconsistent with the notion of principle based standards.
• Regarding the footnote contained in the April 2005 edition (page 7) of IFRIC Update, the IFRIC Chairman clarified that the issue to be discussed at the next meeting is the wording and not the decision itself.
• Regarding IFRIC 3, the Board was asked to consider amendments to IAS 38. The Board disagreed and some Board members stated that it would be irresponsible to take any action without clear reasons as to why IFRIC 3 is an incorrect Interpretation of IFRS.
• A Board member raised a concern over what was perceived to be IFRIC's position on the issue of business combinations achieved by contract alone. The IASB had clearly stated in the past, that entities would not be precluded from considering IFRS 3 as guidance in accounting for such transactions (considering the hierarchy in IAS 8). It was understood that IFRIC's position was that this was not allowed. The IFRIC Chairman indicated that he would seek clarity on IFRIC's position.

The IASB chairman thanked the outgoing IFRIC chairman, Kevin Stevenson, for his contributions and service over the years.

Wednesday 20 April 2005

Meeting of the IASB and the Liaison National Standard Setters Location: The Council Room, One Great George Street, Westminster, London SW1P 3AA

Thursday 21 April 2005

Meeting of the IASB and the US FASB Location: The Council Room, One Great George Street, Westminster, London SW1P 3AA

At the 22 April 2004 joint Board meeting, the US Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) (collectively, the Boards) agreed to jointly conduct their respective projects on Performance Reporting and that the work should be performed in two segments.

A. Segment A addresses narrow differences between US GAAP and International Financial Reporting Standards (IFRSs) related to required financial statements and requirements to present comparative information.

B. Segment B is to develop standards for presentation of information on the face of the required financial statements.

Specific issues include recycling, disaggregation and the use of totals/subtotals on the required financial statements.

The staff gave an update on the progress on the Joint International Group and noted that there had been some delays to date in setting out the necessary policies and procedures that they were expected to follow. There was some discussion amongst the Board as to the role of the JIG. It was concluded that they are not a decision maker but should be used in the consultation process by both the FASB and the IASB in forming decisions on performance reporting.

Required Financial Statements

The staff asked the Boards the following questions:

Question 1: What information should comprise a Full Set of Financial Statements?

• A statement that shows (at a point in time) balances of assets, liabilities, and equity as of the beginning of the period-referred to as a Beginning of the Period Statement of Financial Position.
• A statement that shows (at a point in time) balances of assets, liabilities, and equity as of the end of a period-referred to as the End of the Period Statement of Financial Position.
• A statement or two statements that show (for a period of time) the changes in assets and liabilities other than from transactions with owners in their capacity as owners-referred to collectively as a Statement(s) of Earnings and Comprehensive Income.
• A statement that shows (for a period of time) the changes in assets and liabilities from transactions with owners in their capacity as owners-referred to as a Statement of Changes in Equity.
• A statement that shows inflows and outflows of cash-referred to as a Statement of Cash Flows.

The Boards discussed the concept of a full set of financial statements and agreed that all of the above components were required. The decision was tentatively made as the Boards were aware of the discussion of comparative items (see below). 2 IASB members dissented on the grounds that the comparative discussion had to come first before this decision was made. The Boards therefore voted in favour of requiring the Beginning of the Period Statement of Financial Position in a full set of financial statements, rather than merely recommending such a statement as had been suggested by the staff.

Question 2: Should individual Financial Statements within the Full Set of Financial Statements be shown with equal prominence to each other?

The IASB noted that there is currently a difference between IFRS and US GAAP in that under IFRS and US GAAP, certain information can be shown in the notes to the financial statements rather than in a financial statement format. However, it was agreed by the Boards unanimously that all individual statements should be shown with equal prominence.

Question 3: With regard to the Statement of Earnings and Comprehensive Income, should that information be presented as:

• (1) A single statement with a total representing all non-owner changes in financial position and no subtotal for net income or profit or loss. (The Pure Single Statement Approach);
• (2) A single statement with a total for non-owners' changes in financial position and a required subtotal called net income or profit or loss. (The Modified Single Statement Approach); or
• (3) Two separate statements broken down into a traditional Income Statement and a Statement of Other Comprehensive Income similar to that described in FASB Statement No. 130, Reporting Comprehensive Income, paragraph 22. (The Two-Statement Approach)?

There was extensive debate on this question and the following points were made:

• The staff recommended alternative (2) modified single statement approach as it provides the best layout of information for users.
• Certain Board members preferred alternative (1) pure single statement approach but recognised that such an option would require a greater degree of modifications in existing standards and create issues for items such as recycling which are to be dealt with in Segment B of the project.
• Some FASB members were strongly in favour of the pure single statement and felt that the issues to be debated in Segment B should be addressed earlier.
• There was concern that certain items that were currently presented outside of the statement of income (e.g. the Statement of Total Recognised Gains and Losses for UK companies) were given less prominence in considerations of analysts. Therefore, a single comprehensive statement of income was seen as a positive step to improved financial reporting.
• The IASB members noted that alternative (1), which would eliminate the concept of net income, would be a major issue for IFRS reporters, and that the alternative (2) modified single statement approach offered the best solution.

A vote was taken after the debate and the Boards voted (by majority) to support the staff recommendation for alternative (2) - the modified single statement approach.

Question 4: Based on the Boards' decisions on Questions 1 through 3, at this time, do the Boards prefer to make the proposed revision by amending their existing guidance rather than create a new replacement standard?

The Boards debated the merits of issuing a consultation document prior to an exposure draft on the above changes. It was stated that some of the proposals are a major change and therefore discussions would be required in order to persuade interested parties as to the merits of the Boards' recommendations. IASB members specifically noted that European and other IFRS adopters would be resistant to these changes if they felt the IASB are merely falling in line with the FASB.

A vote was taken and the Boards opted (by majority) for issue of an Exposure Draft (without discussion paper) with the proviso that round table discussions would be held.

Comparative Financial Statements

The staff introduced this topic and the need to eliminate existing differences between IFRS and US GAAP relating to the requirements for presenting comparative financial statements.

The staff asked the Boards the following questions:

Question 1: Do the Boards agree with the staff recommendation to require comparative financial information for all entities, and to limit the required information to two annual periods (the current and prior annual period)?

There was some debate regarding the SEC's rule for 3 years of financial information. The Boards voted (by majority) with the staff recommendation to require comparative financial information for two annual periods. Clarification was made (with reference to the full set of financial statements) that this would include 3 balance sheets and 2 sets of period statements (earnings and comprehensive income, cash flows and changes in equity).

Question 2: Do the Boards agree with the staff recommendation that the presentation of financial information by those entities that elect to provide information for annual periods beyond the required minimum should be encouraged but not be required?

The Boards determined that provision of financial information beyond the required two annual periods should not be encouraged. The rationale was that most jurisdictions (including standard setters, securities regulators, and stock exchanges) currently require comparative financial information for the prior annual period and, thus, would most efficiently achieve convergence. While true convergence may not be achieved for public entities, convergence will be achieved at least at the standard setters' level.

The staff asked the Boards to consider specific questions noted below. The staff acknowledged that the Boards may have felt that certain questions had been debated before but the staff felt that clarity was required.

1. Is the Boards' objective to develop a single standard that would apply broadly to all entities?

The Boards agreed unanimously that this is their objective.

2. Do Board members agree that they should first develop a standard that would apply to entities other than financial institutions, and then consider the application of such a standard to financial institutions?

The Boards agreed unanimously that this is the best approach.

3. Do Board members agree with the staffs' approach regarding interim financial statements and notes to financial statements?

Because the staff believes the scope of this project never included fundamental reconsideration of interim reporting requirements or note disclosures, the staff plans to change existing reporting requirements only as needed through consequential amendments made necessary by Board decisions. The Boards agreed (by majority) with the staff.

4. Should the scope of this project include a comprehensive reconsideration of FASB Statement 95, Statement of Cash Flows, and IAS 7, Cash Flow Statements, including whether to require a particular method and presentation of the cash flow statement?

The Boards agreed unanimously that this question should be addressed in Segment B of this project.

5. Do the Boards believe that there are any additional topics that should be added to either Segment A or Segment B? If so, what are these additional topics and should they be addressed in Segment A or Segment B?

An IASB Board member stated that a statement of returns to shareholders should be considered as an additional part of the full financial statements. The Boards also highlighted that additional input from the financial services sector (specifically buy side companies) would be welcomed on the JIG.

6. Timing and Staffing Issues

The Boards agreed (by majority) with the staff proposal to continue with one joint staff team that would complete Segment A of the project through Board deliberations and working toward issuing an Exposure Draft addressing Segment A only. After that the staff will work toward the issuance of a public discussion document on only Segment B issues.

The chairman thanked Kevin Stevenson for his work at the IASB, and wished him well for his return to Australia. Board, staff, and observers applauded Kevin for his hard work.

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

The IASB publishes summaries of the deliberations at Board meetings in its newsletter IASB Update. Past issues of IASB Update are available on IASB's Website. On Individual Project Pages on the IASB Website you will find links to observer notes and excerpts from IASB Update relating to that project.

The Boards considered a number of issues in relation to the objectives of financial reporting.

The first issue considered was whether the objective of financial reporting should be to provide information to a wide range of users or only to existing common shareholders. It was noted that the existing frameworks of both Boards, and all others that had come to the attention of the staff defined users very broadly. The staff proposed that the existing understanding of 'users' should be retained, and noted that a limitation to common shareholders would be inappropriate in some countries depending on their corporate governance requirements. It was noted that users are generally those who make risky investments (in whatever form) in an entity, and are not always classified as equity holders for accounting purposes. The Boards agreed that users should be a wide group of people, and noted that information that certain user groups may require that others do not might become apparent later in the project.

The Boards noted that there is an important distinction of those who can and cannot demand financial information from the entity suited specifically to their information needs. However, it was noted that some entities must prepare GAAP accounts because certain of their users who are in a position to demand information for their own needs demand GAAP accounts. It was noted that while these users are part of the broad definition of 'users' no requirements should be put in place specifically in respect of such users (as should they require anything, they may demand it of a specific entity themselves.)

The next discussion was whether the role of financial reporting is to assist users in decision-making or to compile past transactions and it was agreed that the role of financial reporting is to assist with decision-making. The Boards then discussed whether, having agreed the primary objective is to assist decision-making, a sub-objective in relationship to the role of accountability and stewardship should be incorporated. Such an objective is included in most existing frameworks. The Boards had an extensive discussion around the meaning of the term 'stewardship', as there were a number of different interpretations of the term around the table, and it was noted that it does not translate well. A number of Board members believed this objective should not be included, however this was not a majority. Accordingly staff were asked to prepare a paper for the Boards to consider individually articulating the intended interpretation of 'stewardship'.

The Boards agreed that in general purpose financial reports should not seek to provide information useful to management - if management finds it useful this is a positive but not required as management are able to demand their own reports. The Boards considered a question as to whether management's expectations of viewpoint should be reflected in the information that is presented in the financial reports. The Boards agreed that it was impossible to say 'no' to this as management expectations are an essential part of financial reporting - for example in assessing the useful lives of assets, given the use to which a particular entity is putting them (for example the useful life of a plane operating a shuttle service that takes off and lands regularly throughout the day is not the same as that of a plane which is used on longer flights.) The Boards also considered whether financial reports should include management commentary. It was noted that the IASB's preface does note that management commentary is in their remit. The Boards agreed they should not conclude on this point until the boundaries of financial reporting under the frameworks had been better defined.

The Boards considered whether the individual financial statements should provide information to assist users in assessing solvency. The Boards agreed that while such an objective seemed reasonable, it should only be as part of the overall objectives of providing useful information for decision making, which includes but is not limited to an assessment of solvency.

The Boards considered whether developments such as XBRL had eliminated the need for general purpose financial reports, as users are able to extract the information that they require from such reporting formats. The Boards agreed that at this time general purpose financial reports are not obsolete, and should continue to be the type of reporting to which the conceptual frameworks are directed. At this time reporting formats such as XBRL are an excellent analysis tool, but do not represent a comprehensive reporting framework. Therefore the Boards would continue to use general purpose financial reports as the reporting format they mandate and would endeavour to ensure they kept the information needs of users foremost in their mind. The staff also posed a question as to whether financial reports should contain environmental and social information. The Boards were not asked to make a decision, but did observe that it would be hard to leave this out of financial reporting and still be claiming to fulfil a 'stewardship' objective. The Boards noted that there are a number of European projects on such topics at the moment covering issues such as environmental reporting and human resource accounting. The Boards will further consider this issue at a later date.

The Chairman thanked Kimberley Crook, the IASB's project manager on this project, for her work at the IASB and wished her well as she returns to New Zealand, where she will continue to work on this project.

The Board held an education session on non-life insurance contracts, focussing on discounting and risk margins. In particular, this session was with the Australian and Canadian members of the IASB's Insurance Working Group.

Accounting for (Non-Life) Insurance in Australia was presented by Tony Coleman and Andries Terblanche.

Phil Arthur and Jim Christie presented Non-Life Insurance Accounting: Canadian Perspective on Discounting and Use of Risk Margins.

No decisions were made.

The Boards discussed the best way forward in further developing the financial instruments models, and particularly eliminating differences and the mixed attribute model. Staff suggested the following alternative methods of proceeding:

1. Proceed with a project to introduce a full fair value model
2. Proceed with a project using a full fair value model with certain exemptions based on the cash flows of each instrument
3. Identify and deal with discrete areas of financial instruments accounting
4. Undertake a project to deal with 'small' issues which would eliminate reconciling items between US GAAP and IFRS.

It was noted that prior to making a final decision as to the agenda, the FASB would be likely to be required to discuss this with the Financial Accounting Standards Advisory Committee (FASAC). There was a brief discussion on the role of the Financial Instruments Working Group. It was noted that this group is purely advisory and is not a decision making body.

The Boards expressed a view that the full fair value model is the ultimate goal. FASB members noted that in issuing FAS 133 the FASB stated that they were moving toward a fair value model subject to the resolution of certain practical difficulties. It was noted that the technical project to produce a full fair value option document will not take as long as the time needed to convince constituents of the value of this method. The existing fair value alternatives will need to be in operation for some time to enable constituents to better understand the benefits of such an approach before it will be possible to undertake a project to make fair value mandatory for all financial instruments.

The Boards noted that a project on de-recognition was also required, but that such a project should extend beyond only financial instruments. They briefly discussed whether it was possible to comply with IAS 39 and FAS 140. It was agreed that in some scenarios the outcomes might be the same, but in many a reconciling item would be required. The Boards noted that the justification for a project on derecognition was possibly more persuasive than that for further consideration of the fair value options as the magnitude of the differences between IFRS and US GAAP is much greater, and there is continuing public concern about off balance sheet financial transactions. The Boards agreed with the staff suggestion that this should, for the time being, be a research project rather than an agenda project, and acknowledged that it is unlikely to be in a form ready for discussion for some time.

The Boards noted that of the alternatives presented to them in respect of fair value neither alternative (3) nor alternative (4) appeared to be viable alternatives as they would consume hours of staff and agenda time for little improvement. The Boards agreed that they needed to consider the proposed timetable for each of the remaining approaches - alternative (2) should only be considered if it was likely to be completed in a shorter time frame and would then go another step in the direction of full fair value. Some members noted that alternative (2) may actually take longer due to the difficulties in crafting the appropriate exemptions for instruments for which the amortised cost model would be permitted. It was noted that if this approach was adopted the Boards should ensure that constituents understand this is considered to be an incremental step in the direction of a full fair value model.

The staff drew to the Boards' attention the fact that even if the full fair value options were implemented there would still be significant difficulties to be resolved in respect of cash flow hedging. The Boards agreed that simplification of cash flow hedging is desirable.

Staff noted that there appear to be three main issues:

• Scope (consistency and appropriateness of the definition of a financial instrument);
• Disaggregation of gains and losses in the income statement; and
• Disclosures.

The IASB acknowledged that while the FASB has a well-advanced project on the definition of fair value, the IASB do not. Accordingly before the project could proceed far the Boards would need to agree on the meaning of fair value, and the IASB agreed this would be a key part of their process to be followed. The Boards agreed a project should be added to the agenda to resolve the full fair value option, and that the first steps toward this should be for the staff to prepare a plan on how to address this topic. The plan would particularly address the first of the two issues above, but would be designed to ensure the overall objective (an eventual move to a full fair value model) is kept at the forefront of any developments. The plan will be developed by the joint project team and presented to each Board at its own meeting.

FASB staff provided feedback to the Board indicating that the FASB had agreed with the IASB approach on this project.

On the issue of establishing when substantive enactment occurs, the Board appeared to agree that the guidance should only deal with the principle together with an example of the US system where the President has the power of veto, such that substantive enactment only occurs when the President signs the relevant legislation. However, the guidance would make it clear that the issue of when substantive enactment occurs is one for each jurisdiction to consider as the Board is not competent to consider the legalities of each legislative process.

The Board went on to discuss the intraperiod allocation issue and the subset thereof, commonly referred to as 'backwards tracing'. Some Board members questioned the exception in IAS 12 that requires the taxation effect of a transaction to be recorded where the transaction is recorded (for instance, IAS 16 revaluation of PP&E and the tax effect thereof is accounted for in equity).

Others stated a preference for one taxation amount accounted for in profit or loss regardless of the transaction and where that transaction is accounted for. Some believe the current requirements in IAS 12 should be retained provided recycling to profit or loss is not allowed, as in the case of an IAS 16 revaluation of PPE, but with the effect of tax rate changes taken to profit or loss when they occur. The requirement to take the effect of the tax rate change to profit or loss would be supported on the basis that depreciation of a revalued asset is charged through profit and loss.

The Board did not seem to agree on the existence of any concepts underpinning the provisions in IAS 12.

The Board considered not converging with US GAAP on this issue but tentatively decided that convergence was the best way to proceed as recommended by the staff. The Board asked the staff to prepare examples using material discussed by the FASB for consideration. It was mentioned that the examples would certainly present an 'ordering' problem which may require an arbitrary decision as to what the 'anchor' number should be.

The staff gave an introductory briefing on the issues of intraperiod tax allocation being the allocation of the total tax expense or benefit for the period to various components of comprehensive income (for example, continuing operations and discontinued operations, other comprehensive income[OCI]) and capital items). The staff detailed the current reconciling item between IAS 12 and Statement 109. The tax effect arising in the year relating to gains and losses of the year recognised in OCI or capital is, under both standards, recognised in OCI or capital. However, the effect of changes in tax rates, tax law, tax status and most changes in valuation allowances attributable to gains and losses recognised in OCI or capital in previous years is recognised in OCI or capital under IAS 12 but in income from continuing operations under Statement 109

The Boards then discussed the various options set out by the staff (and option C set out by the FASB), namely:

Option A: Do not converge on intraperiod allocation at this time. The FASB and IASB Boards could separately deliberate intraperiod allocation if either Board believes improvements in their standard is advisable.

Option B: Converge the intraperiod allocation principles in IAS 12 with the detailed intraperiod allocation requirements in Statement 109. This would effectively result in retaining the intraperiod allocation guidance in Statement 109, amended to require allocation to the components of income, OCI or capital of changes in (1) tax rates, (2) tax laws, (3) tax status of an entity and (4) valuation allowances.

Option C: Converge the intraperiod allocation principles in IAS 12 with the detailed intraperiod allocation requirements in Statement 109. This would effectively result in retaining the intraperiod allocation guidance in Statement 109.

The Boards discussed the following points in the ensuing discussion:

• In the course of this project there is a need to bear in mind the earlier decision to introduce one single statement of comprehensive income.
• The merits of convergence between US GAAP and IFRS and whether the cost of converging is outweighed by the benefits should be considered throughout the project.
• Tax is a cost and should be included in calculating net income
• The difficulty of recycling tax and the need to ensure that recycling is treated in the same manner as other recycled items (for example cash flow hedging) so there is a need to identify the specific line items in equity to which the tax relates.

After discussion, the Boards voted in favour of Option C above which would result in convergence of IFRS with the current treatment in US GAAP statement 109.