Meeting of Representatives of IASB and EFRAG
Representatives of the EFRAG and IASB met for their regular meeting to discuss convergence-related issues.
The EFRAG Chairman started the discussion by expressing the support of EFRAG for the aim of achieving high-quality converged accounting standards as outlined by the G20. Nonetheless, he stressed that while EFRAG supported convergence, the high quality of those accounting standards had to be a priority that was not to be compromised.
The EFRAG praised the response of the IASB to the financial crisis related issues, especially the mixed measurement model proposed in the Classification and Measurement ED. Nonetheless, EFRAG was concerned by the potential decisions being made in the name of convergence. The Board responded that many constituents had shown their preference for a converged solution to financial instruments. In response, EFRAG reiterated its position that convergence should not be an one-way move to US GAAP but an improvement to quality of existing financial standards.
One member of EFRAG suggested that some changes of fair value of financial instruments not organised through an exchange or clearinghouse should be presented in OCI instead of profit or loss because:
- they represented 'soft earnings' in comparison to 'hard earnings' and thus have less predictive power, and
- they should not be used for profit distribution.
The EFRAG has expressed agreement with the overall direction of the expected loss model and hedge accounting proposals. Nonetheless, it articulated its position that a forward looking model for impairment should be developed and all convergence-related and implementation issues should be addressed before it was finalised. EFRAG stressed the importance of hedge accounting on a portfolio level.
The IASB Chairman responded by alluding to the timeline imposed by the G20. He noted that even though the classification and measurement IFRS was to be finalised the following month, if convergence was achievable after the FASB finalised its model, further changes to the model were probable.
On consolidation project, the Board noted that following changes to US GAAP, it planned to assess any need to change and discuss it with FASB. That could have impact on timing of the project.
On derecognition, the Board alluded to two approaches possible, an alternative approach and a more limited amendment to IAS 39 model (based on risks and not rewards). The Board expressed its view that a new ED on derecognition might be necessary.
On other proposals, the EFRAG commented that the amount of changes to IFRSs already issued and proposed is very large. It suggested that some projects could be deferred following unfavourable reaction from the constituents (for instance, income taxes) and some should be finalised in full and not split into phases (for instance, the employee benefits project). The IASB noted the the staff has recommended that the proposed amendment on IAS 19 on discount rates might not be finalised as constituents were polarised how to proceed. The EFRAG members showed their surprise on such a recommendation.
The EFRAG also showed its support to the full re-exposure the new liabilities standard in light of the significant time the IASB has taken to redeliberate the proposals in the ED. It noted that during period, opinions of constituents might have changed.
Finally, the EFRAG updated the Board on status of the pan-European projects.