Financial instruments – Impairment
Summary of feedback from outreach meetings and comment letters
The comment period on the joint supplementary document (the "Supplement") closed on 1 April 2011. During the open comment period, the staff and several Board members held outreach meetings with various constituents around the world. During this meeting, the IASB and FASB received a summary of the views received during those outreach meetings as well as an initial summary of the comment letters received by the comment period closing date.
The FASB staff provided a summary of the outreach activities involving financial statement users since the Boards received few user responses through the comment letter process. Users include buy- and sell-side analysts, regulators and investor or analyst industry groups. They believe that the Boards finding a converged impairment model is highly important. They are also supportive of a move towards a single impairment model for all financial instruments. Additionally, users believe it is important that the final impairment model mitigates pro-cyclicality. Users' primary concern with the proposals in the Supplement is the lack of comparability associated with the 'higher of' test of the time-proportionate approach and the foreseeable future period approach, particularly in instances where the recognised allowance may flip from one approach to another from period to period. Users have concerns over the definition of foreseeable future period as they felt there would be a lack of comparability. Similarly, they also generally prefer a standardised market trigger for transfers from the 'good book' to the 'bad book' to increase comparability.
The IASB staff provided a summary of the comment letters received as of the comment period deadline. Respondents generally felt that the 60 day comment period was not sufficient to properly test the proposals and requested that the entire impairment model be separately proposed so that all components can be considered together. Respondents acknowledged that the foreseeable future period allowance would often be higher than the time proportionate allowance. Respondents from the US generally preferred using only the foreseeable future period allowance while international respondents generally preferred using only the time proportionate approach allowance; although there were diverging views in each of those jurisdictions. Many respondents offered alternative variations of the proposals in the Supplement. Respondents also expressed concern that the degree of judgment provided in the Supplement may be overridden by regulators such that while there exists convergence in the standard, the actual application could vary significantly across jurisdictions.
The Board held a discussion based on the summaries provided by the staffs. One IASB Board member noted the conflicting messages received by constituents, noting that a consistent theme was support for convergence but there was not overwhelming support for the converged proposal. Additionally, the Board developed a principles-based impairment model, but there is concern that regulators will override the principles in the standard and impose bright line applications. Another IASB Board member acknowledged the challenge the Boards will face to balance the feedback received from financial institutions and regulators who have very different perspectives. The Board made no decisions during this meeting.