Annual improvements — 2009-2011 cycle
In June 2011, the IASB proposed seven amendments to IFRS as part of the 2009-2001 annual improvements cycle. During this meeting the staff presented how the concerns raised by constituents have been addressed and their recommendations to the Board on finalising the amendments.
Repeated application of IFRS 1
The annual improvements proposals attempted to clarify that an entity is required to apply IFRS 1 when the entity's most recent previous annual financial statements do not contain an explicit and unreserved statement of compliance with IFRSs, even if the entity has already applied IFRS 1 in a previous reporting period. To address some of the concerns raised, the IFRS Interpretations Committee (the 'Committee') recommended that an entity that meets the criteria for applying IFRS 1 but has applied IFRSs in previous reporting periods could elect (rather than being required) to apply IFRS 1 when re-adopting IFRSs. If an entity does not elect to apply IFRS 1 then it should apply IFRSs retrospectively as if the entity had never stopped applying IFRSs.
One Board member expressed some concern over comparability if the Board permits an option for reapplying IFRS 1. However, another Board member felt that the recommendation would actually help to increase comparability.
The Board tentatively decided to allow, instead of requiring, an entity to make a repeat application of IFRS 1. If an entity does not elect to apply IFRS 1, they would be required to apply IFRSs retrospectively in accordance with IAS 8 Accounting Policies, Changes in Estimates and Errors as if the entity had never stopped applying IFRSs. The Board also tentatively decided that an entity who reapplies IFRS 1 would be required to disclose the reason why they stopped under IFRSs and the reason why it is resuming reporting under IFRSs.
IFRS 1 — Exemption for borrowing costs
The annual improvements proposed to amend the exemption for borrowing costs in IFRS 1 to clarify that a first-time adopter of IFRS with capitalised borrowing costs under a previous GAAP can carry then forward under IFRSs. Additionally, first-time adopters would be required to account for borrowing costs incurred from the date of transition for qualifying assets under construction at the date of transition under IAS 23 , but may choose to apply IAS 23 from an earlier date.
The Board tentatively decided to finalise the proposed amendments related to the IFRS exemption for borrowing costs without any significant modifications from that proposed in the annual improvements exposure draft.
IAS 1 — Comparative information
The annual improvements proposed to amend IAS 1 in order to clarify the requirements for providing comparative information when an entity provides financial statements beyond the minimum comparative period requirements and the date the opening statement of financial position is required to be given. The proposals would also permit summary notes (rather than full notes) to be presented with the opening statement of financial position.
Constituents had certain concerns with the proposals, in particular, they felt the terminology used was confusing and did not understand the rationale of why providing 'voluntary' additional comparative information would trigger a requirement to present full notes while providing the 'mandatory' comparative information would permit summary notes.
To address these concerns, the Committee recommended the Board explain what is required instead of using the terms 'required comparative information' and/or 'the beginning of the required comparative period'. The Committee suggested specifying that this refers to 'comparative information in respect of the preceding period'. The Committee also suggested the Boards more clearly explain in the basis for conclusions the rational for when requiring 'full' notes.
The Board tentatively decided to replace the term 'required comparative period' with 'preceding period' and provide clarifying guidance on the requirements for providing additional information than required by IFRSs.
IAS 16 — Classification of servicing equipment
The annual improvements proposed an amendment to paragraph 8 of IAS 16 to clarify the classification of servicing equipment as property, plant and equipment when the equipment is used during more than one period or otherwise classified as inventory.
Some constituents had concerns with the clarity of the terminology used in the proposals and also thought the proposals could result in excessive administrative costs to comply by requiring depreciation of equipment spare parts rather than expensing as inventory and the proposed requirement for full retrospective application.
To address constituent concerns, the Committee recommended a simplification of the proposal to state that items such as spare parts, stand-by equipment and servicing equipment would qualify as property, plant and equipment when they meet the definition of property, plant and equipment and otherwise would be classified as inventory.
One of the Board members questioned whether the Committee's recommendation would address the original issue for which clarity was needed noting the guidance is somewhat circular (an item is PP&E when it meets the definition of PP&E). He also noted that the discussion in the agenda paper is based off the original proposals but questioned whether the final amendments would be sufficiently clear when the context of the original proposals was not included. The staff responded that they would need to add language to the basis for conclusions to ensure that the clarification is sufficiently clear.
The Board tentatively decided to finalise the clarification by stating that items such as spare parts, stand-by equipment and servicing equipment would qualify as property, plant and equipment when they meet the definition of property, plant and equipment and otherwise would be classified as inventory.
IAS 32 — Tax effect of distribution to holders of equity instruments
The annual improvements proposed amendments to paragraphs 35, 37 and 39 of IAS 32 to clarify that income tax relating to 1) distributions to holders of an equity instrument and 2) transaction costs of an equity transaction should be accounted for under IAS 12.
Constituents agreed with the proposed amendments but questioned a perceived inconsistency in the guidance on the income tax consequences on dividends in paragraphs 52B, 58 and 61A. Based on the feedback received from constituents, the Committee recommended finalising the proposed amendments but adding a clarification to the basis for conclusions on when part of the guidance should be applied.
One of the Board members noted that he originally had concerns with this issue but realised that the nature of the amendment was solely to remove reference to income taxes from IAS 32 and simply refer to IAS 12. He noted that he had some drafting suggestions that he would pass along to the staff.
The Board tentatively decided to finalising the proposed amendments but clarifying in the basis for conclusions how paragraphs 52A, 52B and 58 link to the amendments.
IAS 34 — Interim financial reporting and segment information
The annual improvements proposed to align the disclosure requirements in paragraph 16A(g)(iv) of IAS 34 and paragraph 23 of IFRS 8. The amendment would clarify that total assets for a reportable segment need to be disclosed only when the amounts are regularly provided to the chief operating decision maker and there has been a material change in the total assets for a segment from that previously disclosed in the last annual financial statements.
Constituents were broadly supportive of the proposed amendments but some disagreed with the requirement to apply prospectively because of an inconsistency with paragraph 29 of IFRS 8. An inconsistency in the language between paragraph 16A(g)(iv) of IAS 34 and paragraph 23 of IFRS 8 was also noted.
The Board tentatively decided to finalise the amendments but permitting retrospective application and to clarify that paragraph 16A(g)(iv) of IAS 34 would be applicable to both assets and liabilities to be consistent with paragraph 23 of IFRS 8.
Proposed changes to IAS 1 derived from the Conceptual Framework for Financial Reporting
The annual improvements (2011 exposure draft) proposed to replace the 'objective of financial statements' in paragraph 9 of IAS 1 with the 'objective of financial reporting' and to update the definition of 'understandability' in paragraph 7 of IAS 1 to be consistent with the new definition in the Conceptual Framework. The annual improvements (2009 exposure draft) also proposed to amend IAS 8 to be consistent with the terminology used in the Conceptual Framework.
Some constituents agreed with the proposed amendments while others (primarily national standard-setters and preparers in Europe) raised concerns including that the amendments are not of the nature of an annual improvement as they are neither clarifying nor correcting, are premature since the Conceptual Framework is still being developed and believed that the 'objective of financial statements' and 'objective of financial reporting' are not the same concept. One constituent also raised concerns with the Chairman of the IASB Trustees' Due Process Oversight Committee.
Based on these constituent concerns, the staff recommended that changes made to IFRSs resulting from changes to the Conceptual Framework should be undertaken as a separate project rather than through the annual improvements process. One IASB member questioned whether the staff recommendation would mean waiting until the Conceptual Framework has been completed before addressing this change. The staff responded that the Board could separately address how and when to consider these changes but this decision would simply remove them from the scope of the annual improvements process.
The Board tentatively decided not to proceed with the proposed amendments and that changes to be made to IFRSs as a result of the Conceptual Framework should be addressed as a separate project and not as part of the annual improvements cycle.
- IAS 16 — Property, Plant and Equipment
- IAS 23 — Borrowing Costs
- IAS 32 — Financial Instruments: Presentation
- IAS 34 — Interim Financial Reporting
- IFRS 1 — First-time Adoption of International Financial Reporting Standards
- Conceptual Framework for Financial Reporting 2010
- IAS 1 — Presentation of Financial Statements
- IAS 12 — Income Taxes