Agenda Proposals
The staff presented the Board with four agenda proposals:
- Intangibles
- Emissions trading and government grants
- Common control transactions
- Management commentary
The IASB technical and research directors discussed the issue of resource constraints on the above projects, noting that a detailed analysis was provided to the Board in an internal management document that was not publicly available. The IASB research director noted that they were aware of pressure on constituents, staff, and the Board arising from the current projects already on the IASB agenda and did not want unnecessarily to add further pressure on limited resources.
Intangibles
Staff from the Australian Accounting Standards Board (AASB) presented an agenda proposal for a project on intangible assets to be added to the IASB's and FASB's technical agendas. AASB staff noted that earlier drafts of the proposal were discussed with the IASB at its October 2006 and January 2007 meetings and at the joint IASB/FASB meeting in April 2007. The AASB staff presented a range of possible scopes for the agenda proposal:
- Specifying disclosures for internally generated intangible assets.
- Resolving major definition, recognition and measurement shortcomings with IAS 38.
- Specifying recognition and disclosure of intangible assets developed from a discrete plan, initially and/or subsequently measured at cost or fair value.
- Specifying recognition and disclosure of internally generated intangible assets, irrespective of the manner in which they arise.
The IASB research director put forward the recommendation that the Board should not put the project on the agenda at this stage as this would be a major project.
A number of Board members expressed support for the director's recommendation, and noted that although the project was not urgent, it was an important project that should remain on the research agenda. The Board thanked the AASB staff for the significant amount of time and effort already invested in the project. The Board asked the staff to discuss the future of the project 'offline' with AASB staff and other national standard setters. It was suggested to the AASB staff that the scope of the intangibles project could be expanded to start with 'a clean sheet of paper' and revisit the fundamentals of accounting for intangible assets.
Emissions Trading and Government Grants
IASB staff presented an agenda proposal to re-activate the project to provide guidance on how to account for emission trading schemes. Staff noted that emission trading schemes were becoming increasingly common and that subsequent to the withdrawal of IFRIC 3, there was no clear accounting guidance on how to account for such schemes.
The staff paper presented to the Board for the agenda decision included the following table outlining the main approaches that are being accepted in practice to account for emissions trading schemes:
|
Approach 1 |
Approach 2 |
Approach 3 |
|
|---|---|---|---|
|
Initial recognition - Allocated allowances |
Recognise and measure at market value at date of issue; corresponding entry to government grant. |
Recognise and measure at cost, which for granted allowances is nil. |
|
|
Initial recognition - Purchased allowances |
Recognise and measure at cost. |
||
|
Subsequent treatment of allowances |
Allowances are subsequently measured at cost or market value, subject to review for impairment. |
Allowances are subsequently measured at cost, subject to review for impairment. |
|
|
Subsequent treatment of government grant |
Government grant amortised on a systematic and rational basis over compliance period. |
Not applicable. |
|
|
Recognition of liability |
Recognise liability when incurred (ie as emissions are produced). |
Recognise liability when incurred (ie as emissions are produced). However, the way in which the liability is measured (see below) means that often no liability is shown in the statement of financial position until emissions produced exceed allowances allocated to entity. |
|
|
Measurement of liability |
Liability is measured based on the market value of allowances at each period end that would be required to cover actual emissions, regardless of whether the allowances are on hand or would be purchased from the market. |
Liability is measured based on: the carrying amount of allowances on hand at each period end to be used to cover actual emissions (ie market value at date of recognition if cost model is used; market value at date of revaluation if revaluation model is used) on either a FIFO or weighted average basis; plus the market value of allowances at each period end that would be required to cover any excess emissions (ie actual emissions in excess of allowances on hand). |
Liability is measured based on: the carrying amount of allowances on hand at each period end to be used to cover actual emissions (nil or cost) on a FIFO or weighted average basis; plus the market value of allowances at each period end that would be required to cover any excess emissions (ie actual emissions in excess of allowances on hand. |
Staff also noted that the FASB has added a similar project to its agenda. One Board member questioned whether the project would deal only with emission trading schemes, and any government grants related to such schemes, or whether the IAS 20 project should also be reactivated.
The IASB research director put forward the recommendation to restart work on the emission trading schemes project. The IASB research director did not believe that the scope of the work should extend to a review of IAS 20. It was suggested by one Board member that the project could be split into two phases:
- Phase 1 could deal with emissions trading schemes
- Phase 2 could deal with a revised IAS 20.
Staff did not support this proposal.
Another Board member queried why there was diversity in practice when the IAS 8 hierarchy was in place and IFRIC 3 exists (although not effective). It was noted that it is important that the project defines what an emission right is.
The staff proposed that the scope of the project should only address emission trading rights, including any government grants associated with such emission trading rights, but not address government grants more generally. The Board voted (10 in favour) to proceed with this project.
Common control transactions
The IASB staff presented an agenda proposal to address common control transactions. The staff noted that a number of requests had been received to add a project on common control transactions to its agenda. Staff proposed that the scope of any such project on common control transactions be limited to accounting for combinations between entities or businesses under common control in the acquirer's consolidated and separate financial statements. They also considered that the project should investigate whether the description of a combination between entities or businesses under common control could be clarified. The staff recommended not to extend the project scope beyond combinations between entities or businesses under common control.
The IASB research director put forward the recommendation that this project be added to the agenda. The IASB research director noted that this was a significant issue in Australasia and has also been raised by constituents in Europe as an issue. It was noted that some jurisdictions already have their own common control standard. The IASB research director recommended that the project should be narrow in scope so as not to capture all common control transactions (for example, transfer pricing issues would be excluded).
The Board discussed the scope of the potential common control transaction project at length. One Board member noted that spin offs and demergers was the bigger issue within common control transactions and that this issue should be addressed as part of the common control project. Other Board members and staff agreed. Another Board member noted that the examples provided in the staff proposal were all 100% owned subsidiaries, and that the real issue arises when there is a minority interest.
The staff proposed the following scope for the common control transactions project:
- Define what a common control transaction is.
- Include demergers and spin offs.
- Consider accounting in both the separate and consolidated financial statements.
The process to be followed will be determined at a future Board meeting - that is, whether the project would include a discussion paper, or whether the project would go straight to the Exposure Draft stage.
The Board agreed with the revised scope and agreed to add the item to the technical agenda (8 in favour).
Management Commentary
The IASB staff presented an agenda proposal to use the conclusions reached in the Management Commentary Discussion Paper as the basis for moving the project from the research agenda to the active agenda. The project would address the presentation of information presented outside the financial statements in the form of management's explanation of the enterprise's financial condition, changes in financial condition, results of operations, and causes of changes in material line items.
The staff presenting the paper expressed a personal view that any such guidance arising from the project should be in the form of a 'non-mandatory IFRS' rather than a 'best practice' guidance. It was proposed that jurisdictions could optionally adopt such an IFRS.
The IASB research director put forward the recommendation that the Board does not undertake management commentary as a standards-level project. Instead, the IASB research director was supportive of a project that would produce best practice guidance.
The Board agreed with the IASB research director's recommendation (8 in favour).
