IFRS for Private Entities (formerly IFRS for SMEs) - Recognition, Measurement, and Presentation
The Board continued its redeliberations of an IFRS for Private Entities. The objective of this session was to address certain issues previously deferred. The staff introduced this session by highlighting the major topics to be discussed:
- Outstanding issues on financial statement presentation;
- Redeliberation of an approach for impairment of non-financial assets; and
- Redeliberation of an approach for financial instruments.
Outstanding issues on financial statement presentation
The staff presented a proposal that private entities should be required to present a single statement of comprehensive income and not have an option to present, instead, two statements - an income statement and a statement of comprehensive income as currently allowed under IAS 1.
Staff noted that this would be more in line with the underlying concepts, would eliminate an accounting policy choice, and simplify accounting for preparers. It was also noted that private entities generally had few or no items of other comprehensive income. One Board member disagreed with this observation. Another Board member questioned why private entities should be required to present one statement while public entities have an accounting policy choice. After a short debate the Board decided to allow entities a choice of using a single or two statement approach.
A second related issue were the permissible formats of a single statement of comprehensive income. The staff presented four formats. Initially, the staff identified one of the formats as being inconsistent with the proposed requirements, but the previous discussion showed that this format seemed to be also in line with the requirements.
Finally, the staff asked the Board whether the requirement to present a third statement of financial position at the beginning of the earliest comparative period if an entity applied an accounting policy retrospectively, made a retrospective restatement of items or reclassified items should not be applicable to private entities. The Board briefly discussed the issue and, while not agreeing with the rationale presented, agreed not to require this third statement of financial position.
Redeliberation of an approach for impairment of non-financial assets
The staff reminded the Board of the background to this topic. In July 2008, the Board agreed to:
- Modify the general approach for the impairment of non-financial assets to include the 'recoverable amount' and 'value in use' concepts;
- Simplify the requirements for assessing goodwill impairment; and
- Introduce the concept of a cash-generating unit.
The Board agreed with the redraft of the section. However, staff was asked to make sure that fair value was not interpreted as being determined for a distressed situation. Further it was observed that the inability to determine fair value and apply value in use instead seemed contradictory. Some Board members also had further editorial comments to be resolved offline.
Redeliberation of an approach for financial instruments
The staff's final topic for this session was the redraft of the section on financial instruments. The redraft splits the section into (a) Part A on basic financial instruments and (b) Part B on other issues in accounting for financial instruments, reflecting a previous Board decision. At this meeting, only Part A was discussed. The Board had also previously agreed that it should be clarified by way of examples that for many instruments that private entities hold a cost model would be appropriate.
Some Board members were concerned over the use of undefined terms like 'market value' and 'present value' where IAS 39 uses the term 'fair value'. Others had difficulties discussing Part A without Part B. There was general consensus that the final document should clearly identify financial instruments that cannot be carried at (amortised) cost.
Board members questioned the reason why initial measurement of a basic financial asset (liability) was to be made with reference to the fair value of the consideration given rather than the fair value of the financial asset received (given). It was agreed that this paragraphs will be redrafted to make clear that cost will be the fair value of whatever is receivable (for an asset) or payable (for a liability).
Another Board member expressed his concerns over the example on factoring in relation to derecognition. Others were concerned about trying to base derecognition on the notion of transferring 'significant risk and rewards'. It was agreed to revert to the original proposal and allow derecognition only if the entity had no significant continuing involvement with the transferred asset. Some Board members asked why the draft contained a concept of 'linked presentation' (that is, presenting the asset not derecognised linked with the associated liability), something which the Board had not agreed on yet under full IFRS. The staff responded that the proposal is to permit the linked presentation only in limited circumstances as set out in the agenda paper and is based on the requirements for factoring in the current FRSSE standard in the United Kingdom. After discussion, they would reconsider and bring back this issue.