IFRS for Private Entities
Title of the Standard
The Board agreed that the title should be 'International Financial Reporting Standard for Non-publicly Accountable Entities' (IFRS for NPAEs).
Rewrite of Section 11A Basic Financial Instruments
The Board agreed with the restatement of the initial measurement principle for basic financial instruments as follows:
When a financial asset or financial liability is recognised initially, an entity shall measure it at the transaction price. If payment for the asset is deferred or is financed at a rate of interest that is not a market rate, the entity shall measure the asset or liability at the present value of future payments discounted at a market rate of interest.
However it was agreed that some of statements about discounting were problematic and a review by the staff was required in order to ensure that the wording throughout was consistent with that in Example 3 of 11A.11 of the draft Standard.
Derecognition and Factoring
The Board agreed that the guidance on factoring should be consistent with the general principles on derecognition. It was therefore agreed that the proposed paragraphs of special guidance on factoring should be deleted and replaced with two examples of factoring - one that resulted in derecognition and one that did not - based on general derecognition principles.
The Board also decided that the guidance on loan commitments, as outlined in 11A.12(b) should be moved to Section 11B Additional Financial Instruments Issues.
First Draft of Section 11B Additional Financial Instruments Issues
The Board requested that the wording of 11B.4 be clarified. No other issues raised.
Redeliberation of Issues Relating to Other Sections
The Board redeliberated six issues as follows:
Accounting policy options
The staff had recommended that a number of complex options should not be available to private entities. The Board decided that each option needed to be considered on its own merits rather than an 'all or nothing' approach to allowing options within the IFRS for NPAEs. While no final decisions were reached at the meeting, the board tentatively held the following views in respect of each option:
- Investment property. Measurement should be circumstance-driven rather than allowing NPAEs an accounting policy choice between the cost and fair value methods. The Board decided if the fair value of an item of investment property can be measured reliably without undue cost or effort, the fair value through profit or loss method must be used. Otherwise, the cost-depreciation-impairment method must be used.
- Property, plant and equipment. The revaluation model should not be an option.
- Intangible assets. The revaluation model should not be an option.
- Borrowing costs. All borrowing costs should be charged to expense. The capitalisation model should not be an option.
- Presenting operating cash flows. NPAEs should be permitted to use either the indirect method or the direct method to present operating cash flows in the cash flow statement.
- Development costs. All research and development costs should be charged to expense Capitalisation of development costs should not be an option.
- Financial instruments. An NPAE will have a choice of applying Section 11 of the IFRS for NPAEs or all of the provisions of full IFRSs - the three financial instrument standards (IAS 32 Financial Instruments: Presentation, IAS 39 Financial Instruments: Recognition and Measurement, IFRS 7 Financial Instruments: Disclosures), and related interpretations. Due to the size of the additional material that would need to be incorporated into the IFRS for NPAEs, the option to use full IFRSs will be available by cross-reference. This would be the only cross-reference to full IFRSs.
- Associates. The options proposed in the ED (cost method, equity method, and fair value through profit or loss) should all be allowed.
- Jointly controlled entities. The options in the ED should all be allowed with the exception of proportionate consolidation. Therefore NPAEs could choose the cost method, equity method, or fair value through profit or loss.
Consolidated and Separate Financial Statements
The staff recommended that consolidated financial statements be required only when certain conditions are met. The Board disagreed and concluded that consolidated financial statements should be required for all private entities that are parent entities.
Special Purpose Entities (SIC 12)
The Board agreed with the staff recommendation that the guidance in SIC 12 Special Purpose Entities is appropriate for private entities and agreed with the addition of 3 paragraphs to Section 9 of the draft Standard.
Remove distinction between distributions from pre-acquisition and post-acquisition profits under the cost method in the sections on consolidation, associates, and joint ventures
The Board agreed with the staff recommendation to update the relevant sections of the draft Standard to reflect the May 2008 amendments to IFRS 1 and IAS 27 in respect of cost of an investment in a subsidiary, jointly-controlled entity, and associate. This removes the requirement to separate the retained earnings of the investee into pre-acquisition and post-acquisition components as a method for assessing whether a dividend is a recovery of its associated investment.
Amortisation of goodwill and intangibles
The Board agreed with the staff recommendation that indefinite life intangibles including goodwill should be amortised over their useful life subject to a maximum period of 10 years. As proposed in the ED, there would be a requirement to assess at each reporting date whether there are indicators of impairment. The Board agreed that the Basis of Conclusions should explain that this treatment had been allowed on the basis of a cost-benefit analysis rather than being justified on a conceptual basis.