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Meeting with Representatives of EFRAG on Convergence-related Issues

Date recorded:

Representatives of the IASB met with an EFRAG delegation to discuss the convergence-related issues. The IASB Chairman started the meeting by discussing the convergence with the FASB. He noted that the update of the Memorandum of Understanding with the FASB in November 2009 was an important milestone in the convergence process as it stated a deadline for the convergence for the first time and established the process of assessing the progress on the quarterly basis. He stressed that the new format of monthly joint meetings is working well and, in his opinion, helps to overcome or narrow differences between the Boards on a timely basis.

The EFRAG Chairman also welcomed the new arrangement as a positive development that brought more transparency to the convergence process. Nonetheless, he raised the issue of European involvement in these new arrangements. Both parties agreed with the suggestion of having a longer meeting in September that would discuss technical aspects of the major projects and activities.

The EFRAG Chairman also welcomed the increased level of outreach but noted that an increased level of transparency of the outreach activities would be welcomed. The IASB Chairman responded that the result of the outreach was always a public document discussed by the Board that summarised the result of the outreach (a document similar to a 'feedback statement' that is published after a new Standard is published reflecting the comments from comment letters).

The EFRAG raised some concerns about the implications of the 2011 deadline on the quality of the accounting standards and stressed the need to maintain quality before convergence and the fulfilling any deadline.

The EFRAG also expressed concerns about the likely revisions to the IASB workplan that would lead to moving of expected comment periods and renders the planning difficult. In addition, the EFRAG noted that the IASB has, in some cases, cut down the comment period and scoped out several issues from the proposed guidance in order to meet the deadline. The EFRAG representatives expressed concerns that little time, combined with heavy workload and scoping changes, may lead to misunderstandings.

The discussion continued with financial crisis-related issues. The EFRAG expressed some concerns about the proposed guidance on financial liabilities and noted that bifurcation of financial liabilities when assets were not bifurcated might lead to creation of additional accounting mismatches.

The EFRAG representatives expressed their broad support for the expected loss impairment model. Nonetheless, some EFRAG representatives advocated a scope exception for non-financial institutions (rather than a practical expedient). The EFRAG representatives also provided broad support for the idea of a statement of regulatory income and encouraged the IASB to discuss it with the regulators and the Basel Committee as it is more a public policy issue rather than an accounting issue. The IASB Chairman clarified that the IASB would create the statement of regulatory income as a vehicle for providing information but the calculation and enforcement would be responsibility of the regulators.

The EFRAG supported the IASB approach on a comprehensive hedge accounting overhaul but encouraged the Board to gain more insights and input from European companies.

Some EFRAG representatives expressed their concerns about the consolidation project as they believed that the current IFRS guidance worked well in the financial crisis and it might be dangerous to change it.

The EFRAG representatives expressed their grave concerns about the IAS 37 proposals. The EFRAG noted that there is lots of uncertainty about the probability-of-outflow recognition criterion and urged the IASB to expose the whole Standard for a new comment period.

The IASB Chairman noted that the IASB has become aware that recognition rather than measurement is of most concern for constituents and would deliberate the following week how to address those concerns. On measurement, the EFRAG representatives expressed their concerns on the margin used in calculation of fulfilment value.

The EFRAG representatives also expressed some concerns on the proposals of the IASB to require a single statement of comprehensive income and suggested prioritisation of the workload. In the opinion of the EFRAG representatives, this project should not be prioritised.

The EFRAG representatives urged the IASB to undertake more outreach in respect of the Revenue Recognition Standard as many constituents are of the view that the new guidance would not change the practice, which might not be necessarily the case.

Regarding the leases project, the IASB Chairman noted that the IASB would need to consider whether to publish lessee and lessor guidance together, as the FASB plans. The IASB Chairman noted that lessor accounting was not in the original MoU agreement and, thus, guidance for lessees and lessors could be decoupled. Nonetheless, he noted that in any case the IASB would try to speed up lessor accounting guidance, even if it would mean that it would be published three to four months after the lessee guidance.

The IASB Chairman also discussed the question of alignment of effective dates of the new major proposals. The EFRAG noted that sufficient lead time should be provided to facilitate the endorsement process.

Finally, the EFRAG provided some update on the pan-European proactive work on Asset Definition, Common Control Transactions, Income Taxes, Disclosure Framework, Implication of Business Model on Financial Reporting, and Assessing of Effects of Accounting Standards.

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