Annual improvements 2010-2012 (IASB only)
In May 2012, the IASB published Exposure Draft Annual Improvements to IFRSs 2010-2012 Cycle. The comment period ended on 5 September 2012. The Committee deliberated the comments received on the proposed amendments at its November 2012 and January 2013 meetings. At this meeting, the IASB was asked to consider the Committee’s recommendations on how to proceed with four of the proposed amendments included in the May 2012 Exposure Draft.
IFRS 2 Share-based Payment: Definition of ‘vesting conditions’
Theproposed an amendment to clarify the definition of ‘vesting conditions’ by separately defining a ‘performance consideration’ and a ‘service condition’ in Appendix A of IFRS 2. Responding to constituent feedback to the proposals included in the May 2012 Exposure Draft, the Committee recommended the finalisation of the proposed amendment to IFRS 2, subject to further clarifying amendments. Those clarifying amendments include specifying:
- a performance target can be set by reference to the price (or value) of another entity included within the group;
- a market condition should be based on the market price of the entity’s (or another entity in the group’s) equity instruments;
- the duration of the performance target should be wholly within the period of the related service requirement;
- the specified period of service that the counterparty is required to complete can be either implicit or explicit;
- management does not need to prove the influence between the employee and the performance target;
- a share market index target is a non-vesting condition;
- the definition of 'performance condition' should indicate that it includes a 'market condition';
- a definition of 'non-vesting condition' is not needed; and
- the employee's failure to complete a required service period is considered to be a failure to satisfy a service condition.
The Committee also recommended that the amendment should be applied on a prospective basis in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.
At this meeting, the staff presented to the IASB the Committee’s recommendations on the proposal to amend the definition of ‘vesting conditions’ in IFRS 2.
One Board member, commenting on the Committee’s recommendation that the performance condition needs to be wholly within the period of the related service requirements, questioned whether the Committee had specifically considered both performance targets starting before the start of the service period and those ending after the end of the service period. In practice, she believed issues had arisen for performance targets extending beyond the end of the service period as opposed to performance targets preceding the start of the service period and questioned whether adequate analysis had been performed in reaching the conclusion that performance condition needed to be wholly within the period of the related service requirements. She questioned whether the Annual Improvement should only specify that the duration of the performance target should not exceed the end of the service condition. The staff noted the Committee had specifically considered both performance conditions preceding the start of the service period and concluding after the end of the service period and believed their analysis appropriate.
Without additional debate, the Board tentatively supported the Committee’s recommendations.
IFRS 8 Operating Segments: Aggregation of operating segments
The May 2012 Exposure Draft proposed an amendment to IFRS 8 requiring entities to disclose a description of both the operating segments that have been aggregated and the economic indicators that have been assessed in order to conclude that the operating segments have “similar economic characteristics” in accordance with paragraph 12 of IFRS 8.
Responding to constituent feedback to the proposals included in the May 2012 Exposure Draft, the Committee recommended the finalisation of the proposed amendment to IFRS 8. However, in finalising the proposed amendment, the Committee recommended that the amendment should not include examples of economic indicators to avoid confusion. Other editorial edits were also suggested for clarity.
One Board member, noting the Annual Improvement requires entities to disclose the judgements made in identifying reportable segments when operating segments have been aggregated, questioned what was meant by judgements in this context. He believed the Annual Improvement should require disclosure of ‘reasons’ as opposed to ‘judgements’. The Committee Chair acknowledged his concern and noted use of the word ‘judgements’ would be reconsidered. Another Board member saw the requirement to disclose judgements as ‘overkill’. He believed the judgements of auditors and regulators must be trusted and did not consider disclosure of judgements made in aggregating reportable segments as necessary.
Another Board member expressed a preference that the examples of economic indicators be retained. He saw the examples as helpful to constituents applying the amendments.
Another Board member asked whether the Committee recommendations were consistent with the feedback received as part of the post-implementation review of IFRS 8. The staff noted consistency in the recommendations to date.
When put to a vote, the Board tentatively supported the Committee’s recommendations.
IFRS 8: Reconciliation of the total of the reportable segments’ assets to the entity’s assets
The May 2012 Exposure Draft proposed an amendment to IFRS 8 clarifying that a reconciliation of the total of the reportable segments’ assets to the entity’s assets should be disclosed only if a measure of total assets for each reportable segment is regularly provided to the chief operating decision maker.
Considering constituent feedback to the proposals included in the May 2012 Exposure Draft, the Committee recommended that the proposed amendments should be finalised subject to minor edits to the Basis for Conclusions to further clarify the focus of the proposed disclosure.
Without debate, the Board tentatively supported the Committee’s recommendation.
IFRS 13 Fair Value Measurement: Short-term receivables and payables
The May 2012 Exposure Draft proposed an amendment to IFRS 13 clarifying that an entity is not required to discount short-term receivables and payables without a stated interest rate below their invoice amount when the effect of discounting is immaterial. This amendment would explain in the Basis for Conclusions of IFRS 13 the Board’s reasoning for removing certain guidance in IFRS 9 Financial Instruments and IAS 39 Financial Instruments: Recognition and Measurement (paragraphs B5.4.12 and AG79, respectively) related to the measurement of short-term receivables and payables.
Considering constituent feedback to the proposals included in the May 2012 Exposure Draft, the Committee recommended modifying the wording of the proposed amendment to the Basis for Conclusions of IFRS 13. The modifications are not intended to change the rationale for deleting the guidance in IFRS 9 and IAS 39 (that being, because the Board noted that the materiality principle in IAS 8 and the guidance for using present value techniques in IFRS 13 already covered the relevant requirements).
A few Board members questioned the need for this amendment. They believed existing IFRS principles (materiality principle in IAS 8 and the guidance for using present value techniques in IFRS 13) provided sufficient guidance. However, the staff noted the request for an amendment by some constituents was driven by a view that materiality should be interpreted differently in analysing this issue.
Another Board member did not like the language of the proposed amendment (which notes that ‘The IASB disagrees with that perception [that the deletion of paragraphs in IFRS 9 and IAS 39 removes the ability to measure short-term receivables and payables with no stated interest rate at invoice amounts without discounting, when the effect of not discounting is immaterial], noting that paragraph 8 of IAS 8 already permits entities not to apply accounting policies set out in accordance with IFRSs when the effect of applying them is immaterial.’). He did not believe the IASB should be refuting perceptions, but rather, preferred that the amendment state the IASB did not intend to change practice. Many Board members agreed with this view and the staff noted it would consider making this edit.
When put to a vote, the Board tentatively supported the Committee’s recommendation to amend the Basis for Conclusions of IFRS 13 to explain the rationale for deleting certain paragraphs in IFRS 9 and IAS 39, subject to the above editorial change regarding the IASB’s intent to change practice.