March

UK ASB seeks comments on converging with IFRS

26 Mar 2004

The United Kingdom Accounting Standards Board has published a Discussion Paper on UK Accounting Standards: A Strategy for Convergence with IFRS.

The Paper proposes a phased approach to convergence, including:
  • New standards effective in 2005 and 2006 that will "enhance existing UK financial reporting requirements, maintain their position as highly regarded internationally, and adapt to changes in the law"; and
  • Thereafter, a series of 'step changes' replacing one or more existing UK accounting standards with standards based on IFRS as prospective IASB projects are completed.
Click for Press Release (PDF 28k). The Discussion Paper itself must be purchased from ASB. Comments are due 30 June 2004.

International convergence of auditing oversight

26 Mar 2004

In (PDF 67k) at a meeting of the European Policy Centre, Frits Bolkestein, Member of the European Commission in charge of the Internal Market, Taxation and Customs, addressed the issue of Ensuring Robust International Audit. .

New EITF Roundup newsletter posted

25 Mar 2004

We have posted the latest edition of the Deloitte (USA) (PDF 322k).

This edition provides an overview of the issues discussed, consensuses reached, and administrative matters discussed at the 17-18 March 2004 meeting of FASB's Emerging Issues Task Force. EITF Roundup is published after each Task Force meeting. You will find past issues Here.

IFAC's 2004 Handbook is available

25 Mar 2004

The International Federation of Accountants (IFAC) has published its 2004 Handbook of International Auditing, Assurance, and Ethics Pronouncements.

The Handbook includes all pronouncements issued by the International Auditing and Assurance Standards Board (IAASB) and the Ethics Committee through 31 December 2003. It is available in print, PDF, and electronic formats. There is no charge to download the 4.8mb PDF version. Click for Information.

"Thanks a million" for visiting us

25 Mar 2004

Someone today became the one millionth visitor to www.iasplus.com.

We thank that person and all of our other loyal visitors for making IASPlus The Number One Source in the Internet for Information about International Financial Reporting. Please come back often.

IASB proposes reforms to its own due process

25 Mar 2004

The IASB has initiated an internal review of its own deliberative procedures alongside the Trustees' Constitution Review now under way.

As part of its internal review, the IASB has published a consultation paper, Strengthening the IASB's Deliberative Processes, inviting public comment on certain proposed improvements to its procedures. Comment deadline is 25 June 2004. The consultation paper cites some steps already taken by the Board to improve its due process and sets out the Board's preliminary views on some further changes:

Notes from the IFRIC meeting on 24 March

25 Mar 2004

The International Financial Reporting Interpretations Committee (IFRIC) met at the IASB offices in London on 24 March 2004, the second day of a two-day meeting.

Presented below are our observers' preliminary and unofficial notes from the meeting.

Notes from the IFRIC Meeting24 March 2004

Accounting for Service Concession Arrangements

The IFRIC discussed accounting for service concession arrangements, with the objective of providing sufficient guidance to staff to enable a draft interpretation to be prepared for presentation at the May IFRIC meeting. The staff noted that guidance provided by IFRIC would need to cover a range of situations such as a contract that relates to new infrastructure, a contract that relates to existing infrastructure, a contract in which the concession provider pays, and a contract in which the user pays. The IFRIC agreed that the following issues must be addressed

  • Which party effectively owns the fixed asset?
  • What is the nature of the asset (if any) held by the concession operator if they do not effectively own the fixed asset?
  • How should contracts be combined or a contract segmented into separate units of account?
  • How should the high finance costs of such contracts be accounted for?
  • How should the eventual return of the asset to the concession provider (if relevant) be accounted for?

The IFRIC then considered some examples developed by staff. The IFRIC requested that staff develop further examples to illustrate whether or not, if finance costs are capitalised as part of the construction contract, the effect of segmenting or combining the build and operate phases of the project will be significant.

The IFRIC tentatively agreed that in assessing how to account for assets arising under concession contracts, the following hierarchy should be followed

  • Determine whether concession operator owns the fixed asset (and therefore accounts for the asset in accordance with IAS 16); if not
  • Analyse whether a leasing transaction exists (and is therefore accounted for in accordance with IAS 17); if not
  • Analyse whether the concession operator has a receivable (and therefore accounts for the asset in accordance with IAS 39); if not
  • Determine whether the concession operator has a recognisable intangible asset (and therefore accounts for the asset in accordance with IAS 38); if not
  • No asset arises.

The IFRIC discussed interest methods of depreciation and agreed that the basis for conclusions of the eventual interpretation should state that this depreciation method was considered and determined to be inappropriate.

The IFRIC considered the requirements of US GAAP (SFAS 71) and Spanish GAAP in relation to the rights of recovery of finance and other costs. The IFRIC decided that the issues addressed by those pronouncements should be addressed in the draft interpretation, but did not finalise an IFRIC position on how the concepts in these pronouncements would be incorporated into the eventual interpretation.

The IFRIC considered the issue of depreciation of assets arising from concession arrangements on a basis that is less conservative than straight line. The IFRIC agreed that where the concession operator is considered to own the fixed asset, the units of production method is appropriate. The IFRIC agreed that the expected revenue method of depreciation should not be discussed in the interpretation. If the asset arising under the contract is accounted for as an intangible asset, the IFRIC considered that it should not endeavour to override the statement in IAS 38 that it would be rare for a method of depreciation other than straight line to be appropriate.

IFRIC 1: Changes in Decommissioning, Restoration and Similar Liabilities

The IASB recommended a number of changes to this document as a result of their review of the document. The IFRIC considered a draft Interpretation that staff had amended to address the concerns of the Board. The changes included improvement of the explanation as to how the interpretation is applied to revalued assets and the inclusion of an exemption to IFRS 1 for first-time adopters. IFRIC members suggested minor amendments, and the interpretation will be circulated for final approval out of session with a view to the final interpretation being issued in April.

This summary is based on notes taken by observers at the IASB meeting and should not be regarded as an official or final summary.

Scroll down for notes from 23 March 2004.

Notes from the IFRIC meeting on 23 March

24 Mar 2004

The International Financial Reporting Interpretations Committee (IFRIC) met at the IASB offices in London on 23 March 2004, the first day of a two-day meeting.

Presented below are our observers' preliminary and unofficial notes from the meeting.

Notes from the IFRIC Meeting23 March 2004

Activities of Other Interpretation Bodies

The IFRIC considered a paper outlining the activities of other interpretation bodies. The IFRIC agreed that the issue addressed by the Australian Urgent Issues Group on accounting for the purchase of delinquent debt portfolios should be referred to the agenda committee. The IFRIC agreed that staff should continue to monitor the progress of the other projects currently under consideration by other interpretation bodies.

Report of the Agenda Committee

The IFRIC discussed the report of its agenda committee. In reviewing the items that the agenda committee had considered and determined did not require an IFRIC interpretation, the IFRIC discussed the means of communicating this to the public. It was noted that the staff are currently considering due process issues to ensure there are no impediments to the IFRIC announcing that an issue has been considered but not accepted on to the agenda. It was noted that it is important that the IFRIC is not seen to be issuing interpretations by stealth, which could be the perception if the IFRIC includes notes on the reasons for rejecting items from the agenda in a publication such as the IASB Update. Those notes might themselves be viewed as interpretations.

IAS 11 - Combining and Segmenting Construction Contracts

The IFRIC continued its discussion of the appropriate criteria for combining and segmenting construction contracts. It was noted that IAS 18 Revenue refers preparers to IAS 11 for guidance in determining the appropriate method of accounting for service contract revenue. Accordingly the IFRIC agreed that once the text of an interpretation relating to combining and segmenting construction contracts has been decided, the text should be tested against other service contracts to ensure that the results are considered appropriate. The IFRIC considered a draft interpretation and agreed to discuss the principles therein, but with a view to refraining from issuing a draft Interpretation until the service concessions project is further progressed, to ensure consistency between the projects.

The IFRIC agreed that the wording from SOP 81-1 (as had been included in the draft interpretation under consideration) should be amended so as to present the principles for separation of contracts, followed by indicators that suggest separation is appropriate. The broad principle agreed was that the contract in question should be separated when the negotiations for the parts of the contract were separate and it is common market practice for the negotiations for parts of such contracts to be considered separately.

The IFRIC considered a number of examples as to when multiple contracts should be combined and agreed that multiple contracts should be combined where they are sufficiently interdependent, such that the contractor has the obligation to complete all phases of the contracts, and the counter-party the right to demand completion of all contracts.

The IFRIC agreed a broad principle that where a single contract for a project exists, the contract should be presumed to be a single unit of accounting but should be tested to determine whether separation is appropriate. Conversely, where multiple contracts for a project exist, those contracts should each be presumed to be single units of accounting but should be tested to determine whether combination is appropriate.

The IFRIC considered when options to extend contracts should be separated from or combined with the original contract for accounting purposes. The IFRIC requested additional guidance from staff on the method of amending the original contract where separation/combination are not considered necessary.

The IFRIC will discuss the issues further at a later meeting.

D6: Employee Benefits - Plans with a Guaranteed Minimum Return on Contributions and Notional Contributions

The Exposure Draft was given negative clearance by the IASB at its March meeting. However, at that meeting a number of non-fatal concerns were aired by Board members. The IFRIC considered the comments of the Board presented to them by staff and agreed to amend the Basis for Conclusions to better explain the methodology required by the draft interpretation and to reduce the content of the example. Staff will make the amendments and circulate the draft interpretation for out-of-session approval.

Members Shares in a Co-operative Entities

Three representatives of the European Association of Co-operative Banks attended the IFRIC meeting to assist in the discussions.

The IFRIC agreed to amend the scope to clarify that the interpretation applies to all entities applying the December 2003 version of IAS 32. Amending the scope in this manner will enable the IFRIC to include a paragraph clarifying that members' current accounts held in a relationship with them as customers or suppliers should be treated as liabilities.

The IFRIC agreed that members' shares should be treated as equity in two broad situations:

  • where the entity has an unconditional right to refuse redemption; and
  • where the entity has an obligation (such as a statutory obligation) to refuse redemption.

The IFRIC discussed the inclusion of a paragraph specifying that, when the members' shares are considered equity, periodic payments are treated as dividends, and where they are classified as liabilities such payments are treated as expenses. The IFRIC agreed this inclusion was conceptually correct, albeit potentially redundant. The IFRIC also agreed that where the treatment results in the reclassification of items between liabilities and equity, gain or loss should not be recognised on such reclassification.

The IFRIC discussed transition issues, particularly in relation to European Co-operative Banks. The bank representatives noted that their current constitutions would result in a classification as liability, but that they would be unwilling to attempt to amend their constitutions until the IFRIC Interpretation is finalised. As the only general meeting in which such changes for a co-operative bank could be approved is held in May or June each year, they noted that on transition their members' shares will be treated as a liability, until such time as the constitution can be amended. The IFRIC agreed that this issue is best addressed by disclosure by the co-operative banks, as this best reflects the fact that for a time, for accounting purposes, these items should be treated as liabilities, and there is not any guarantee that members will agree to the changes in their constitutions.

The IFRIC agreed to include an example showing the accounting in a situation where an entity is prohibited from ever redeeming a members share unless there is a new shareholder coming in.

Emission Rights (D1)

The staff provided the IFRIC with an update of the IASB's ongoing project of amending IAS 20 Accounting for Government Grants and Disclosure of Government Assistance. No decisions were made as the IASB will continue its discussions in this area.

Transitional Requirements of IAS 39 on Impairment of AFS Equity Instruments

IAS 39 (revised 2003) amends the guidance in the previous version of IAS 39 for when objective evidence of an impairment of available-for-sale equity instruments is present. Specifically, the requirement to have either a significant or prolonged decline in the instrument's fair value was added. The IFRIC agenda committee could not decide whether the amendment should be viewed as a change in policy or a clarification of what was required in 39 all along.

The IFRIC discussed the issue and noted a preference for impairments recognised as a result of the change in 39 to be classified as a change in accounting policy (not a correction of an error). However, there was not a consensus view. The IFRIC decided not to take this item on the agenda as the staff believes the answer to be clear and since there was only a minority view for treatment in current income or as an error in prior periods.

This summary is based on notes taken by observers at the IASB meeting and should not be regarded as an official or final summary.

Updated plan for adopting IFRS in Australia

23 Mar 2004

The Australian Accounting Standards Board (AASB) has updated its Plan for Adopting IASB Standards by 2005 (PDF 66k).

The AASB is a government-sponsored board that operates under the oversight of the government's Financial Reporting Council (FRC). The plan states:

The AASB's plans are aimed at achieving the FRC's strategic direction of ensuring that for-profit entities applying AASB standards for reporting periods beginning on or after 1 January 2005 will also be complying with IASB standards. This will enable those entities to make an unreserved statement that their financial reports are prepared in compliance with IASB standards and, as mentioned in the FRC's strategic direction, will enable audit reports to refer to entities' compliance with IASB standards.

Progress on IASC Foundation constitution review

23 Mar 2004

The IASC Foundation Trustees have announced the next steps in their review of the IASCF Constitution.

The Trustees' Announcement (PDF 27k) said that 70 responses have been received to the November 2003 consultation paper. They are posted on IASB's Website. And the constitution committee met with the Standards Advisory Council in February. The committee will meet with the IASB's liaison standard setters and EFRAG on 26 April 2004 and will hold a series of public round-tables in at least four cities around the World from June through October. The Trustees have identified the following ten issues for review (others may be added):

  • Whether the objectives of the IASC Foundation should expressly refer to the challenges facing small- and medium-sized entities (SMEs).
  • Number of Trustees and their geographical and professional distribution.
  • The oversight role of the Trustees.
  • Funding of the IASC Foundation.
  • The composition of the IASB.
  • The appropriateness of the IASB's existing formal liaison relationships.
  • Consultative arrangements of the IASB.
  • Voting procedures of the IASB.
  • Resources and effectiveness of the International Financial Reporting. Interpretations Committee (IFRIC).
  • The composition, role, and effectiveness of the Standards Advisory Council.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.