For lessees, the ED published on 16 May 2013 proposes the recognition of a liability and a right-of-use asset for all leases with a profit or loss impact dependent on the classification of a lease. The lessor model in the ED is similar to current lease accounting with some nuances for the recognition of revenue and discounting of the residual asset.

The field-test initiated by EFRAG and the big national standard-setters in Europe is meant to help to understand the nature, terms and conditions of lease arrangements currently in use and the implications of the proposed guidance. It is designed to find out whether the proposed guidance creates implementation or operational difficulties, and one of the aspects is also the question what effort would be required to implement and apply the proposed guidance.

The field-test is conducted with the help of a survey. It will start on 3 June 2013 and completed questionnaires should be returned by 31 July 2013. Entities wishing to participate in the field-test are asked to contact their national standard-setters (where applicable) or EFRAG. Copies of the questionnaire will be sent to them.

Further information is available through the press release on the EFRAG website.

The agenda for the meeting is presented below.

More information on the meeting is available on the IASB website.

Each Deloitte e-learning module provides training in the background, scope and principles of each pronouncement, and provides practical insights into their application.

Details of the modules are as follows:

• IFRS 3 Business Combinations — Topics covered include the definition of a business combination, amounts included in consideration transferred, recognition and measurement principles, and accounting for goodwill.
• IFRS 11 Joint Arrangements — Topics covered include the concept of 'joint control', classifying joint arrangements in practical situations, and accounting treatments for joint arrangements
• IFRS 13 Fair Value Measurement — Topics covered include the identification of assets and liabilities, market characteristics and market participants, determining the highest and best use of non-financial assets, the measurement of liabilities, appropriate valuation techniques, determining the level in the hierarchy and the correct price, and disclosure
• IAS 1 Presentation of Financial Statements — Topics covered include financial statements, aggregation and set off, classifying items as current or non-current, classifying items between profit or loss and other comprehensive income, items disclosed on the face of the statement of changes in equity, items disclosed, and the notes, nature of information and key assumptions required to complete the set of financial statements
• IAS 16 Property, Plant and Equipment — Topics covered include the initial measurement of assets, accounting for dismantling costs, depreciation, subsequent measurement of property, plant and equipment and the impact of impairment
• IAS 27 Separate Financial Statements (2011) — Topics covered include when and how to apply the standard, and accounting for investments in subsidiaries, joint ventures and associates in the separate financial statements

(Note: Links above are direct links to each e-learning module.  You may be asked to register to access each module - no personally identifying information is requested in the registration process.)

The updated modules for IFRS 3, IFRS 11, IAS 1, IAS 16 and IAS 27 (2011) reflect the amendments arising from Annual Improvements 2009–2011 Cycle and Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: Transition Guidance.  The new e-learning module on IFRS 13 takes about 2.5 hours to complete.

The IFRS e-learning modules are available free of charge and may be used and distributed freely, without alteration from the original form and subject to the terms of the Deloitte copyright over the material.

For details on the full range of e-learning modules go to Deloitte’s IFRS e-learning website. A listing of available e-learning modules is also available on our IAS Plus IFRS e-learning page.

Following the recommendation in the MB’s 2012 Final Report on the Review of the IFRS Foundation’s Governance, the MB began its process to expand its membership and develop the criteria for membership. The criteria and assessment processes for membership were completed at its 6 February 2013 meeting.

The nomination period continues until the end of June 2013. For more information, please view the Monitoring Board press release.

The topics discussed were as follows (click through to access detailed Deloitte observer notes for each topic):

Tuesday, 14 May 2013

New issues

• IFRS 7 Financial Instruments: Disclosures — Servicing agreements

IFRS IC/ IASB requests for further analysis

• IFRS 10 Consolidated Financial Statements — Effect of protective rights on an assessment of control

Annual Improvements (2011-2013 cycle)

• IFRS 1 First‑time Adoption of International Financial Reporting Standards — Meaning of effective IFRSs
• IFRS 3 Business Combinations — Scope exceptions for joint ventures
• IFRS 13 Fair Value Measurement — Portfolio netting exception
• IAS 40 Investment Property — Definition of a business

Wednesday, 15 May 2013 (09:00-11:50)

IFRS IC/ IASB requests for further analysis

• IFRS 5 Non‑current Assets Held for Sale and Discontinued Operations
  • Classification in conjunction with a planned IPO
  • Classification in conjunction with a planned IPO and change of disposal method

Limited scope amendments to IFRSs

• IAS 12 Income Taxes — Recognition of deferred tax assets for unrealised losses

Old issues to revisit

• IFRS 2 Share-based Payment — Transactions in which the manner of settlement is contingent on future events

New issues

• IFRS 13 Fair Value Measurement — Portfolios

Administrative session

• Committee work in progress
• Acknowledgements of retiring members

Click to view the preliminary and unofficial notes taken by Deloitte observers for the entire meeting.

Background

The genesis of the Interpretation is a request to the IFRS Interpretations Committee to determine whether, under certain circumstances, IFRIC 6 Liabilities Arising from Participating in a Specific Market - Waste Electrical and Electronic Equipment should be applied to other levies charged for participation in a market on a specified date to identify the event that gives rise to a liability.

The specific examples provided to the Committee included the United Kingdom bank levy, fees paid to the Federal Government by pharmaceutical manufacturers in the United States, a bank levy in Hungary, and the railway tax in France.  The final Interpretation covers a broad range of levies, rather than a focus on levies charged to participate in a market.

The key issues considered by the Committe in developing the Interpretation included when a liability should be recognised and to the definition of a present obligation in IAS 37 Provisions, Contingent Liabilities and Contingent Assets.

The Committee published a draft Interpretation in May 2012 and concluded redeliberations in the first quarter of 2013.  The IASB ratified the Interpretation at its April 2013 meeting.

Requirements of the Interpretation

IFRIC 21 identifies the obligating event for the recognition of a liability as the activity that triggers the payment of the levy in accordance with the relevant legislation. The Interpretation clarifies that 'economic compulsion' and the going concern principle do not create or imply that an obligating event has occurred.

IFRIC 21 provides the following guidance on recognition of a liability to pay levies:

• The liability is recognised progressively if the obligating event occurs over a period of time
• If an obligation is triggered on reaching a minimum threshold, the liability is recognised when that minimum threshold is reached.

The same recognition principles are applied in interim financial reports.

The Interpretation provides numerous examples to provide guidance on its application.  For instance, the Interpretation provides the example of a levy that is triggered by operating as a bank at the end of the reporting period.  In applying the requirements of the Interpretation, the obligating event is considered to be operating as a bank on the last day of the reporting period and so the liability for the levy is not recognised prior to that date.  Furthermore, the levy would only be recognised in any interim report that covers the period including the last day of the annual reporting period.

A full summary and history of the Interpretation can be found on our summary page for IFRIC 21.

Changes made in finalising the Interpretation

The IFRS Interpretations Committee made a number of changes from the original proposals in Draft Interpretation DI/2012/1 Levies Charged by Public Authorities on Entities that Operate in a Specific Market as a result of its redeliberations, including:

• Broadening the scope to include all levies, rather than a focus on levies charged to participate in a market
• New guidance on how to account for levies that have a minimum threshold
• Removing guidance on determining whether a liability to pay a levy gives rise to an asset or expense
• Excluding emissions trading schemes from the scope of the Interpretation (as this topic is subject to an IASB project)

Interaction with other pronouncements and effective date

The Interpretation does not supersede IFRIC 6 Liabilities arising from Participating in a Specific Market — Waste Electrical and Electronic Equipment, which remains in force and is consistent with IFRIC 21.  The IFRS Interpretations Committee believes IFRIC 6 provides useful information on accounting for liabilities within its scope.

IFRIC 21 is effective for annual periods beginning on or after 1 January 2014. Initial application is in accordance with the requirements of IAS 8 Accounting Policies, Changes in Estimates and Errors, i.e. the requirements are applied on a retrospective basis.

Please click for:

• Press release on the IASB website
• Our IAS Plus summary of IFRIC 21 Levies
• Information on the project leading to the issue of the Interpretation

The topics discussed were as follows (click through to access detailed Deloitte observer notes for each topic):

Tuesday, 14 May 2013

Tentative Agenda Decisions to finalise

• IAS 10 Events after the Reporting Period — Reissue of financial statements
• IAS 28/IFRS 3 Business Combinations — Associates and common control
• IAS 7 Statement of Cash Flows: Disclosures — Definition of cash equivalents
• IFRS 2 Share-based Payment — Timing of the recognition of intercompany recharges

IFRS IC/ IASB requests for further analysis

• IFRS 3 Business combinations — Input to IFRS 3 PIR
• IAS 19 Employee Benefits — Determination of discount rate
• IAS 28 Investments in Associates and Joint Ventures — Elimination of intercompany profits between an issuer and its joint venture

New issues

• IAS 32 Financial Instruments: Presentation — Classification of instruments when issuer has choice over how obligation is settled

Notes from the remaining sessions will be made available soon.

Click here to go to the preliminary and unofficial notes taken by Deloitte observers for the entire meeting.

The comment letter supports the FASB's objectives of converging the guidance on classification and measurement of financial instruments under US GAAP with that under IFRSs, reducing unnecessary complexity in the accounting for financial instruments, and requiring entities to provide more decision-useful information about their involvement with those instruments.

However, doubt is expressed that convergence between the FASB proposal and the IASB proposal has really been achieved to the degree claimed:

While certain principles in the proposed ASU and IFRS 9 may appear to be converged, some of the detailed application guidance differs in important respects. Such differences could sometimes result in very different accounting outcomes.

In support of this comment the letter contains a detailed list of significant differences between the models (Appendix A of the letter) that also includes assessments and recommendations as to which model seems to be better suited for solving the issue in each case or where further convergence is possible.

The letter comments that presenting both proposed models to the public as substantially converged may mislead investors and other financial statement users and recommends that the FASB and IASB jointly redeliberate the remaining areas of divergence to eliminate significant differences.

Please click to download the comment letter.

Re-exposing the revised proposals on lease accounting is a significant point in the long debate over whether all leases should be recorded on balance sheet. The arguments still turn on two differing views. The first view is that leasing is a form of hidden leveraging that should not be allowed to remain off balance sheet. This is a big issue both conceptually and economically. It is estimated that some $1.5trillion would be brought onto the balance sheets of US companies alone. The second view is whether the economics of leasing are really not that clear cut and current operating leases are similar to simple service, or executory-type, contracts.

The IASB argue that all leases convey a right of use of the leased asset and that right and a matching liability should be recorded on balance sheet. The IASB’s original lease exposure draft published in August 2010 (the “2010 ED”) proposed that lessees should apply a single model, the ‘right-of-use model’, to all leases within the scope of the proposals. In the 2010 ED, the lease asset would have been amortised generally on a straight-line basis, whilst the liability was amortised using the effective interest rate method. In the income statement, the 2010 ED would have resulted in an accelerated pattern of expense recognition for all leases. However, many constituents indicated that the expense recognition pattern proposed in the 2010 ED did not reflect the economics for all types of leases. The 2013 proposals attempt to respond to these criticisms, introducing a new dividing line, which is likely to generate significant debate given that one of the project’s original objectives was to remove the existing “bright-line” between operating and finance leases. The IASB is now proposing two types of leases for expense recognition purposes in an attempt to respond to concerns expressed about the 2010 ED. This revised model results in what looks like operating lease accounting for property leases, while most equipment leases will be subject to the same front-loaded expense recognition pattern that generated concern in response to the 2010 ED. To some these are practical steps, to others they are a blurring of conceptual coherence. Some of the other concerns which respondents to the original exposure draft raised have been addressed like those around variable payments. But even so, what will be important will be the effects.

There would be significant changes to the financial reporting of leases which may have a significant knock-on effect on some key KPIs such as gearing ratios, debt-covenants and anything which is an earnings-related measure. On top of that there may well be a need to capture additional data about leases in reporting systems and also there may be considerable deferred tax implications to book when the eventual standard is first applied. The debate, of course, will not just be about whether the proposals on the table are sufficiently practicable, and not only about their conceptual merits, and not just the impact on the KPIs, but critically: ‘Is this better than what we have today?’

Click for:

• More information on Exposure Draft ED/2013/6 Leases
• IAS Plus project page on the IASB’s leases project