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21 November 2009: We comment on rate regulation ED
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Deloitte Touche Tohmatsu has submitted comments on IASB Exposure Draft ED2009/8 Rate-regulated Actities, which was published 22 July 2009. The objective of the proposals in the ED is to establish whether and how assets and liabilities resulting from rate-regulated activities should be recognised and measured under IFRSs. If adopted, the proposed IFRS would:
- define regulatory assets and regulatory liabilities
- set out criteria for their recognition
- specify how they should be measured
- require disclosures about their financial effects
Our view, in summary:
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We support the Board's efforts to address differences in practice regarding the recognition of assets and liabilities arising from rate regulation. We agree that only the regulated entities proposed by the scope of the standard should be able to recognise regulatory assets and liabilities.
However, we believe the ED's current scope criteria, as currently worded, would create confusion for entities proposed to be outside the scope of the final standard. In our view, this may result in entities asserting they are within the scope and applying the principles contained in the ED by merely analogising to their particular situation even though technically they do not meet the established criteria. We would prefer the final Standard's scope include all entities' operating activities whose prices are subject to regulation, and then subject all such entities to established recognition criteria. Expanding the scope to all rate-regulated entities will help alleviate our concern as it becomes a question of whether an entity meets the recognition criteria for it to be able to recognise a regulatory asset or liability. Entities within the scope of the standard, but not meeting the recognition criteria would be prohibited from recognising regulatory assets and liabilities under this [draft] IFRS. The risk of entities the Board did not intend to recognise regulatory assets and liabilities doing so would therefore be lessened.
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21 November 2009: EITF Snapshot for Nov 2009
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We have posted the November 2009 edition of EITF Snapshot (PDF 137k) summarising the November 2009 meeting of FASB's Emerging Issues Task Force. EITF Snapshot, published by Deloitte & Touche LLP (USA), enables readers to identify relevant topics and to understand quickly the meeting's outcome. Past issues can be downloaded Here. This EITF Snapshot covers the following issue discussed by the EITF at the meeting:
- Issue 09-2 Research and Development Assets Acquired in an Asset Acquisition – No consensus reached. Further discussion expected.
- Issue 09-E Accounting for Distributions to Shareholders With Components of Stock and Cash in the Calculations and Presentation of Earnings per Share – Final consensus
- Issue 09-F Casino Base Jackpot Liabilities – Consensus-for-exposure
- Issue 09-G Clarification of the Definition of Deferred Acquisition Costs of Insurance Entities – Consensus-for-exposure
- Issue 09-I Effect of a Loan Modification When the Loan Is Part of a Pool That Is Accounted for as a Single Asset – Consensus-for-exposure
- Issue 09-J Impact of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Primarily Trades – Consensus-for-exposure
Initial EITF consensuses (known as 'consensuses-for-exposure') are exposed for a comment period after ratification by the FASB. At its first scheduled meeting after the comment period, the EITF considers comments received and, as warranted, affirms its consensuses-for-exposure as final consensuses. Those consensuses are then provided to the Board for final ratification.
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20 November 2009: Make IFRS for SMEs available in UK 'almost immediately'
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In an article titled Decision Time published in CA Magazine, Deloitte UK partner Isobel Sharp argues that the United Kingdom and Ireland should make the IFRS for SMEs available almost immediately. The UK Accounting Standards Board has already indicated its intent to replace UK Financial Reporting Standards with the IFRS for SMEs, effective in 2012. "Perhaps only a few would change in 2010," she writes, "but it would be their choice. On the ASB timetable an exposure draft is due to be issued in 2010, with the standard following in 2011, only a matter of months before the January 2012 implementation date.... The techies may be relied on to raise the tedious. But are there any real hurdles? In short, the only question is 'What is best for business?'" Click to Download Decision Time by Isobel Sharp (PDF 309k).
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20 November 2009: Deadline reminder – proposed improvements to IFRSs
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We remind you that comments are due on 24 November 2009 on Exposure Draft (ED): Proposals for Amendments under its Annual Improvements Project. The ED was issued on 26 August 2009. It proposes amendments to eleven IFRSs. The most significant proposals address:
- measurement of non-controlling interests under IFRS 3 Business Combinations
- impairment of investments in subsidiaries, associates, and jointly controlled entities in the separate financial statements of the parent, investor, or joint venturer
- amendments to the disclosure principles for interim reporting under IAS 34 Interim Financial Reporting
- removal of the requirements in IAS 40 Investment Property to transfer investment property carried at fair value to inventories when it will be developed for sale
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20 November 2009: Notes from Nov 2009 IASB meeting day 3
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The IASB held its November 2009 monthly Board meeting at its offices in London on Tuesday to Thursday, 17-19 November 2009. Presented below are the preliminary and unofficial notes taken by Deloitte observers at the third and final day of the meeting. Among other things:
- The Board approved for issuance IFRIC Interpretation 19 Extinguishing Financial Liabilities with Equity Instruments.
- The Board approved an Exposure Draft proposing to amend IFRS 1 so as not to require first-time adopters to provide certain comparative IFRS 7 disclosures, this amendment to be effective for 2009 reporting.
Notes from the IASB Board Meeting
19 November 2009 (Afternoon Only) |
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 Amendment to IFRS 1 – Exemption from Comparative IFRS 7 Disclosures
The Board considered and approved a proposed amendment to IFRS 1, Appendix E Short-term Exemptions from IFRSs, to permit entities adopting IFRSs for the first time before 1 January 2010 to apply the transition provisions in paragraph 44G of IFRS 7 in their first IFRS financial statements. The Amendment was distributed in Ballot Draft form later in the meeting and the Exposure Draft (ED) is expected soon.
The Board agreed to amend IFRS 1 to state that an entity need not provide the comparative information required by the March 2009 amendments to IFRS 7 Improving Disclosures about Financial Instruments for first-time adopters adopting before 1 January 2010. As a result, IFRS 1, Appendix E, paragraph E1 will be amended as follows:
E1 A first-time adopter may apply the transitional provisions in paragraph 44G of IFRS 7 to the extent that the entity's first IFRS reporting period commences earlier than 1 January 2010
The Board agreed to propose that this amendment to IFRS 1 be effective for annual periods beginning on or after 1 July 2010 with early adoption permitted.
The ED will be published for a 30-day comment period as soon as possible (most likely during the weeks of 23 or 30 November, given that it has been balloted). The comments will be discussed at the January 2010 meeting, with the intention that the amendment is finalised at that meeting and issued soon thereafter.
Standards Advisory Council (SAC) Chairman's Report
Paul Cherry, SAC Chairman, joined the meeting via video link and reported on the SAC meeting held in London 12-13 November 2009. He noted that the recent reorganisation of the SAC as a 'representative body' continues to mature and should become a very effective means of creating deeper IFRS networks around the world, with associated benefits to the IASB in terms of high-quality input to matters discussed.
Mr Cherry mentioned several sessions and noted that the most useful was probably that on the IASB's strategic agenda priorities post-2011. Though he would not be drawn on specifics, he noted that there was a high level of consensus about the strategic direction of the IASB post-2011 (two or three major projects; completion of the revision of the IASB Framework; and post-implementation reviews of recent significant standards). The SAC will discuss the priorities in greater detail at its meetings in 2010, and is considering bringing forward its November 2010 meeting to September 2010, so that it can have meaningful input to the IASB's agenda setting session expected in December 2010.
There was strong support in principle for a 'disclosure framework' in both IFRSs and US GAAP.
Three areas of the IASCF Trustees' review of the IASCF Constitution were discussed, and the strong consensus of the SAC was expressed in favour of expanding constituent input on setting the IASB's agenda and priorities, and against a 'fast track' process for amending IFRS. On the latter, it was considered that proper due process is 'non-negotiable' in the international context and that, operationally, 30 days for comments is probably the minimum that is acceptable.
Liabilities – Amendments to IAS 37
Application of the measurement guidance to onerous contracts
The Board discussed how to resolve a conflict identified by the staff. Previously, the Board decided to clarify that entities should measure liabilities in the scope of IAS 37 by reference to the value, rather than the cost, of the outflows required to fulfil the obligation. Applying that principle, the attribute of the outflows used to measure an onerous contract (value) would be different from that used to identify the contract as onerous in the first place (cost).
After a short discussion, the Board agreed:
- (a) to create a limited exception to the proposed measurement requirements in the revised IAS 37. The exception will be restricted to onerous contracts arising from transactions in the scope of IAS 18 Revenue and IFRS 4 Insurance Contracts. It should allow entities to measure their contractual obligations to provide goods or services on the basis of the expected cost, rather than the value, of the goods or services; and
- (b) that the Board emphasises in any guidance accompanying the revised IFRS that:
- (i) the purpose of the exception is to postpone any change in practice for measuring those contracts, pending completion of the revenue and insurance projects; and
- (ii) when the Board issues its new revenue and insurance standards, it will either confirm the exception (possibly taking the contracts out of the scope of IAS 37) or delete it (bringing the measurement requirements for onerous sales and/or insurance contracts into line with the measurement of other liabilities in the scope of IAS 37).
Measurement guidance – wording
The staff reminded the Board that the measurement attribute for an IAS 37 liability is the amount that an entity would rationally pay at the end of the reporting period to be relieved of an obligation. The Board had decided that this amount is the lowest of:
- (a) the value the entity would gain if it did not have to fulfil the obligation;
- (b) the amount the entity would have to pay to cancel the obligation; and
- (c) the amount the entity would have to pay to transfer the obligation to a third party.
The staff noted that in drafting the proposed measurement guidance, several people had indicated that (a) was unclear. Accordingly, the staff is seeking guidance from the Board about how best to clarify the Board's intention.
Several alternatives were discussed in a wide-ranging debate. The Board eventually agreed that the amount in (a) would be expressed as:
(a) the value the entity would forego gain if it had did not have to fulfil the obligation;
The Board agreed that the staff should work on any further refinements necessary with the Board advisors. Provided the intention of the measurement guidance (namely, measuring value, not cost) did not change, the Board did not need to review the wording further.
A Board member expressed extreme frustration that the Board was about to issue guidance that demonstrated that emission rights were not a liability, and yet the same Board had given direction on 18 November to the staff to develop guidance in a different project that would say that emission rights were a liability. He thought this an unconscionable situation. The Board was thrown into slight disarray by this uncomfortable observation.
The Board seemed to agree that the application guidance accompanying the IAS 37 revision would include an example demonstrating that emission rights were not a liability under the revised proposals. If the Emission Rights project continues to go in the direction indicated by the Board on 18 November (that emission rights give rise to an obligation), this would be subject to the usual due process. Although Board members accepted this approach, it was clear that several, including the Board member who raised the issue, were uncomfortable.
The Chairman asked Board members whether the discussion had undermined support for the Board's conclusions in the proposed revision of IAS 37. The Board confirmed that 9 Board members supported the revisions, just sufficient to issue an IFRS.
IFRIC Matters
Report of the November IFRIC meeting
The Director of IFRIC and Implementation Activities made an oral report of the IFRIC meeting held 5-6 November 2009 (see IASPlus.com for our notes of that meeting).
Ratification of IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments
The staff introduced the text of the final Interpretation and accompanying Basis for Conclusions as approved by the IFRIC and explained the changes made to Draft Interpretation D25 as a result of comments received from constituents.
The Board discussed several aspects of the Interpretation, but spent most time on the issue of partial settlements and the basis on which the entity would apportion the fair value of equity instruments issued to the debt extinguished. The Board resisted suggestions that the IFRIC provide more definitive guidance, suggesting that there is existing guidance on how to account for modifications of financial liabilities and how to allocate consideration over multiple elements. In addition, a Board member noted that there are 'natural barriers' that would prevent bad accounting.
The Board ratified IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments, which had been exposed as Draft IFRIC Draft Interpretation D25. One Board member was opposed.
This summary is based on notes taken by observers at the IASB meeting and should not be regarded as an official or final summary.
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20 November 2009: Notes from Nov 2009 IASB meeting day 2 afternoon
19 November 2009: Notes from Nov 2009 IASB meeting day 2 morning
19 November 2009: First two IFRS for SMEs workshops planned for Asia
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The new training materials for the IFRS for SMEs being developed by the International Accounting Standards Committee Foundation (IASCF) will be rolled out at two 'train the trainers' workshops jointly presented by the IASCF and the Confederation of Asian & Pacific Accountants (CAPA) in January. The workshops will be held in Kuala Lumpur, Malaysia on 20-22 January 2010 and in Hyderabad, India on 25-27 January 2010. The intensive and interactive 3-day sessions will provide a detailed understanding of the IFRS for SMEs and equip the trainers to replicate the training in their own country. Besides trainers, other interested stakeholders are also invited to participate. For details of the workshops, please see the CAPA Website or click here to Download the Workshop Information and Registration Form (PDF 177k). The IFRS for SMEs training materials being developed by the IASCF are expected to be completed by the end of 2009 and will be available without charge on the IASB's website.
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18 November 2009: NIIF 2009 / IFRS bound volume in Spanish
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- La Fundación IASC tiene el placer de anunciar la publicación de la nueva traducción al español de las Normas Internacionales de Información Financiera (NIIF) (enero 2009).
- The IASC Foundation is pleased to announce the publication of the Spanish translation of the IFRS Bound Volume as of January 2009.
Click for IASCF Tienda Online / Online Shop.
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18 November 2009: Revised agenda for November 2009 IASB meeting
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The IASB has revised its November 2009 meeting agenda to move the topics that were to be discussed on Thursday morning and on Friday all to Thursday afternoon. As a result, the Board will not meet in public session either on Thursday morning or Friday. Here is the revised agenda:
IASB Board Meeting Revised Agenda
17-20 November 2009, London |
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Tuesday 17 November 2009
Wednesday 18 November 2009 – Joint Meeting with FASB
Thursday 19 November 2009 (afternoon only starting 12:30pm)
- Proposed Amendment to IFRS 1 – Consequential amendment re disclosure requirements included in the transition provisions of Improving Disclosures about Financial Instruments (Amendments to IFRS 7, March 2009)
- SAC Update
- Liabilities – Amendments to IAS 37
- IFRIC Update
- Ratification of Interpretation Based on IFRIC D25 Extinguishing Financial Liabilities with Equity Instruments
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18 November 2009: Notes from the November 2009 IASB meeting day 1
18 November 2009: Heads Up on IFRS 9
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Deloitte United States has published a Heads Up Newsletter (PDF 171k) titled IASB Issues IFRS on Classification and Measurement of Financial Assets. This 13-page newsletter explains the requirements of IFRS 9 Financial Instruments, issued 12 November 2009 and effective mandatorily in 2013 and optionally starting in 2009. IFRS 9 replaces the existing classification and measurement requirements in IAS 39 for financial assets. It changes the manner in which entities classify and measure investments in debt and equity securities, loan assets, trade receivables, and derivative financial assets by requiring entities to classify financial assets as being measured at either amortised cost or fair value depending on the entity's business model and the contractual cash flow characteristics of the asset. The issuance of IFRS 9 represents the completion of the first phase of the IASB's project to replace IAS 39. Other phases address classification and measurement of financial liabilities, recognition and measurement of impairments, hedge accounting, and derecognition. The IASB expects to replace the remaining portions of IAS 39 during 2010.
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18 November 2009: By All Accounts – new ICAEW journal
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The Financial Reporting Faculty of the Institute of Chartered Accountants in England and Wales (ICAEW) has published the first edition of its new journal By All Accounts. The theme of this issue (dated January 2010) is IFRS for All? Financial reporting by entities of every shape and size is at a crossroads. Three articles in this issue focus on the IFRS for SMEs. Others deal with the following issues, among others: the politics of accounting, directors' duties under the law, IFRSs in transition, writing 'the front half' of the annual report, and IFRSs in central government. By All Accounts is copyright by the ICAEW and is posted on IAS Plus with their kind permission. Click to:
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18 November 2009: European consultation on IFRS for SMEs
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The European Commission has launched a consultation on the International Financial Reporting Standard for Small and Medium-sized Entities. The objective of the consultation is to gain an understanding of EU stakeholders' views on the IFRS for SMEs. The Commission is especially interested to receive comments from the users of accounts, such as businesses, banks, and investors. The consultation period is from 17 November 2009 to 12 March 2010. The Commission said that the responses will assist the Commission in its ongoing review of the Accounting Directives. Click to download:
The Commission has indicated that French and German translations of these two documents will be available by the end of November 2009.
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18 November 2009: Deloitte IFRS for SMEs newsletter in Spanish
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Deloitte (Colombia) is publishing a series of Spanish language bulletins about the new IFRS for SMEs. We have previously posted Bulletins No 1 through 18 – links can be found Here. We have now posted No 19:
- Bulletin No 19 (17 November 2009) discusses Section 23 of the IFRS for SMEs, which deals with revenue. Click to Download Bulletin 19 (PDF 244k).
We have many resources in Spanish Here.
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18 November 2009: Top 20 things to do before 2010
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Deloitte Canada has developed a checklist comprising 20 key things – from the tactical to the strategic – that publicly accountable enterprises (PAEs) must focus on this year to keep their IFRS conversion on track for 2011. This checklist is designed to help a company complete its preparation before 2010 for a seamless conversion. It is also intended to help companies:
- Save money in the long run by investing the time and resources now, rather than completing the conversion on a rush basis with limiting options
- Prioritise actions to be included in year-end progress reports required in management's discussion and analysis (MD&A) for public companies in Q4 2009
- Prevent or minimise known difficulties that are commonly encountered in practice by Canadian entities
- Motivate immediate action by emphasising that certain tasks cannot wait until 2011
Click to download:
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17 November 2009: Canadian public sector entities will use IFRSs
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The Canadian Public Sector Accounting Board has amended the scope of public sector accounting standards to require that government business enterprises (GBEs) – public sector entities with self-sustaining, commercial-type operations – follow International Financial Reporting Standards (IFRSs) for periods beginning 1 January 2011. This allows for a comparison of similar entities in the public and private sector. Private sector businesses in Canada will also be required to use IFRSs starting on the same date. Click for Press Release (PDF 103k).
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17 November 2009: Updated summary of IFRIC agenda rejections
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We have updated our Summary of Issues Not Added to IFRIC's Agenda to reflect the IFRIC's final decisions at its November 2009 meeting not to add the following topics to its agenda. Our summary now includes over 170 issues:
- IFRS 3: Measurement of non-controlling interest
- IFRS 3: Unreplaced and voluntarily replaced share-based payment awards
- IFRS 5: Write-down of a disposal group
- IAS 23: Meaning of 'general borrowings'
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16 November 2009: Newsletter on IFRS 9 Financial Instruments
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Deloitte's IFRS Global Office has published an IAS Plus Update Newsletter – IFRS 9 Financial Instruments (PDF 226k). The IASB issued IFRS 9 on 12 November 2009 as the first step in its project to replace IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 introduces new requirements for classifying and measuring financial assets. Those requirements must be applied starting 1 January 2013, with earlier adoption permitted including for 2009. The IASB intends to expand IFRS 9 during 2010 to add new requirements for classifying and measuring financial liabilities, derecognition of financial instruments, impairment, and hedge accounting. By the end of 2010, IFRS 9 will be a complete replacement for IAS 39 – mandatory for 2013 and optional in earlier years. This newsletter explains the requirements of IFRS 9 in detail, compares IFRS 9 and IAS 39, and analyses the potential impact of a move to the new standard.
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The headlines (from the IAS Plus Update Newsletter)
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- New classification and measurement requirements for financial assets
- New criteria for amortised cost measurement
- New measurement category – fair value through other comprehensive income
- Impairment assessment only for amortised cost assets
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- No more available-for-sale assets
- No more held-to-maturity assets and tainting rules
- No more embedded derivatives in financial assets
- No more unquoted equity investments measured at cost less impairment
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Links to all past newsletters are Here.
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16 November 2009: Newsletter on amendments to IAS 24
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Deloitte's IFRS Global Office has published an IAS Plus Update Newsletter – IASB Issues Amendments to IAS 24 (PDF 68k) explaining the changes to IAS 24 that the IASB issued on 4 November 2009. The amendments provide a partial exemption from the disclosure requirements for government-related entities and clarify the definition of a related party. The revised IAS 24 also clarifies that disclosure is required of any commitments of a related party to do something if a particular event occurs or does not occur in the future, including executory contracts (recognised and unrecognised). The revised standard is effective for annual periods beginning on or after 1 January 2011, with earlier application permitted. Links to all past IAS Plus Update newsletters are Here.
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15 November 2009: New IFRS e-Learning modules in Chinese
 
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The following additional IFRS e-Learning modules have now been translated into Chinese and posted on Deloitte's CAS Plus website:
- IAS 1 Presentation of Financial Statements (revised 2007)
- IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
- IAS 32/39 Financial Instruments - Part 1
- IAS 32/39 Financial Instruments - Part 3
The following modules had previously been translated and posted:
- Introduction to IFRS e-Learning
- Conceptual Framework
- IAS 2 Inventories
- IAS 10 Events After the Reporting Period
- IAS 11 Construction Contracts
- IAS 16 Property, Plant and Equipment
- IAS 24 Related Party Disclosures
- IAS 38 Intangible Assets
- IAS 41 Agriculture
- IFRS 3 Business Combinations
- IFRS 5 Non-current Assets Held for Sale and Discontinued Operations
- IFRS 8 Operating Segments
To download the modules (there is no charge, but registration is required) click on the lightbulb icon on the CAS Plus home page or Click Here.
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14 November 2009: EC letter to IASB on IFRS 9
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The European Commission has posted on its website a letter from Jorgen Holmquist, Director-General of the Internal Markets and Services Directorate, to IASB Chairman Sir David Tweedie, indicating that the Commission has concerns about IFRS 9 and
encouraging the IASB to 'revisit the key elements of its proposal having a more direct impact on the right dividing line between 'fair value' and 'cost' accounting and on financial stability (in areas such as the key role of business model, the scope of the OCI category and the recycling of gains/losses, and the prohibition of bifurcation of embedded derivatives)'. Click to Download the Commission's Letter (PDF 139k). Here is an excerpt:
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Overall, we take note of a number of changes addressing issues raised in our letter of 15 September. However, it would seem that the current draft may not yet have struck the right balance between 'fair value accounting' and 'amortised cost accounting', and may lead to more instruments being classified at fair value through profit or loss compared to the existing IAS 39, thus potentially exacerbating income volatility – even if the impact will vary from one entity to another, depending on their business model and the type of financial instruments in their balance sheet. Concerns therefore remain about the way in which the IASB has defined the classification criteria set out in the draft.
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14 November 2009: Update on IFRS endorsements in Europe
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At its meeting on 11 November 2009, the European Commission's Accounting Regulatory Committee voted in favour of the adoption of the following IFRSs for use in the European Union:
- Annual improvements 2009
- Amendments to IAS 32 Classification of Rights Issues
- Amendments to IFRS 2 Group Cash-settled Share-based Payment Transactions
ARC also decided to postpone its consideration of endorsement of IFRS 9. EFRAG has updated its endorsement status report to reflect the ARC recommendations. Click for EFRAG Endorsement Status Report of 13 November 2009 (PDF 120k).
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14 November 2009: Deadline reminder – rate-regulated activities
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We remind you that comments are due on 20 November 2009 on Exposure Draft (ED): Exposure Draft: Rate-regulated Activities. The ED was issued on 23 July 2009. The objective of the proposals in the ED is to establish whether and how assets and liabilities resulting from rate-regulated activities should be recognised and measured under International Financial Reporting Standards (IFRSs). If adopted, the proposed IFRS would:
- define regulatory assets and regulatory liabilities.
- set out criteria for their recognition.
- specify how they should be measured.
- require disclosures about their financial effects.
The IASB was asked for guidance on the issue from many jurisdictions. Clarifying the accounting for rate regulation is of particular importance for jurisdictions that are in the process of adopting IFRSs and where accounting for the effect of rate regulation is in place for some sectors. In those cases entities are currently recognising sometimes significant 'regulatory' assets and liabilities by reference to an existing US standard, in the absence of an IFRS. Click for IASB Press Release (PDF 107k). Here is the link to the IAS Plus Project Page.
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13 November 2009: Endorsement of IFRS 9 is postponed
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In our News Story of 4 November 2009 we reported that the European Financial Reporting Advisory Group (EFRAG) had posted on its website an Invitation to Comment on its Draft Endorsement Advice (Word DOC 179k) relating to the endorsement of IFRS 9 for use in the European Union. EFRAG consulted both on its assessment of IFRS 9 against the EU endorsement criteria and on its initial assessment of the costs and benefits that would arise from the implementation of IFRS 9 in the EU. Comments were requested by 13 November 2009. In that Draft Endorsement Advice, EFRAG's overall tentative conclusion was that the information provided by IFRS 9 would be relevant, reliable, understandable, and comparable. "IFRS 9 satisfies the criteria for EU endorsement and EFRAG should therefore recommend its endorsement". However, EFRAG has now decided that "more time should be taken to consider the output from the IASB project to improve accounting for financial instruments. Therefore, at this stage, EFRAG has decided not to finalise its endorsement advice on IFRS 9. EFRAG is currently considering how it will proceed in its work to address the package of standards that are expected to replace IAS 39." Most likely, EFRAG's deferral means that IFRS 9 will not be available for use in Europe for 2009 year-ends.
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12 November 2009: IASB issues IFRS 9 Financial Instruments
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Today, the IASB issued IFRS 9 Financial Instruments as the first step in its project to replace IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 introduces new requirements for classifying and measuring financial assets. Those requirements must be applied starting 1 January 2013, with earlier adoption permitted including for 2009. The IASB intends to expand IFRS 9 during 2010 to add new requirements for classifying and measuring financial liabilities, derecognition of financial instruments, impairment, and hedge accounting. By the end of 2010, IFRS 9 will be a complete replacement for IAS 39 – mandatory for 2013 and optional in earlier years. Click for IASB Press Release (PDF 103k). In a letter accompanying a mailing of the new standard to key stakeholders, IASB Chairman Sir David Tweedie wrote:
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"The completion of the first phase of the project responds directly to the recommendation of the G20 Leaders and other stakeholders to reduce the complexity of accounting for financial instruments. As requested, we have completed this first phase in time for companies to use, optionally, the new standard for year-end 2009 financial statements. Given the particular importance of this standard and the broad interest in its development, we undertook unprecedented efforts to consult stakeholders around the world in order to refine the proposals we published in July 2009 for public consultation. Furthermore, in response to concerns that were raised during our consultations the IASB has made various modifications to the proposals to improve the final product."
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Concurrent with issuing IFRS 9, the IASB published a Project Summary and Feedback Statement (PDF 133k) outlining how the Board has responded to comments received during the development of the new standard. The IASB also published a separate Summary of Responses to European Concerns (PDF 25k).
| Overview of IFRS 9 Financial Instruments |
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IFRS 9 divides all financial assets that are currently in the scope of IAS 39 into two classifications – those measured at amortised cost and those measured at fair value – based on the following principles:
- Debt instruments. A debt instrument that meets two conditions can be measured at amortised cost:
- Business model test. The objective of the entity's business model is to hold the financial asset to collect the contractual cash flows (rather than to sell the instrument prior to its contractual maturity to realise its fair value changes).
- Cash flow characteristics test: The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding.
All other debt instruments must be measured at fair value through profit or loss (FVTPL). Even if an instrument meets the two amortised cost tests, IFRS 9 contains an option to measure such instruments at FVTPL, with some restrictions. The available-for-sale and held-to-maturity categories currently in IAS 39 are not included in IFRS 9.
- Equity instruments. All equity investments in scope of IFRS 9 are to be measured at fair value in the balance sheet, value changes recognised in profit or loss. There is no 'cost exception' for unquoted equities. However, if the equity investment is not held for trading, an entity can make an irrevocable election at initial recognition to measure it at fair value through other comprehensive income (FVTOCI) with only dividend income recognised in profit or loss. Despite the fair value requirement for all equity investments, IFRS 9 contains guidance on when cost may be the best estimate of fair value and also when it might not be representative of fair value.
- Derivatives. All derivatives, including those linked to unquoted equity investments, are measured at fair value.
- Embedded derivatives. The embedded derivative concept of IAS 39 is not included in IFRS 9. Consequently, embedded derivatives that under IAS 39 would have been separately accounted for at FVTPL because they were not closely related to the financial host asset will no longer be separated. Instead, the contractual cash flows of the financial asset are assessed in their entirety, and the asset as a whole is measured at FVTPL if any of its cash flows do not represent payments of principal and interest.
- Reclassification. For debt instruments, reclassification is required between FVTPL and amortised cost, or vice versa, if the entity's business model objective for its financial assets changes so its previous model assessment would no longer apply.
IFRS 9 amends some of the requirements of IFRS 7 Financial Instruments: Disclosures including added disclosures about investments in equity instruments designated as at FVTOCI.
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12 November 2009: Heads Up on proposed consolidation deferral
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Deloitte United States has published a Heads Up Newsletter (PDF 89k) titled Board Votes to Defer Statement 167 for Interests in Certain Entities. FASB tentatively decided to defer indefinitely the effective date of Statement 167 Amendments to FASB Interpretation No. 46(R) Consolidation of Variable Interest Entities for reporting of investments in the financial statements of asset managers. The FASB staff indicated that mutual funds, hedge funds, private equity funds, money market funds, and venture capital funds are examples of entities that may meet the conditions for deferral. The FASB staff also indicated that securitisation entities, asset-backed financing entities, or entities formerly classified as qualifying special-purpose entities (QSPEs) would not meet the conditions. If finalised, the deferral would be effective for 2009.
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11 November 2009: IASB webcast on IFRS 9
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On 12 November 2009, the staff of the IASB will present a webcast about the forthcoming IFRS 9 Financial Instruments: Classification and Measurement. The webcast will be followed by a Q&A session in which registered participants can submit questions online. There is no charge to participate, but you must register. Details:
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11 November 2009: Heads Up on IASB credit loss proposal
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Deloitte United States has published a Heads Up Newsletter (PDF 172k) titled IASB Proposes New Approach to
Accounting for Credit Losses. The newsletter discusses the IASB's recent exposure draft Financial Instruments: Amortised Cost and Impairment, which proposes a fundamentally new approach to accounting for credit losses to replace the existing 'incurred-loss' model. The proposed approach, which affects the recognition of both net interest revenue and credit impairment, is designed to result in earlier loss recognition by taking into account future credit losses expected over the life of loans or other financial assets (an 'expected-loss' approach). The IAS Plus project page is Here.
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