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30 April 2003: New page: links to comparisons of IFRS and national GAAPs
We have created a new page on this website with Links to Comparisons of IFRS and National GAAPs. We have put a permanent link to the page in the left-hand column of our home page. So far we have comparisons of IFRS and the national GAAPs of Australia, Canada, China, Hong Kong , 14 Eastern European countries, Netherlands, and United States.
30 April 2003: Europe-Africa summaries are updated
We have updated our summaries of accounting standards activity in Germany, South Africa, and the United Kingdom.
29 April 2003: Comparison of Australian GAAP and IFRS
Deloitte Touche Tohmatsu (Australia) has published a study of Differences Between Australian GAAP and IFRS. The study is based on IASB Standards and Interpretations issued at 31 March 2003 and effective for financial years ending 30 June 2003. For each difference, if applicable, the report indicates changes that have been proposed in exposure drafts that have been issued by the IASB before 31 March 2003. You may Download the Comparison (PDF 247k) without charge.
29 April 2003: SEC reaffirms FASB standards for SEC filings
The US Securities and Exchange Commission has reaffirmed its policy of recognising FASB pronouncements as being generally accepted for purposes of filings with the Commission. The SEC's action was in response to section 108 of the Sarbanes-Oxley Act of 2002, which, among other things, specifies the criteria that must be met in order for an accounting standard setter's work product to be recognised as generally accepted by the Commission. In its new policy statement, the Commission noted:
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In order for US accounting standards to remain relevant and to continue to improve, however, the Commission expects the FASB to consider, in adopting accounting principles, the extent to which international convergence on high quality accounting standards is necessary or appropriate in the public interest and for the protection of investors, including consideration of moving towards greater reliance on principles-based accounting standards whenever it is reasonable to do so.... We expect that during its deliberations of an accounting issue the FASB will consider, among other things, international accounting standards addressing that issue.
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Click for full text of the SEC Policy Statement.
28 April 2003: IASB begins a four-day Board meeting tomorrow
The IASB will meet at its offices in London from 29 April to 2 May 2003.
On the agenda:
Tuesday 29 April 2003
- Extractive Industries – Review research conducted by the Australian Accounting Standards Board staff
- Joint Ventures – Review research conducted by the Australian Accounting Standards Board staff
- Business Combinations (Phase II)
Wednesday 30 April 2003
- Amendments to IAS 32 and IAS 39, Financial Instruments
Thursday 1 May 2003
- Insurance Contracts (Phase I)
- Improvements to IFRS
- Convergence
Friday 2 May 2003
- Share-Based Payment – Initial consideration of comments received on ED 2
- IFRIC Update – Matters arising from the IFRIC meeting on 1-2 April 2003
- First-Time Adoption of IFRSs (if required) – Matters arising from the Board's review of a pre-ballot draft of the final Standard
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28 April 2003: Notes from day two of IASB meeting with national standard setters
On 25 April 2003, the IASB met for the second day of its two-day meeting in London with representatives of the eight national standard setters (NSS) with which it maintains a formal Board member liaison relationship. We have consolidated our unofficial notes from the meeting onto a Single Page. The IASB begins its own four-day meeting tomorrow (Tuesday, 29 April 2003).
26 April 2003: April 2003 Europe-Africa edition of IASPlus is published
We have posted the April 2003 Europe-Africa Edition of our IAS Plus newsletter. This edition includes all of the general IASB/IFRS update information plus jurisdictional updates.
25 April 2003: Notes from first day of IASB meeting with national standard setters
The IASB met yesterday in London with representatives of the eight national standard setters with which it maintains a formal Board member liaison relationship. We have consolidated our unofficial notes from the meeting onto a Single Page.
24 April 2003: FASB votes to expense stock options
At its meeting on 22 April, the US Financial Accounting Standards Board voted that stock options "are payment for goods and services and that those costs should be recognised". FASB will consider the timing of recognition and measurement issues at future meetings. The IASB has also proposed to expense the cost of all share-based payments in Exposure Draft 2.
23 April 2003: EU expresses 'major concerns' to SEC on foreign auditor registration
EU Internal Market Commissioner Frits Bolkestein has written a Letter (PDF 28k) to the Chairman of the US Securities and Exchange Commission expressing four "major concerns" about the rules on auditor registration and oversight proposed by the new Public Company Accounting Oversight Board (PCAOB). The letter, sent at the request of the European Union's Finance Ministers, says that "the rules and the registration requirements they contain will cause major difficulties for European audit firms". The EU is requesting "full exemption for EU audit firms" from the rules on registration under section 106(c) of the Sarbanes-Oxley Act – or at least a one-year moratorium to allow time for further discussion. An attachment to the letter cites instances of conflicts of the PCAOB's proposed rules and EU and national laws.
21 April 2003: IAASB invites comments on two exposure drafts
The International Auditing and Assurance Standards Board has published for comment two exposure drafts. Comments are due 30 June 2003:
- Proposed International Framework for Assurance Engagements and a proposed International Standard on Assurance Engagements (ISAE) 2000, Assurance Engagements on Subject Matters Other Than Historical Financial Information
- The Special Considerations in the Audit of Small Entities, Proposed Amendment to International Auditing Practice Statement 1005
20 April 2003: IASB's 2003 bound volume of standards is published
The IASB has published its annual Bound Volume of International Financial Reporting Standards. The 2003 Bound Volume (1,952 pages, price £47,.€75, US$73) contains the full text of all existing IFRS and Interpretations, plus the IAS 39 Implementation Guidance Q&A. A glossary and a history of all IAS/IFRSs are also included. The IASB has also published an Abbreviated Text of IFRS 2003 (412 pages, price £20,.€32, US$31) suitable for students and others who want a concise introduction to IFRS. Both books may be ordered on IASB's Website or by telephone (+44 20 7332 2730) or fax (+44 20 7332 2749). Press Release (PDF 14k).
18 April 2003: PCAOB will set US auditing standards, not AICPA
By unanimous vote, the new US Public Company Accounting Oversight Board has decided not to delegate responsibility for setting auditing standards to the accounting profession but, rather, to set the standards itself. Heretofore, for over 60 years, the American Institute of CPAs has promulgated auditing standards in the United States. The Financial Accounting Standards Board will continue to set accounting standards. All auditors of public companies will need to follow PCAOB standards. On an interim basis, compliance with existing generally accepted auditing standards is required. The PCAOB said its standard setting process will continue to involve participation, dialogue and open observation by a large and diverse group of participants. The PCAOB's auditing standards will include matters of quality control, professional ethics, and independence of auditors from companies whose financial statements they audit. Though the PCAOB has authority to regulate all auditors – American or foreign – of all public companies in the United States, the extent to which PCAOB auditing standards would apply to foreign auditors remains to be addressed. The PCAOB also voted to finance its operations by fees paid by publicly traded companies in proportion to their size. Auditing firms will also pay fees to fund the PCAOB's auditor registration system.
18 April 2003: April 2003 issue of our IASPlus newsletter is available
You can download the April 2003 Edition of our  newsletter. This is the Asia-Pacific edition, which includes all of the general IASB/IFRS update information plus jurisdiction updates for that region. Our Europe-Africa and Americas editions will be published soon. Special features of this edition include summaries of our comment letters on business combinations and share-based payment, status reports on each IASB agenda project, and updates on events in Europe and the United States.
18 April 2003: Asia-Pacific summaries are updated
We have updated our summaries of accounting standards activity in China, India, Japan, New Zealand, Singapore, Taiwan, and Vietnam.
17 April 2003: New Vietnam accounting standards based on IAS
Vietnam has begun to adopt a body of Vietnamese Accounting Standards (VAS) that are based on, though not identical to, the related International Accounting Standards (IAS). The following standards have now been approved (Nos. 02, 03, 04, and 14 effective for 2002 reporting, the others for 2003 reporting):
- VAS 01, Framework
- VAS 02, Inventories
- VAS 03, Tangible Fixed Assets
- VAS 04, Intangible Fixed Assets
- VAS 06, Leases
- VAS 10, The Effects of Changes in Foreign Exchange Rates
- VAS 14, Revenue and Other Incomes
- VAS 15, Construction Contracts
- VAS 16, Borrowing Costs
- VAS 24, Cash Flow Statement
You can download a Comprehensive Summary of the New VAS (PDF 187k) prepared by VACO-Deloitte Touche Tohmatsu. Click here for Vietnam Information.
16 April 2003: Euronext publishes new IFRS rules
The Euronext market has published a new version of its Rulebook (PDF 147k).
The 151 companies listed on the Nextprime segment and the 116 companies listed on the Nexteconomy segment must comply with International Financial Reporting Standards earlier than companies (approximately 1,200 in number) quoted on the other market segments. In summary (see pages 2 and 55 to 58 for details):
From financial years beginning on or after 1 January 2004, companies on the Nextprime and Nexteconomy segments must publish quarterly reports.
In the second quarterly report for the financial year beginning on or after 1 January 2004, the company must publish a note describing the relevant effects of switching to IFRS on a later date on the IFRS opening balance sheet and the income of the current period. This information should be updated in subsequent quarters as needed. This only applies to entities that have not already published their latest annual consolidated financial statements in accordance with IFRS.
Auditors must perform a limited review on the second quarter report.
16 April 2003: William McDonough selected to chair the PCAOB
The US Securities and Exchange Commission has unanimously selected William J. McDonough as its nominee to be the new Chairperson of the five-member Public Company Accounting Oversight Board (PCAOB) established pursuant to the Sarbanes-Oxley Act of 2002. Mr. McDonough is President of the New York Federal Reserve Bank. His background is in banking and government. The Commission made this selection after consultation with the Federal Reserve Chairman and the Secretary of the Treasury. Click for SEC Press Release. Background on PCAOB. Link to PCAOB Website.
15 April 2003: New Accounting Roundup newsletter
Here is the 14 April 2003 Edition of Accounting Roundup from Deloitte & Touche (USA). Major sections include updates on FASB, GASB, SEC, and PCAOB; an international update; and some new Deloitte & Touche guidance materials.
13 April 2003: Quarterly Accounting Roundup newsletter
We have posted Accounting Roundup: First Quarter 2003 Review from Deloitte & Touche (USA). This 31-page quarterly review edition includes articles from issues of Accounting Roundup dated 20 January through 1 April 2003, updated where appropriate. Links have been added to locations where additional information can be found for each topic.
11 April 2003: Reporting by auditors on compliance with IFRS
The International Auditing and Assurance Standards Board has issued International Auditing Practice Statement 1014 to provide
guidance when the auditor expresses an opinion on financial statements that are asserted by management to be prepared:
- Solely in accordance with International Financial Reporting Standards (IFRSs);
- In accordance with both IFRSs and a national financial reporting framework; or
- In accordance with a national financial reporting framework with disclosure of the extent of compliance with IFRSs.
Regarding compliance with both IFRS and national GAAP, IAPS 1014 states:
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Simultaneous compliance with both IFRSs and a national financial reporting framework is unlikely unless the country has adopted IFRSs as its national financial reporting framework or has eliminated all barriers for compliance with IFRSs. It is helpful for the auditor to discuss financial statements that state they have been prepared in accordance with IFRSs and a national financial reporting framework with management and those charged with governance. The purpose of the discussion is to advise management and those charged with governance of the possibility of a qualified opinion or adverse opinion on compliance with one or both of the financial reporting frameworks, given that the ability to simultaneously comply fully with IFRSs and a national financial reporting framework is unlikely.
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IAPS 1014 supplements guidance provided in International Standard on Auditing 700, The Auditor's Report on Financial Statements. The IAASB has also released two exposure drafts regarding assurance engagements and audits of small business. All IAASB documents are available without charge on the IAASB's Web Pages. Click for IFAC News Release.
10 April 2003: Update on the SEC's implementation of the Sarbanes-Oxley Act
In a Presentation in Washington earlier this week, SEC Commissioner Cynthia A. Glassman presented a comprehensive update on the SEC's implementation of the Sarbanes-Oxley Act.
8 April 2003: April IASB meeting begins one day earlier, agenda announced
The IASB's April 2003 meeting will begin on 29 April and run for four days. The meeting will be held at the IASB's offices in London. Agenda topics are as follows (click for Details):
- Extractive Industries
- Joint Ventures
- Business Combinations – Phase II
- Amendments to IAS 32, Financial Instruments: Disclosure and Presentation
- Amendments to IAS 39, Financial Instruments: Recognition and Measurement
- Insurance Contracts – Phase I
- Improvements Project
- Convergence
- Share-Based Payment
- IFRIC Update
- First-Time Adoption of IFRSs (if required, the Board will discuss matters arising from the Board's review of a pre-ballot draft of the final Standard)
7 April 2003: Status report on differences between IFRS and US GAAP
In July 2002, we published a Booklet (PDF 453k) comparing IFRS and US GAAP. The comparison identified 81 differences between IFRS and US GAAP that existed at that time. We have prepared a Status Report as of April 2003 on what, if anything, is being done by either the IASB or the FASB relating to those differences (plus several others subsequently added to the list).
6 April 2003: EFRAG comment letter on business combinations
We have posted the comment letter of the European Financial Reporting Advisory Group (EFRAG) to the IASB on ED 3, Business Combinations, and the IASB's proposed amendments to IAS 36 and IAS 38.
5 April 2003: IFRIC project pages updated
We have updated our Chronological and Topical project pages for IFRIC agenda projects to reflect discussions at the April 2003 IFRIC meeting.
5 April 2003: Guatemala adopts IFRS effective in 2002
Guatemala has replaced its national GAAP with IFRS effective for 2002 financial reports. The SIC Interpretations have not yet been adopted under the law, but that is expected to happen soon.
4 April 2003: We comment on IASB's business combinations exposure drafts
Deloitte Touche Tohmatsu has submitted comments to the IASB on
ED 3, Business Combinations, and Amendments to IAS 36 and IAS 38 (PDF 216k).
Overall, we support the proposals. However, we are concerned with some aspects, such as the subsequent accounting for contingent liabilities, the prohibition on amortising goodwill in all circumstances, the proposed treatment for 'negative goodwill', and the determination of cash-generating units. We are also concerned with the timing of the various projects on business combinations. An exposure draft on application of the purchase method, being developed jointly with the FASB, is expected in the second quarter of 2003, with a final IFRS in 2004. Based on the IASB's tentative decisions in that project, certain principles may contradict or significantly alter the decisions in ED 3. Therefore, we suggest that it may be advantageous to delay issuance of a final Standard until completion of the project on the application of the purchase method – to minimise any confusion with the issuance of two standards on business combinations within a short period of time.
4 April 2003: PCAOB roundtable on registration of non-US audit firms
On 31 March 2003, the US Public Company Accounting Oversight Board held a public roundtable, with the five SEC members in attendance, on registration and oversight of non-US public accounting firms. The Washington Post reports that while overseas participants at the roundtable tended to disagree or asked for time extensions for foreign firms, the acting chairman of the PCAOB, Charles D. Niemeier said that "the issue strikes at the heart of the board's mission. 'A great deal of the US markets now involve companies and auditors that are not in the United States.... We believe registration is extremely important for us to be able to fulfill our mandate'." Click for Washington Post Story. If you want to listen to a recording of the roundtables please Click Here (no charge).
4 April 2003: Notes from the second day of IFRIC's April 2003 meeting
Here are our unofficial notes from the IFRIC meeting on 2 April 2003.
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Notes from the IFRIC Meeting 2 April 2003
Emission Rights
A pre-ballot draft Interpretation was sent to the IASB Board for review. The staff reported that six IASB members have raised serious reservations about the current draft for the following reasons:
- Four Board members believe that emission rights should be required to be recorded at fair value (although this is inconsistent with IAS 38),
- One Board member believes the liability should be raised as measured at market value, and
- One Board member believes a separate asset should not be recognised.
The staff noted that some Board members believe that IFRIC should address the accounting for the issues on its agenda on a conceptual basis and should not be restricted by existing guidance. The IFRIC members expressed concern at this point as their mandate is to interpret existing guidance.
The IFRIC noted that emission rights granted meet the definition of a government grant under IAS 20 and until such guidance is replaced, that should be the basis for the interpretation. Given the fact several Board members do not like IAS 20, the decision to rescind IAS 20 must go through due process. Therefore, the final interpretation (assuming it is released prior to the rescission or amendment to IAS 20) will be based on IAS 20. A footnote pointing out the Board's intentions to rescind IAS 20 will be added to the Draft Interpretation.
The staff noted that the current requirement would most likely result in an asset and deferred income being recorded at the date the emission right was granted. However, the Board does not believe this deferred credit meets the definition of a liability. The IFRIC reiterated its conclusion that the current guidance will generally not allow immediate recognition of income and that the only other option is to record a deferred credit in the balance sheet. One observer noted that the fact that a deferred tax liability does not meet the definition of a liability (no current obligating event) has not stopped the Board before.
The IFRIC concluded that the deferred credit should be amortised to income on a systematic and rational basis. That is, the IFRIC will not prescribe an amortisation method, but will provide an example based on the units of emission. The IFRIC members agreed that impairment should not be addressed in detail in the final Interpretation.
A ballot draft will be sent to IFRIC members shortly for a final vote. No IFRIC member stated an intention to vote against the proposed ballot draft.
IAS 19, Employee Benefits - Money purchase plan with minimum guarantee
The staff came to the IFRIC with a first Draft Interpretation. The following issues were discussed:
1. Possible lack of convergence with US GAAP
2. The allocation of benefits to accounting periods when the benefit formula is stated in terms of current salary
3. The fact that the proposed methodology ignores expectations about future returns on the plan assets
4. How to allocate the change in the additional liability that arises from excess returns on plan assets between the expected return and actuarial gains and losses
The staff stated that the lack of convergence with US GAAP is based on the differences between the definitions of defined benefit plans and defined contribution plans themselves. Indeed, US GAAP is more focused on the nature of the benefit given to the employees rather than the employer's side. The IFRIC noted that the lack of convergence in this regard should not affect the progress of the project.
The staff noted that the allocation of benefits to accounting periods is a broader issue. The IFRIC decided that this issue should not be addressed in this project. For example, the EITF has discussed five different variations of the projected unit credit method.
The IFRIC confirmed that a projection of salary increases should not be considered in projecting the future benefit obligation-based on the facts of the plan considered. An IFRIC member proposed that actuaries be involved in the project to ensure the IFRIC is properly capturing the effect on the calculation.
Some IFRIC members expressed concerns about the drafting relating to points 3 and 4 above and asked the staff to redraft to make sure that the facts are directly linked to IAS 19. The IFRIC discussed the possibility of measuring the defined benefit piece and the defined contribution piece separately-recording the higher of the two calculations. No decisions were made. The IFRIC will continue discussion of this issue at a future meeting.
Non-monetary exchanges of assets
The IFRIC discussed an example of a non-monetary exchange of assets. The transaction was an exchange of A's 13% ownership in B for 13% ownership in C. The only asset of C is 100% ownership of B. In essence, A is in exactly the same economic position after the exchange (indirectly holding 13% interest in B through C) than before the exchange (directly holding 13% interest in B). The IFRIC concluded that they would be uncomfortable recording the investment in C at an amount other than the carrying amount of A's investment in B. However, they did not address what they would do if C had other operations.
The IFRIC decided not to take this item on its agenda as these issues are being addressed in the improvements to IAS 16.
Exchange rate for remeasuring foreign currency transactions and translation of foreign operations under IAS 21
The IFRIC discussed the selection of the appropriate exchange rate for translation and remeasurement when more than one exchange rate exists. There was general consensus that the exchange rate to be used must reflect economic reality. In addition, the IFRIC noted that they could not mandate illegal acts. Most IFRIC members were comfortable that the rate to be used must be a legal or de-facto legal rate.
The IFRIC decided not to take this on its agenda as the situations where a de facto legal rate does not exist are rare. In addition, the differences from a de facto legal rate and an illegal rate are generally immaterial.
Items not taken on the agenda
In addition to the two preceding items, the IFRIC considered to not take the following items onto its Agenda:
- Equity method application (presumption of significant influence over operations of an investee if it holds directly or indirectly through subsidiaries, 20% or more of the voting power). Three examples were discussed. Nevertheless, these issues will be passed to the IASB staff on the Improvement project, to see if the wording of IAS 28 can be clarified.
- Classification of treasury shares in the consolidated cash flow statement.
- Reciprocal interests (treatment of shares of the parent held by a subsidiary or associate). This issue should wait until the Board has completed the amendments to IAS 27.
Hyperinflation and deferred tax
Neither IAS 29 nor IAS 12 specifically addresses the calculation of the comparative amount of deferred taxes when an entity in a hyperinflationary economy restates its financial statements.
The staff came to IFRIC with four different views on a specific example (asset, deferred asset and equity):
1. restatement approach (based on the restatement approach of IAS 29.34).
2. remeasurement approach (based on IAS 29.32)
3. combined approach (deferred tax is calculated after each components has been restated)
4. comparatives remain unchanged
Under the restatement approach, the answer will depend on whether the deferred taxes are considered as a monetary or non-monetary item.
The IFRIC did not reach a decision on this issue and will discuss whether it should be taken onto its agenda or not at a future meeting. In the meantime, the staff will work to clarify the examples in the agenda paper.
This summary is based on notes taken by observers at the IFRIC meeting and should not be regarded as an official or final summary.
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3 April 2003: EU securities regulators adopt accounting enforcement standard
The Committee of European Securities Regulators (CESR) has published its Standard No. 1, Enforcement of Standards on Financial Information in Europe. This standard is aimed at developing and
implementing a common approach to the enforcement of International Financial Reporting Standards (IFRS) throughout the EU. The document sets out 21 high level principles that define enforcement and describe principles that EU member states should adopt in enforcing IFRS, including structure of their enforcement authority; selection of financial information to be reviewed for enforcement purposes; actions available to enforcers (including, in particular, asking for public correction); cross-border coordination; and reporting by enforcement agencies. The standard was issued along with a Press Release and a Statement summarising the responses to CESR's earlier consultation.
2 April 2003: Violation of audit committee rules will result in delisting in USA
The US Securities and Exchange Commission has Adopted Rules directing the US securities exchanges and markets to prohibit the listing of any security of an issuer (domestic or foreign) that is not in compliance with the audit committee requirements established by the Sarbanes-Oxley Act of 2002. Those requirements provide, among other things, that each member of the issuer's audit committee must be independent. Also, the audit committee must be directly responsible for appointing, compensating, retaining, and overseeing the auditors; must establish procedures for handling complaints about accounting and auditing matters; must have the authority to engage independent counsel and other advisors it deems necessary; and must be appropriately funded. The rules include several provisions, applicable only to foreign private issuers, that seek to address the special circumstances of particular foreign jurisdictions. Also, foreign private issuers will have a later compliance date (by 31 July 2005) than other issuers (first annual shareholders meetings after 15 January 2004 but not later than 31 October 2004).
2 April 2003: Notes from the first day of IFRIC's April 2003 meeting
The International Financial Reporting Interpretations Committee (IFRIC) met on 1 April 2003 – the first day of its two-day meeting at the IASB's offices in London. Our unofficial notes are presented below:
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Notes from the IFRIC Meeting 1 April 2003
Changes in Decommissioning and Similar Liabilities
Five issues were discussed:
Change in the discount rate. Should a change in the discount rate be treated as a revision of the original estimated asset and liability or as a current period event and hence capitalised in full in the current period? The staff proposed that the change in the discount rate should be treated as a revision of the original estimated amount. Certain members of the IFRIC questioned whether the change should affect the asset and believed it should be treated as a current period charge to the income statement. After discussion, the IFRIC agreed to proceed on the basis of the staff's proposal but that the basis for conclusions should note the arguments for and against the two approaches and that comment on this issue should be specifically requested. A concern was raised as to whether the requirement in IAS 37.47 that a provision should reflect a current market assessment of the time value of money was been applied in practice.
Calculation of amount to be added to, or deducted from, the asset. The draft Interpretation requires the calculation of the amount to be added to or deducted from the asset (capitalised) to be done on a 'systematic and rational' basis. The IFRIC agreed that the Interpretation should illustrate how this could be done.
Revision to paragraph 20A of the Exposure Draft of Improvements to IAS 16, Property, Plant and Equipment. The revision would clarify that IAS 16.20A applies only to the initial capitalisation of costs and not to subsequent changes in the estimated amount of those costs. The IFRIC agreed to submit this proposal to the Board.
Measurement of a decommissioning liability. The basis for conclusions of the Interpretation will clarify that IAS 37.36 and IAS 37.47 require the measurement of the liability both initially and subsequently to be the best estimate of the expenditure required to settle the present obligation at the balance sheet date and should reflect a current discount rate. Hence, when a change in estimated cash flows and/or the discount rate is material, the effect of the change should be recognised. The IFRIC agreed to submit this proposal to the Board.
Transition for First-Time Adopters. The IFRIC agreed that prospective application is appropriate. Further, the liability should be measured using the current discount rate and the asset should be remeasured as if this rate had applied on initial recognition and had subsequently depreciated. There would not be a requirement to restate for each discount rate change arising in prior years.
Employee Benefits - Multi-Employer Plan Exemption
The IFRIC discussed two issues:
How to define a multi-employer plan that meets the exemption in IAS 19.30, and
If the plan does not meet the exemption, how it should apply defined benefit-plan accounting.
The IFRIC did not amend its previous definition of multi-employer plan, but it concluded that it did not have sufficient information to state categorically that it would be rare for the exemption to be applied. The Interpretation will address plans in which there are a small number of dominant members in a large fund with many members and that it was likely that the dominant members would have access to plan information. The Interpretation will clarify that a multi-employer plan as defined in IAS 19.7 for which the contribution is set at a fixed level of the underlying payroll is not necessarily excluded.
The IFRIC agreed that the staff would consider what guidance is needed on changes arising from allocations between entities in the plan or arising from other entities employees.
The Interpretation will be discussed further at IFRIC's July meeting.
Decommissioning Funds
The IFRIC's tentative conclusions to date were noted:
When determining whether a contributor should consolidate, proportionately consolidate, or account under the equity method for a fund, the IFRIC tentatively agreed that relevant considerations include the extent to which the contributor has the ability to determine investment decisions of the fund (for instance by determining the appointment of the fund's trustees) and the extent to which the contributor bears the benefits and risks of the fund's assets.
If funds are not consolidated, proportionately consolidated, or accounted for under the equity method, the contributor should recognise a separate asset (for rights to amounts from the fund) and liability (for its decommissioning obligation), since these funds do not relieve the contributor of its obligation to decommission.
If a contributor becomes bankrupt and is unable to make its scheduled contributions and the future contributions of all other contributors are increased, the potential additional liability is a contingent obligation within the scope of IAS 37.
The right to receive reimbursement from the fund meets the definition of a financial asset and should be accounted for under IAS 39. The asset would seem to fall within the IAS 39 classification of an originated loan and, therefore, be accounted for at amortised cost. The IFRIC tentatively agreed that a better treatment would seem to be to account for the asset at fair value with changes in fair value reported in the income statement.
The staff proposed that reimbursement assets should be classified as available for sale assets under IAS 39. Some IFRIC members questioned whether these assets were financial assets that should be dealt with under IAS 39 or reimbursements that should be dealt with under IAS 37. The staff replied that if they arise from a contract and were to be settled in cash, they meet the definition of a financial asset. In addition they noted that IAS 37.1 excludes from its scope all provisions, contingent liabilities, and contingent assets covered by another standard, and that standard in this case is IAS 39. This was questioned as it was considered either to be contingent or to be a reimbursement. The IFRIC agreed that this should be addressed in the basis for conclusions.
The IFRIC noted that this addressed the situation where the reimbursement was contractual and in cash, but did not address cases in which the reimbursement is either as a result of a regulatory or legislative requirement or is in the form of services. IFRIC members agreed that in all cases the assets should be recorded at fair value with all changes in fair value through the income statement.
The IFRIC further agreed that the proposed Interpretation should require the use of the designation as a "held-for-trading" asset for any financial asset covered by this interpretation should that option remain in the improved IAS 39 standard.
The IFRIC agreed that the interpretation should not address the issue of "SILOs" within decommissioning funds.
The IFRIC asked its staff to draft a proposed interpretation covering the above for consideration. If IFRIC is unable to agree on a single solution, it would present proposals to the Board for discussion.
Rights of Use
IFRIC considered a draft Interpretation that proposed that an agreement contains a lease, which should be accounted for under IAS 17, if all three of the following criteria are met:
(a) Fulfilment of the agreement depends upon a specific item or items ("the asset");
(b) The purchaser controls the right to use the asset for a specific period of time; and
(c) The purchaser's obligation to make payments to the supplier under the agreement is for the time that the asset is made available rather than for actual use of the asset.
The draft Interpretation's second criterion ("controls the right to use") can be met in agreements in which a purchaser has rights to acquire substantially all of the output produced by an asset. IFRIC had previously agreed that in such agreements additional criteria were required to distinguish those agreements that convey a right of use from those that do not. This meant that the second criterion is not met (and thus an agreement did not contain a lease) if both:
- The price per unit of output is either fixed per unit of output or indexed to market prices, and
- The supplier is required to pay market-based liquidating damages if it fails to deliver.
The IFRIC discussed whether the inclusion of contracts where substantially all of the output of an asset was acquired focused on ownership of the asset as opposed to control of the asset took place. Certain members believed that the Interpretation potentially changed the definition of control that has been used in Standards to date and focussed on ownership to indicate control.
The IFRIC agreed that:
- The Interpretation should focus on the asset being the right to control the output and not the underlying asset. The IFRIC further agreed that the Interpretation should focus on the right to the capacity of the asset (possibly including an assessment of realistic future changes) and not a current fixed right of output from the asset.
- The Interpretation should clarify that a right to substitute assets in the contract did not change the assessment of the contract as a lease.
- There is a need for disclosure in the area of commitments, take or pay contracts and other executory contracts but that this should be addressed as a separate project.
The staff will make the changes requested and prepare a final draft Interpretation for approval.
This summary is based on notes taken by observers at the IFRIC meeting and should not be regarded as an official or final summary.
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2 April 2003: New Accounting Roundup newsletter posted
We have posted the 1 April 2003 edition of the Accounting Roundup newsletter from Deloitte & Touche USA. It covers numerous recent EITF decisions, a proposed AICPA SOP on life insurance companies, and news from the IASB, FASB, SEC, and PCAOB.
1 April 2003: First day of Deloitte & Touche IFRS conference in Copenhagen
Today is the first day of a public conference hosted by Deloitte & Touche (Denmark) on the transition to reporting under IFRS. The conference will continue on 6 May and 3 June. The Programme (PDF 279k, in Danish) has registration details.
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