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31 March 2006: Notes from days 3 and 4 of IASB March 2006 meeting
The International Accounting Standards Board met at its offices in London on Tuesday through Friday, 28-31 March 2006. We have combined all of our notes from the meeting on a Separate Page.

31 March 2006: SEC announces 17 XBRL test companies
The United States Securities and Exchange Commission has announced that 17 companies have agreed to participate in a pilot program to use interactive data in XBRL Format in their financial statement filings. The companies will help the agency explore how new Internet based reporting technologies can improve the financial reporting process for investors, financial intermediaries, the SEC, and the companies themselves. Four of the companies are non-US registrants. The 17 members of the 2006 test group are:

31 March 2006: Notes from second day of IASB March 2006 meeting
The International Accounting Standards Board met at its offices in London on Tuesday through Friday, 28-31 March 2006. We have combined all of our notes from the meeting on a Separate Page.

31 March 2006: FASB Chairman testifies about convergence
In his prepared testimony for the US Senate hearing on financial reporting transparency (see our News Story of 29 March), FASB Chairman Robert H. Herz spoke extensively about IASB-FASB convergence efforts. Click to download Mr. Herz's Testimony (PDF 511k). Testimony of other hearing participants may be Downloaded Here.

30 March 2006: Two valuation exposure drafts from IVSC

The International Valuation Standards Committee (IVSC) has published for public comment the following two exposure drafts: Proposed International Valuation Application – Valuation of Public Sector Assets for Financial Reporting Proposed International Valuation Guidance Note – The Valuation of Historic Property

The EDs propose "international level requirements and guidance for the measurement of assets held by governments and public sector bodies". Comments are invited before 31 August 2006. Click for:

• ED on Valuation of Public Sector Assets (PDF 294k)
• ED on Valuation of Historic Property (PDF 194k)
• Press Release (PDF 274k)

30 March 2006: SAC minutes will be made public
The Standards Advisory Council (SAC) has decided to make the minutes of its meetings available to the public retroactively to the first meeting of the 'reorganised' SAC that took place in November 2005 in London. Minutes will be released publicly after approval by the SAC at its subsequent meeting. Portions relating to 'closed sessions' will be excluded. A new Page for SAC Minutes has been created on the IASB's Website.

29 March 2006: Updated EFRAG endorsement status report
The European Financial Reporting Advisory Group has updated its report showing the status of endorsement, under the EU Accounting Regulation, of each IFRS, including standards, interpretations, and amendments. Click to download the Endorsement Status as of 23 March 2006 (PDF 23k). Currently, the following IASB pronouncements have not yet been endorsed for use in Europe:

• IFRIC 7 Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies
• IFRIC 8 Scope of IFRS 2
• IFRIC 9 Reassessment of Embedded Derivatives
• Amendments to IAS 21

29 March 2006: US Senate hearing on financial reporting transparency

The Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises of the US Senate Committee on Financial Services will hold a hearing entitled Fostering Accuracy and Transparency in Financial Reporting on Wednesday, 29 March 2006. Scheduled to testify:

Panel I

• Willis Gradison, Acting Chairman, Public Company Accounting Oversight Board
• Robert H. Herz, Chairman, Financial Accounting Standards Board
• Scott Taub, Acting Chief Accountant, Securities and Exchange Commission
  

  Panel II

• David Hirschmann, Senior Vice President, U.S. Chamber of Commerce
• Marc E. Lackritz, President, Securities Industry Association
• Colleen Cunningham, President, Financial Executives International
• Barry Melancon, President, The American Institute of Certified Public Accountants
• Rebecca McEnally, Director of Capital Markets Policy, Center for Financial Markets Integrity, CFA Institute

29 March 2006: UK ASB will hold measurement roundtable
The United Kingdom Accounting Standards Board (ASB) will host a roundtable discussion of issues relating to the basis of measurement used in financial reporting. The roundtable will be held on 24 April 2006 and will be chaired by ASB Chairman Ian Mackintosh. It will include brief presentations followed by general discussion and comments. To provide a context for the roundtable, the ASB has prepared a background paper discussing some of the issues. Also, the staff of the Accounting Standards Board of Canada (AcSB) have provided an article on the Discussion Paper Measurement Basis for Financial Accounting–Measurement on Initial Recognition, which was prepared by the AcSB staff. Click for:

• ASB Measurement Paper (PDF 46k)
• Article (PDF 50k)
• Press Release (PDF 12k)

29 March 2006: IAASB ED on group audits
The International Auditing and Assurance Standards Board (IAASB) has issued a re-exposure draft (ED) of proposed International Standard on Auditing (ISA) 600 (Revised and Redrafted) The Audit of Group Financial Statements. Following earlier consultations, the IAASB has modified the proposals and reissued the ED. The primary issues revolve around the extent to which the group auditor needs to be involved in the audits of components that are audited by other auditors, whether these auditors are independent of the group auditor (unrelated) or belong to the group auditor's national or international firm or network of firms (related auditors). Click for IAASB Press Release (PDF 84k), which includes a hyperlink to download the exposure draft. Comments are requested by 31 July 2006.

28 March 2006: Notes from first day of IASB March 2006 meeting
The International Accounting Standards Board met at its offices in London on Tuesday through Friday, 28-31 March 2006. We have combined all of our notes from the meeting on a Separate Page.

28 March 2006: FEE urges mutual recognition of IFRSs and US GAAP
The European Federation of Accountants (FEE) has published a position paper on Financial Reporting: Convergence, Equivalence and Mutual Recognition. FEE notes that "the only way for Europe to make a real input to global convergence in standards is to be co-ordinated in its approach.... It is only through substantive European input to the IASB work programme, enhanced coordination and greater transparency and consultation that real progress can be achieved." In launching this paper, FEE President David Devlin said:

• FEE Position Paper (PDF 134k)
• FEE Press Release (PDF 36k)

27 March 2006: New Global Offerings Services newsletter

We have posted the March 2006 Edition of the Deloitte Global Offerings Services Newsletter (PDF 95k). Global Offerings Services is a global team of Deloitte practitioners assisting non-US companies and non-US practice office engagement teams in applying US and International accounting standards (that is, US GAAP and IFRSs) and in complying with the SEC's financial reporting rules. Past GOs Newsletters are Here.

25 March 2006: Notes from IASCF Trustees meeting 23 March

The Trustees of the IASC Foundation, under which the IASB operates, met in public session on 23 March 2006. Presented below are the preliminary and unofficial notes taken by Deloitte observers at the meeting.

25 March 2006: Working relationship of EC and EFRAG
The European Commission and the European Financial Reporting Advisory Group have entered into a formal Working Arrangement on issues relating to the application of International Financial Reporting Standards (IFRSs) in Europe. EFRAG will continue to act as an advisor by providing endorsement advice to the EC and technical input to the standard setters, IASB, and IFRIC. Under the Working Arrangement EFRAG will participate proactively in the IASB's due process. EFRAG will, in close consultation with the Commission, participate in the early phases of debate on all issues related to the standard setting process and will, when requested by the Commission, attend working groups of IASB, liaise with European national standard setters, and hold Advisory fora. Click to download:

• Signed Working Agreement (PDF 64k).
• EC Press Release (PDF 84k).
• EFRAG Press Release (PDF 27k).

24 March 2006: ICAS report on financial communication to investors
A report published by the Institute of Chartered Accountants of Scotland identifies seven categories of information that underpin good communication between listed companies and the markets and have the most direct influence a company's share price. The seven are:

23 March 2006: IAASB 2005 annual report
The International Auditing and Assurance Standards Board (IAASB) has published its annual report for 2005. The IAASB, which operates within IFAC, sets standards dealing with auditing, review, other assurance, quality control, and related services, and works to achieve the convergence of national and international standards. The IAASB consists of a full-time Chairman and 17 volunteer members from around the world. Click to Download the Report (PDF 1,283k).

23 March 2006: Two PCAOB releases on audit firm quality controls
The US Public Company Accounting Oversight Board has issued two Releases concerning the Board's implementation of a provision of the Sarbanes-Oxley Act of 2002 that gives registered accounting firms an incentive to address quality control criticisms in Board inspection reports within 12 months after the Board issues the reports. The Act provides that "no portions of the inspection report that deal with criticisms of or potential defects in the quality control systems of the firm under inspection shall be made public if those criticisms or defects are addressed by the firm, to the satisfaction of the Board, not later than 12 months after the date of the inspection report."

• In the First PCAOB Release (PDF 1,028k), the Board provides information about its process for determining whether a registered accounting firm has satisfactorily addressed quality control criticisms in an inspection report.
• In the Second PCAOB Release (PDF 854k), the Board describes observations about efforts undertaken by the four largest US accounting firms to address quality control concerns identified during the Board's initial, limited inspections of those firms.

23 March 2006: Comment deadline on IFRIC D18

We remind you that the deadline is 31 March 2006 for commenting on IFRIC D18 Interim Financial Reporting and Impairment. IFRIC D18 proposes that an entity shall not reverse an impairment loss recognised in a previous interim period in respect of goodwill or an investment in an equity instrument or a financial asset carried at cost.

22 March 2006: Uruguay requires IFRSs
We have created a new Country Page for Uruguay. Two governmental decrees – 2004 #162/004 and 2005 #90/005 – require that all Uruguayan companies must follow those IFRSs in existence at 19 May 2004. The auditor's report refers to conformity with Uruguayan GAAP because of the 19 May 2004 cut-off. We have updated our List of Jurisdictions Using IFRSs accordingly.

22 March 2006: New Australian Accounting Alert on IFRIC 9
Deloitte (Australia) has published Australian Accounting Alert 2006/04 IFRIC 9 Reassessment of Embedded Derivatives (PDF 52k). It is expected that the Australian Accounting Standards Board (AASB) will adopt this Interpretation and release UIG 9, an Australian equivalent of IFRIC 9, at the next meeting of the AASB. Links to all past Australian Accounting Alerts are Here.

21 March 2006: FSF Asia-Pacific forum supports convergence efforts
The Financial Stability Forum (FSF) held its fourth Asia-Pacific regional meeting on 16 March 2006 in Sydney, Australia. Senior representatives from finance ministries, central banks, and supervisory and regulatory authorities from 10 FSF member economies and 8 regional non-member economies attended the meeting. Senior officials from international institutions represented on the FSF, as well as the Asian Development Bank, also took part. Participants exchanged views on a broad range of issues, including accounting standards. The Report of the FSF Asia-Pacific Forum 2006 (PDF 72k) states:

21 March 2006: New edition of EITF Flash posted
The FASB's Emerging Issues Task Force (EITF) met on 16 March 2006. They reached consensuses on a number of issues and discussed other issues without reaching a consensus. Deloitte & Touche (United States) has prepared an EITF Flash Newsletter (PDF 81k) summarising the discussions at the meeting. Issues on which consensuses were reached are the following:

• Accounting for the conversion of an instrument that becomes convertible upon the issuer's exercise of a call option
• Accounting for sabbatical leave and other similar benefits
• How sales taxes collected from customers and remitted to governmental authorities should be presented in the income statement (that is, gross vs net presentation)

21 March 2006: India moving to align its GAAP with IFRSs
The Prime Minister of India Manmohan Singh has announced that his government will introduce comprehensive new company legislation that will include aligning Indian accounting standards with IFRSs. The new law the existing 50-year-old companies law with the objective of promoting greater transparency and efficient governance, the Prime Minister said.

21 March 2006: New pages for Bulgaria and Slovak Republic
We have created pages for Bulgaria and Slovak Republic:

		In Bulgaria, since 2003, all listed companies and financial institutions have been required to use IFRSs for their consolidated financial statements. Starting in 2005, IFRSs have been extended also to individual company financial statements and to large unlisted companies. Small companies are permitted but not required to use IFRSs.
		In the Slovak Republic, listed companies must use IFRSs for their consolidated financial statements under the EU Accounting Regulation. Starting in 2006, the IFRS requirement has been extended to large unlisted companies.

20 March 2006: Deloitte views on management commentary proposals
On 27 October 2005, the IASB published a discussion paper on Management Commentary – information presented outside the financial statements in the form of management's explanation of the enterprise's financial condition, changes in financial condition, results of operations, and causes of changes in material line items. We have posted the Deloitte Letter of Comment on the Discussion Paper (PDF 71k). This project is currently on the Board's research agenda. The main points of our comments:

20 March 2006: Deloitte views on initial measurement paper
On 17 November 2005, the IASB published for public comment a Discussion Paper Measurement Bases for Financial Reporting - Measurement on Initial Recognition. The Discussion Paper, prepared by staff of the Canadian Accounting Standards Board (AcSB), analyses possible bases for measuring assets and liabilities on initial recognition. These include: historical cost, current cost, fair value, net realisable value, value in use, and deprival value. We have posted the Deloitte Letter of Comment on the Discussion Paper (PDF 30k). This project is currently on the Board's research agenda. The main points of our comments:

19 March 2006: SEC Commissioner discusses the 'roadmap'
In her remarks before the Institute for International Bankers Annual Conference in Washington on 13 March 2006, US SEC Commissioner Annette L. Nazareth discussed "the prospect of convergence of US and EU accounting standards". Her comments addressed the adoption of International Financial Reporting Standards as the single accounting standard in the EU and the principles underlying the 'roadmap' by which the Commission is considering accepting IFRS as a primary accounting system without requiring reconciliation to US GAAP. Click to download Commissioner Nazareth's Speech (PDF 53k). An excerpt:

18 March 2006: Auditor independence reforms in the EU
A survey by the European Federation of Accountants (FEE) has found that EU Auditor independence reforms are taking hold in EU Member States. The FEE survey Implementation of the EU Recommendation on Independence found that the principles-based approach to auditor independence as set out in the EU Recommendation on Independence has been adopted by three-fourths of the EU member states and Norway. The EU Recommendation on Independence has recently been given legal underpinning by the new Statutory Audit Directive. In addition, European auditors, as members of IFAC, have to apply the IFAC Code of Ethics, which is currently being strengthened, and there has also been new legislation in many European countries and in the US. In announcing the survey report, FEE called for a regulatory pause to allow this new approach to auditor independence time to prove its worth to users of audit reports. Click to download the Survey Report (PDF 408k).

17 March 2006: IASB March 2006 meeting agenda
The International Accounting Standards Board will meet at its offices in London on Tuesday through Friday, 28-31 March 2006. Presented below is the preliminary agenda for the meeting.

28-31 March 2006, London Tuesday 28 March 2006 (afternoon only) Performance Reporting - Segment B: project objectives and planning. Leases - Preliminary discussion of a project on leases and possible agenda decision IFRIC Update Wednesday 29 March 2006 Financial Instruments Puttable at Fair Value Joint Ventures Short-term Convergence: Borrowing Costs Sweep issues from the pre-ballot draft. Proposed scope change: Exclusion of borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset measured at fair value, for example a biological asset. Business Combinations Phase II Technical Plan Thursday 30 March 2006 Insurance Contracts Phase II Accounting Standards for Small and Medium-sized Entities Revenue Recognition Conceptual Framework - Definition of Reporting Entity Friday 31 March 2006 (morning only) IAS 37 Provisions, Contingent Liabilities and Contingent Assets Consolidations including Special Purpose Entities Amendment to IFRS 1 relating to cost of subsidiaries in separate financial statements of a parent

17 March 2006: New US-UK regulatory cooperation agreement
The United States Securities and Exchange Commission and the United Kingdom Financial Services Authority have signed a comprehensive arrangement to increase cooperation in market oversight and supervision. Both agencies described it as a "landmark arrangement" that will facilitate the exchange of confidential supervisory information currently collected by both regulators about regulated entities and investment banking groups that operate both in the United States and the United Kingdom. Click for SEC Press Release (PDF 34k).

16 March 2006: IASB proposes to amend IAS 1
As part of its Performance Reporting Project, the IASB has issued an Exposure Draft of proposed amendments to IAS 1 Presentation of Financial Statements. The Exposure Draft results from the first stage (known as 'Segment A') of the IASB's project on performance reporting and, if adopted, would bring IAS 1 largely into line with the equivalent US standard. The second stage of the project is being undertaken jointly with the US Financial Accounting Standards Board (FASB), and includes a reconsideration of the presentation and display of information in the financial statements. Under the proposals an entity would present all income and expenses separately from changes in its equity that arise from transactions with its owners. Entities would have a choice of presenting income and expenses in a single statement or in two statements. An entity would also be required to include in its set of financial statements a statement showing its financial position (or balance sheet) at the beginning of the previous period. Comment deadline is 17 July 2006. Click for Press Release (PDF 68k).

16 March 2006: FASB updates its derivatives and hedging guidance
The staff of the US Financial Accounting Standards Board has posted on the FASB Website revisions to the Statement 133 Implementation Issues that were affected by the issuance of FASB Statement No. 155 Accounting for Certain Hybrid Financial Instruments. The 'all issues' and 'tentative guidance' files on the website have also been updated for the release of those Implementation Issues. A marked draft reflecting the revised Implementation Issues is also available in PDF format.

16 March 2006: IAASB advisory group meetings are now open
Meetings of the Consultative Advisory Group (CAG) of the International Auditing and Assurance Standards Board (IAASB) are being opened to public observation. The CAG's next meeting is scheduled for May 11-12 in Paris. The IAASB CAG comprises representatives of 35 organisations. Its role is to provide input to and assist the IAASB by advising on its work program, including project priorities, and offering technical advice on projects as items evolve and on other matters of relevance to the IAASB's activities. Click for Announcement (PDF 89k).

16 March 2006: EFRAG seeks members for performance reporting group
The European Financial Reporting Advisory Group, together with the Spanish accounting standard-setter ICAC, is initiating a project on Performance Reporting. ICAC and EFRAG are seeking nominees for a new a pan-European Advisory group by 7 April 2006. Click for More Information (PDF 51k).

15 March 2006: IASCF Trustees will meet 23-24 March

The Trustees of the IASC Foundation, under which the IASB operates, will meet on 23 and 24 March 2006 at the Crowne Plaza London - The City Hotel. The meeting is open to public observation on 23 March only. The public agenda is shown below.

13 March 2006: Brazil will require IFRSs for financial institutions
On 9 March 2006, the Board of Directors of The Central Bank of Brazil decided to require that all Brazilian banks, and all financial institutions licensed by Central Bank to do business in Brazil, fully comply with IFRSs beginning with the financial statements for the year ending 31 December 2010. That decision was announced in an Official Communication (PDF 93k Portuguese). The Board has asked each of its departments responsible for bank regulation to identify the changes that will be required to existing Bank regulations to achieve the 2010 target and to report back by 31 December 2006. Thereafter, working groups will be formed to propose solutions so that there will be no impediments to using IFRSs in 2010. The Central Bank also announced that it intends to require auditors of financial statements of banks and all other licensed financial institutions to follow the International Standards of Auditing (ISAs) issued by International Auditing and Assurance Standards Board.

12 March 2006: New IAS Plus newsletter on IFRIC 9

We have posted a new IAS Plus Newsletter Explaining IFRIC 9 Reassessment of Embedded Derivatives (PDF 58k). IFRIC 9 addresses two questions, and answers them as follows: Q: Does an entity have to reconsider its assessment of whether an embedded derivative needs to be separated after initial recognition of the hybrid contract? A: No. In fact, it may not do so unless there is a significant change in the terms of the hybrid contract. Q: Should a first-time adopter of IFRSs determine whether an embedded derivative needs to be separated (a) when the entity first became a party to the hybrid contract or (b) when the entity adopts IFRSs for the first time? A: (a) - make the assessment on the basis of conditions existing when the entity became party to the hybrid contract, not when it adopts IFRSs. The newsletter includes two examples. You can find our Past IAS Plus Newsletters Here.

12 March 2006: SEC Commissioner comments on MD&A, CD&A
In Remarks before the Corporate Counsel Institute (PDF 68k), US SEC Commissioner Cynthia A. Glassman identified improving the Management Discussion and Analysis (MD&A) as top priority of the SEC. Commissioner Glassman noted that "management can tell its story most effectively in the MD&A." – explaining why the results of operations are what they are. She notes, however, that MD&As sometimes lack ample explanation, are unnecessarily lengthy, and are not focused on telling the story clearly.

11 March 2006: Deloitte Insights 'podcasts'
Deloitte Insights is a complimentary audio news magazine that examines important business issues of the day. You can subscribe to receive the latest episodes automatically either via RSS feed or iTunes, or you can listen to them directly on your personal computer. This web page has Links to the Available Deloitte Insights Episodes. The most current episode is the US Deloitte Technology, Media, & Telecommunications (TMT) Group's technology predictions for 2006 (75 minutes). One of the points discussed is revenue recognition when a technology company has an obligation to provide upgrades. The podcasts are developed by Deloitte & Touche (United States), and we have put a Permanent Link to the Podcasts on our US page.

11 March 2006: EFRAG recommends endorsement of IFRIC 8
The European Financial Reporting Advisory Group (EFRAG) has evaluated IFRIC 8 Scope of IFRS 2 and has concluded that it is in the European interest to adopt IFRIC 8. Accordingly, EFRAG has Written to the European Commission (PDF 78k) recommending its adoption.

10 March 2006: Impact of IFRSs on European bank regulatory capital
A study by the Committee of European Banking Supervisors (CEBS) has found that the guidelines that it published in December 2004 for adjustments to IFRS financial data reported by European banks for the purpose of determining banks' 'own funds' (equity capital for regulatory purposes) have satisfactorily addressed concerns of bank supervisors. Supervisors were concerned that the introduction of IFRSs might:

• "Jeopardise the criteria that regulatory own funds have to fulfil, namely that they be (i) permanent, (ii) readily available for absorbing losses, and (iii) reliable as to their amounts."
• "Introduce volatility into institutions' financial statements and, more particularly, into regulatory own funds, in ways which might not reflect the economic substance of institutions' financial positions."

10 March 2006: SEC round-tables on financial reporting on the Internet
The US Securities and Exchange Commission will hold a series of round-tables focused on speeding the implementation of new Internet tools to help provide investors and analysts with better financial information about companies and funds. The SEC notes that "today, even computer-based financial information is generally presented in the form of entire pages of data that can't easily be separated." Representatives from investors, issuers, auditors, analysts, technology professionals, regulators, and others will be invited to the roundtable discussions. Topics to be addressed will include:

• what investors and analysts are looking for in the new world of interactive data;
• how to accelerate the use of new software that permits the dissemination of interactive financial data; and
• how to best design the SEC's requirements for company disclosures to take maximum advantage of the potential of interactive data.

10 March 2006: World Congress of Accounting Educators 2006
The 10th World Congress of Accounting Educators will be held on 9-11 November 2006 in Istanbul, Turkey, immediately preceding the 17th World Congress of Accountants in the same city. The theme of the educators' Congress is Challenges and Developments in International Accounting Education and Research. Congress organisers have invited submissions of papers in the following areas:

9 March 2006: IOSCO seeks views on hedge funds
The Technical Committee of the International Organization of Securities Commissions (IOSCO) has released a Consultation Report on The Regulatory Environment for Hedge Funds (PDF 383k). The report presents the results of a survey of 20 IOSCO member jurisdictions on various aspects of hedge funds, including prevalence and size, investment strategies, definitions, registration, disclosure, advertising, reporting, examination, and disciplinary actions. In the areas of disclosure and reporting, the questionnaire asked about:

• Disclosure: Whether an offering memorandum and minimum disclosure must be provided to retail investors; whether hedge funds must disclose investment limits, leverage, etc.; and whether warnings are required.
• Reporting Requirements: Periodic and annual reporting and disclosure requirements regarding investment performance and underlying investments; and valuation issues.

9 March 2006: Now available – 2006 Bound Volume of IFRSs

The 2006 Bound Volume of International Financial Reporting Standards as approved at 1 January 2006 has been published. BV2006 includes all IFRSs, IASs, Interpretations, and the supporting documents published by the IASB – Bases for Conclusions, Implementation Guidance, and Illustrative Examples. Among the new material in this 2,400-page edition are: The revised Constitution, approved by the Trustees in June 2005 IFRS 7 Financial Instruments: Disclosures Three new Interpretations – IFRICs 6 to 8 Amendments to IFRS 1, IFRS 4, IFRS 6, IAS 1, IAS 21, and IAS 39, as well as consequential amendments to other IFRSs resulting from those pronouncements Editorial corrections. Copies of BV2006 are available at £60 each from the IASB's Website (then click on IASCF Shop). Bulk discounts are available. Here is the Press Release.

8 March 2006: New Hong Kong financial statement guide

Deloitte (China) has published HKFRS Financial Statements 2005: A Practical Guide for Preparers (PDF 3,118k). The objective of this guide is to provide assistance with the process of drafting 2005 financial statements prepared in conformity with Hong Kong Financial Reporting Standards (HKFRSs). As of 1 January 2005, HKFRSs became fully harmonised with International Financial Reporting Standards (IFRSs), except for a few minor differences. This process resulted in the revision of numerous Standards and Interpretations and the issuance of several brand new Standards and Interpretations. The cumulative effect of these revisions and new Standards is that entities are being required to rewrite substantially their financial statements in 2005. The new guide includes 2005 HKFRS model financial statements, a presentation and disclosure checklist for 2005, and a section summarising the key changes made to the listing rules that affect the disclosure and presentation of information in the 2005 annual report.

8 March 2006: February 2006 Accounting Roundup is available

We have posted the February 2006 Edition of Accounting Roundup (PDF 259k) published by Deloitte & Touche LLP (USA). Topics covered in this issue:

FASB Developments including a final Statement on accounting for hybrid financial instruments; FASB's response to the SEC study on off-balance-sheet arrangements; and the up FASB-IASB memorandum of understanding. GASB Developments including a proposed Technical Bulletin on reporting of Medicare payments. AICPA Developments including an Alert on the SEC's position regarding changes to the statement of cash flows relating to discontinued operations; new auditing standards for non-public companies; a new Conceptual Framework for Independence Standards and a revised Interpretation on Responding to Clients' Requests for Records; and new Financial Reporting and Audit Risk Alerts. SEC Developments including the SEC's extension of its deadline for companies to volunteer for participation in an XBRL initiative. PCAOB Developments including an Auditing Standard on Reporting on the Elimination of a Material Weakness; and a request for feedback on internal control reporting requirements. International Developments including IASB's proposed amendment to IFRS 2 Share-based Payment.

7 March 2006: IASB-FASB study fair value for financial instruments
The IASB and the US FASB are jointly requesting input from users of financial statements about the kinds of information about fair values of financial instruments, and changes in those fair values, that is useful to those making investment or credit decisions or advising others on investment or credit decisions. For this purpose, financial instruments include not only debt securities, equity securities, and derivatives, but also loans and accounts payable or receivable, and almost any other amount payable or receivable. The Boards have issued a questionnaire and related background paper aimed at seeking users' views about whether current standards provide the information that investors and creditors need to analyse companies that report some or all financial instruments at fair value. The Boards cite the following as examples of possible additional information that users may need:

• Quantitative information about the reasons why the fair values of financial instruments changed.
• Disclosure of exposures to future changes in the fair values of financial instruments.

• Press Release (PDF 28k)
• Questionnaire (PDF 39k)
• Background (PDF 38k)

6 March 2006: An SEC Commissioner comments on the reconciliation
In remarks before the Tenth Annual Conference on SEC Regulation Outside the United States (PDF 37k), US SEC Commissioner Cynthia Glassman spoke about, among other things, convergence of US GAAP and IFRSs and eliminating the SEC's required reconciliation. An excerpt:

6 March 2006: Possible FASB convergence project on major maintenance
At its meeting on Wednesday, 8 March 2006, the US Financial Accounting Standards Board will discuss whether to add to its agenda a project to address planned major maintenance activities. Currently, under IAS 16, major inspection or overhaul costs are generally accounted for as part of the cost of an asset, while under US GAAP these costs are generally expensed.

6 March 2006: IASB posts updated editorial corrections lists
The IASB has posted on its website an Updated List of Editorial Corrections to its published standards, including:

• Corrections to the text of the Bound Volume 2006 (which will be released shortly)
• Corrections to the text of the Bound Volume 2005 (list includes the corrections previously published in August 2005)
• Corrections to IFRSs issued since 1 January 2005

5 March 2006: IFRIC agenda project pages updated

We have updated the following IFRIC Issues project pages to reflect the deliberations at IFRIC's March 2006 meeting:

• Service Concession Arrangements
• IAS 18 Revenue - Customer Loyalty Programmes
• IAS 18 Revenue - Sales of Real Estate
• IAS 19 Employee Benefits - The Effect of a Minimum Funding Requirement on the Asset Ceiling
• IAS 32 - Classification of a Financial Instrument as Liability or Equity

5 March 2006: 'Issues not added to IFRIC agenda' updated

We have updated our table of nearly 100 Issues Not Added to IFRIC's Agenda to reflect the final decisions made at IFRIC's March 2006 meeting not to put the following items to its agenda:

• IFRS 3 Business Combinations - Whether a new entity that pays cash can be identified as the acquirer
• IFRS 3 Business Combinations - 'Transitory' common control
• IAS 17 Leases - Leases of land that do not transfer title to the lessee
• IAS 12 Income Taxes - Scope
• IAS 18 Revenue - Subscriber acquisition costs in the telecommunications industry
• IAS 27 Consolidated and Separate Financial Statements - Separate financial statements issued before consolidated financial statements

4 March 2006: Comments on IFRSs by IOSCO leader
Michel Prada, Chairman of the Technical Committee of IOSCO, delivered the Keynote Address (PDF 56k) at a recent roundtable on global accounting convergence sponsored by the Financial Stability Forum in Paris on 16 February 2006. Mr. Prada addressed a range of issues, including trends in worldwide accounting and auditing standards, the processes for setting standards, the recent changes to the IASCF Constitution, structural changes within IFAC, "adoption, equivalence, harmonisation, and convergence in relation to IFRSs", the importance of a set of IFRSs for small and medium-sized entities, and the need for a 'standard setting pause' ("some stability over the next 3 years may well be needed for the transition to be really completed and digested by the stakeholders"). Here is an excerpt:

4 March 2006: Notes from day 2 of the IFRIC meeting
The International Financial Reporting Interpretations Committee (IFRIC) met at the IASB's offices in London on Thursday 2 March and Friday 3 March 2006. Presented below are the preliminary and unofficial notes taken by Deloitte observers at the second and final day of the meeting.

Friday 3 March 2006 Relationship with National Standard-setters and National Interpretive Groups The IFRIC discussed staff proposals on how the IFRIC should interact with national standard-setters and national interpretive groups. The proposals were based on the principles enunciated in the draft Statement of Best Practice: Working Relationships between the IASB and other Accounting Standard-Setters. [This document was formerly known as the Draft Memorandum of Understanding and was exposed for comment in 2005.] Generally, the IFRIC supported the staff positions; however there was a concern that the requirement 'not to monitor actively the work of NSSs and NIGs' was unrealistic. The proposal was thought to be too restrictive and might preclude the monitoring and exchange of information between 'market leaders' and the IASB staff that occurs currently. The staff will incorporate the IFRIC's comments in the draft of the IFRIC Due Process Handbook due to be placed before the IASC Foundation Trustees prior to exposure for public comment. IAS 18 - Customer Loyalty Programmes The IFRIC discussed whether customer loyalty programmes should be regarded as: (a) goods and services supplied as part of a sales transaction; (b) costs of securing sales of other goods and services; or (c) possibly either, depending on the nature of the programme? Views around IFRIC were evenly divided among the three alternatives. However, several IFRIC members agreed that the analysis provided by the staff tended to support (a), but considered that in many situations (b) was the more appropriate answer. It was noted that some loyalty programmes could be analogised to lease incentives, which are treated as part of the cost of the lease to the lessor, rather than as a reduction of revenue. The staff next addressed whether loyalty programmes represented separately identifiable components of a transaction for the purposes of IAS 18. The meeting accepted that the staff's analysis was appropriate and that if you accepted approach (a) to revenue recognition. Some members noted that the time value of money would have an effect on the amount recognised for the subsequent service component. The Chairman noted that the IASB's project to revise IAS 37, which is developing a 'cost to settle' model, which could be significant to this issue. The staff redefined their position such that, provided that an entity could allocate revenue to the elements and could estimate the cost of the first element, the entity should recognise revenue for the first element and defer the revenue related to the subsequent element(s). Some members noted that in certain situations (for example, air fares) there could be 80-100 different prices represented on a given revenue event (for example, flight). The cost of applying the staff recommendation to the transaction would be very onerous, and, by inference, the information provided of little utility to users. The IFRIC agreed that when the rights granted under a loyalty programme have the economic nature of sale incentives, the sale is to be considered as a whole, because IAS 18 paragraph 14(a) and (e) have been satisfied. This conclusion was appropriate when the entity had concluded that IAS 18 paragraph 19 was appropriate. However, some did not agree with the analysis that IAS 18 paragraph 19 applied in all situations. After a protracted debate, the Chairman directed the staff to prepare a draft Interpretation on the basis of no alternative treatments, based on view (a) above (because there was little opposition to the components approach). While this did not guarantee that view (a) would be accepted by a sufficient number of IFRIC members, it provided a means to carry the debate forward. Review of Tentative Agenda Decisions The IFRIC reviewed and confirmed the following agenda decisions for which draft 'rejection notices' were published in IFRIC Update as noted: IFRIC Update (December 2005) IFRS 3 Business Combinations - Whether a new entity that pays cash can be identified as the Acquirer IFRS 3 Business Combinations - 'Transitory' common control IAS 17 Leases - Leases of land that do not transfer title to the lessee IAS 12 Income Taxes - Scope IAS 18 Revenue - Subscriber acquisition costs in the telecommunications industry IFRIC Update (January 2006) IAS 27 Consolidated and Separate Financial Statements - Separate financial statements issued before consolidated financial statements IFRIC Agenda: Consideration of IFRIC Agenda Committee Recommendations IFRS 2 Share-based Payment: Scope of IFRS 2 – Share plans with cash alternatives at the discretion of the entity The IFRIC was asked whether the following should be treated as a share-based payment transaction in accordance with IFRS 2: There are a number of bonus plans that may be settled in shares or in cash at the discretion of the sponsoring entity. In addition, the amounts of the cash alternative under those bonus plans may not be determined in a manner that is related to the price of the entity's shares. For example, a company (the issuer) agrees to pay employees a bonus based on performance criteria which are not directly linked to its share price and the arrangement provides the issuer with a choice of settlement, either in cash or in shares with value equivalent to the value of the cash payment. The IFRIC declined to take this issue to its agenda. Members agreed that the transaction was a share-based payment transaction. The draft rejection notice would refer to IFRS 2 paragraphs 41-43 (the proposed draft rejection wording was not available to Observers) IFRS 2 – Share plans with cash alternatives at the discretion of the employees: Grant date and vesting periods The IFRIC considered the following transaction: bonus plans may provide employees with a choice of having cash at one date or shares at a later date. For example, on 1 January 20X1, an entity enters into a bonus arrangement with its employees. The terms of the arrangement allow the employees to choose on 31 March 20X2 either (1) a cash payment based on between 25 and 50 per cent of the employees' salary on 31 March 20X2 (the exact percentage would depend on the entity's profitability) or (2) a certain number of shares with value equivalent to 150% of the cash payment. If, on 31 March 20X2, the employees choose to have shares instead of a cash payment, they are required to work for the entity for a further three years and shares would be delivered to them on 30 March 20X5. The issue considered by the IFRIC was how IFRS 2 should be applied to such a share plan. In particular, assuming that the transaction is a share-based payment transaction in accordance with IFRS 2, the questions that arise are (1) when the grant date is and (2) what the vesting period is. The IFRIC declined to take this issue to its agenda. On (1), the IFRIC agreed that in the example discussed, the grant date would be 1 January 20X1, being the date on which both the entity and the employees understood the terms and conditions of the arrangement, including the formula that would be used to determine the amount of settlement. On (2), the IFRIC agreed that the vesting period for the equity component and the debt component should be considered separately. Members discussed proposed draft rejection wording that was not available to observers. [Those interested in this topic might wish to note that there is a potential overlap of item (2) and the proposed Amendment to IFRS 2 regarding vesting conditions.] IFRS 2 – Fair value measurement of a post-vesting transfer restriction The IFRIC considered employee share purchase plans in which employees can buy shares of the employing entity at a discount to the market price but are not permitted to sell those shares for a certain period after the vesting date. The IFRIC declined to take this issue to the agenda. Members discussed proposed draft rejection wording that was not available to observers. IAS 39 Financial Instruments: Recognition and Measurement – Aspects of Derecognition in the Context of Securitisation The staff conducted an extended educational session on issues before the IFRIC. These issues essentially address how best to make the requirements of IAS 39 and summarised in the flowchart in IAS 39 AG 36 operational. It was noted that IFRIC members were aware of diverse accounting treatments around the world as well as divergent interpretations of how IAS 39 AG 36 should be applied in practice. After working through the staff's initial analysis, the IFRIC asked that the staff treat the various issues identified as part of a single Interpretation and proceed with the project on that basis. IAS 39 Financial Instruments: Recognition and Measurement – Hedging Inflation Risk: Whether inflation risk qualifies as a separable component for hedging purposes The IFRIC discussed whether inflation qualifies as a risk associated with a portion of the fair value or cash flows of an interest-bearing financial asset or an interest bearing financial liability in terms of IAS 39 paragraph 81. The staff noted that if inflation risk qualifies as a risk associated with a portion of the fair value or cash flows of an interest bearing financial asset or an interest bearing financial liability then it would be possible to hedge interest bearing financial assets and financial liabilities with respect to inflation risk. The staff position was that inflation risk was not a separable component, based on a reading of IAS 39 AG 100, which states, among other things: Changes in the price of an ingredient or component of a non-financial asset or non-financial liability generally do not have a predictable, separately measurable effect on the price of the item that is comparable to the effect of, say, a change in market interest rates on the price of a bond. Thus, a non-financial asset or non-financial liability is a hedged item only in its entirety or for foreign exchange risk. The IFRIC agreed that there was a need for more guidance on what a portion is under IAS 39, and whether the staff's view of AG 100 was appropriate when the instrument had only financial components. The IFRIC was divided: some members were convinced that inflation risk was a separable component: 'base inflation' is traded on some deep and liquid markets. Others disagreed, saying that just because something was traded did not make it a component for the purposes of IAS 39. The IFRIC asked the staff to develop the model proposed further, based on accounting standards currently in force. This summary is based on notes taken by observers at the IFRIC meeting and should not be regarded as an official or final summary. Scroll down for notes from Day 1 of this meeting.

4 March 2006: SEC, EC support IASB-FASB convergence plan
Both the US SEC and the European Commission have issued press releases expressing strong support for the updated Memorandum of Understanding (MOU) (PDF 68k) published jointly by the US FASB and the IASB earlier this week. The MOU sets out a roadmap agreed to by both FASB and the IASB for steps toward convergence between IFRSs and US GAAP over the 2006-2008 period. Here are the:

• European Commission Press Release (PDF 85k)
• SEC Press Release (PDF 33k)

4 March 2006: IASB and Japan continue convergence discussions
Representatives of the Accounting Standards Board of Japan (ASBJ) and the International Accounting Standards Board (IASB) held their third joint convergence meeting on 1 and 2 March 2006 in Tokyo. The aim of these ongoing discussions is to achieve convergence of Japanese GAAP and International Financial Reporting Standards (IFRSs). The IASB was represented by four Board members, including Chairman Sir David Tweedie, and staff. The ASBJ was represented by four Board members, including Chairman Professor Shizuki Saito, and staff. Click for:

• IASB Press Release (PDF 63k)
• ASBJ Press Release (PDF 60k)

3 March 2006: Deloitte guidance on IFRSs for financial instruments
Deloitte & Touche LLP (United Kingdom) have developed iGAAP 2006 Financial Instruments: IAS 32, IAS 39 and IFRS 7 Explained, which has been published by CCH. This publication is the authoritative guide for financial instruments accounting under IFRSs. The 2006 edition expands last year's edition with 150 new pages of interpretations, examples, guidance on the recent amendments to the standards, as well as comparisons of IFRSs with US GAAP on financial instruments. iGAAP 2006 Financial Instruments: IAS 32, IAS 39 and IFRS 7 Explained (496 pages, February 2006) can be purchased through www.cch.co.uk or by phone at +44 (0) 870 777 2906 or by email: customerservices@cch.co.uk.

3 March 2006: Over 500,000 e-learning downloads from IASPlus

Some time late last month, the 500,000th module of Deloitte's IFRS e-learning was downloaded from IASPlus. The exact 1 March 2006 figure is 501,230. Many of the downloaded modules have multiple users because organisations are permitted to install them on their own servers for the internal use of their employees or students. In addition, hundreds of thousands of additional modules have been completed online and offline by Deloitte staff. You can always access IFRS e-learning without charge by clicking on the light bulb icon on the IASPlus home page. Thirty-five modules are now available.

3 March 2006: Notes from day 1 of the IFRIC meeting
The International Financial Reporting Interpretations Committee (IFRIC) is meeting at the IASB's offices in London on Thursday 2 March and Friday 3 March 2006. Presented below are the preliminary and unofficial notes taken by Deloitte observers at the first day of the meeting.

Thursday 2 March 2006 Service Concession Arrangements The Chairman opened this session by expressing his goal to complete Service Concessions project during the summer of 2006. He said he hoped that today's session would give the staff opportunity to get into 'drafting mode' to reach that goal. Today's session covered staff proposals set out in three papers: Service Concession Arrangements - Determining the appropriate accounting model Service Concessions - The interaction of D12 with IFRIC 4 Determining whether an Arrangement Contains a Lease Service Concessions - Analysis of remaining comments Determining the appropriate accounting model The purpose of this paper was to clarify when the assets of the service provider in a service concession arrangement meet the definition of a financial asset under IAS 32. The staff proposed to amend the wording of the consensus in the draft interpretation to better reflect the economics of the arrangement, rather than base classification on who has primary responsibility to pay. This amendment raised the possibility of bifurcation of a service concession: depending on the economics and substance of the transaction, the service provider would have to account for financial assets while also recognising intangibles under the same contract. The IFRIC discussed how to determine the dividing line between recognising a financial asset and an intangible. Most IFRIC members supported the staff's proposed amendment. IFRIC members then discussed how contractual rights arising from a guarantee would affect recognition of a financial asset. Members generally agreed that a contractual guarantee by the grantor, ensuring a certain cash amount on the service concession, should be recognised as a financial asset. Some members also said that there should be a dividing line between contractual rights to cash and other contractual rights to non-cash items. This would imply that contractual rights/guarantees given to a service provider do not necessarily exclude the recognition of an intangible arising under the same contract (that is, recognition of both financial assets and intangibles). While acknowledging that bifurcation may be appropriate in certain circumstances, some IFRIC members expressed their concern that this would create measurement problems. The following general views were given at the end of this part of the discussion: Members were generally supportive of the proposed amendment to clarify that the economics of the transaction should determine classification. Some minor amendments were proposed and will be considered by the staff. IFRIC accepted that the economics in some service concession arrangements would lead to a bifurcation model in which the service provider would have to account for both financial assets and intangibles. Staff will provide the IFRIC with a revised Draft interpretation. The interaction of D12 with IFRIC 4 The paper set out two issues for the IFRIC to decide: Whether the 'significant residual interest' criterion for service concessions was a necessary part of the scope requirements in D12. Whether the scope issue between D12 and IFRIC 4 should be resolved by amending IFRIC 4 to specifically exclude service concession arrangements. Staff recommended no changes to the scope paragraph (that is, leaving the 'significant residual interest' criterion in service concessions as proposed in the Exposure Draft), as they thought the criterion was essential to clarify the scope of D12. The IFRIC discussed how this would affect classification of 'whole of life assets' (that is, an asset used in a service concession arrangement for the whole of its useful life). IFRIC members generally concluded that the 'significant residual interest' criterion should be kept, which would mean that such assets would be out of the scope of service concessions. Members generally felt that a contract would not be outside the scope of IFRIC 4 just because there is a significant residual. However, because comment letters expressed concerns about the scope issue, it would be more helpful to amend IFRIC 4. The IFRIC agreed that the residual interest criterion in paragraph 5(b) of IFRIC D12 should be amended to clarify that the interpretation applies if a significant residual interest exists and that interest passes to the grantor. If a significant residual interest does not exist (that is, whole of life arrangements) but the other scope criteria are met, the arrangement will be also within the scope. The IFRIC therefore decided to amend IFRIC 4 stating a specific scope exclusion for service concession arrangements. Analysis of remaining comments Staff had analysed the responses received on the remaining questions in exposure drafts D12, D13, and D14 that had not been discussed at the prior IFRIC meeting. Staff made various proposals based on responses received. Timing of recognition of an intangible asset The ED had proposed not to mandate the timing of recognition of an intangible asset. The staff suggested that the IFRIC postpone its discussion of this issue until final agreement on the dividing line between recognising a financial asset and recognising an intangible asset. The IFRIC agreed to the postponement. Amortisation of an intangible asset The staff proposed to clarify in the Basis for Conclusions that amortisation methods acceptable under IAS 38 would be acceptable for amortisation of intangibles in service concession arrangements. The IFRIC discussed the 'unit of production' (UOP) method in relation to this proposal. Some members thought that the UOP method would better reflect the economic circumstances if the underlying value of the intangible changed during the service arrangement. The IFRIC did not decide whether to accept the staff proposal. Instead, IFRIC asked the staff to explore the interaction with the requirements in IAS 38 on amortisation of intangibles and bring this issue back at a future meeting. Repairs and maintenance obligations Staff proposed that the IFRIC should reconsider the treatment of repair and maintenance obligations when they had concluded on how to proceed regarding the dividing line between financial assets and intangibles. IFRIC decided to postpone this discussion. Allocation of contract revenue Staff had proposed to strengthen the analysis on which revenue should be allocated between different activities of a service concession arrangement by reference to the fair values. Some members expressed a fundamental disagreement with the staff proposal. They commented that this was an issue that could not be answered under service concessions because it is being addressed by the Board as part of its measurement project. The IFRIC decided not to address this issue. Effective date Staff proposed that IFRIC should consider an effective date for the interpretations when their post-exposure deliberations are complete. The IFRIC agreed. IAS 18 Revenue Recognition - Sales of Real Estate The IFRIC agreed to add to its agenda a project to clarify how the requirements of IAS 18 Revenue should be applied to real estate sales in which contracts are agreed before construction is complete. The IFRIC then discussed matters to be addressed in the project. With regard to the scope of the interpretation, the point was made that the interpretation should assume the relevant agreements through which the construction work is to be undertaken to have been agreed prior to construction. The IFRIC agreed to revisit the scope after discussing the other matters. Two possible fact patterns could be developed as the potential issues to be addressed: 1. Whether it is permissible to switch from the sale of goods guidance (IAS 18.14) to the rendering of services guidance (IAS 18.20) at some point during construction? 2. If legal title to the land transfers to the buyer before construction is completed, can IAS 18 be interpreted in a way that allows, from that point onwards, the contractor's activities to be viewed as delivering items onto the buyer's property. The second issue was noted as posing further questions about separating identifiable components, possibly the land and building under construction as separate deliverables. IFRIC members noted that it is quite possible to deliver a partially complete building. The IFRIC agreed that the interpretation should address the circumstances in which a contract for sale should be regarded as a construction contract within the scope of IAS 11. In addressing when revenue should be recognised (provided it is appropriate to apply IAS 18), the IFRIC agreed to explore how transfers of legal title take place in such construction arrangements (title to land may transfer to the buyer but the construction activity continues under the control of the contractor) and how that differs from the notion of 'equitable title' referred to in paragraph 9 of the Appendix to IAS 18. Some IFRIC members noted that the term 'equitable title' is not defined in IFRSs and is used loosely in various jurisdictions. It was agreed that the Interpretation should be drafted using the 'significant risks and rewards' notion with a reference to equitable title as appropriate. IFRIC noted the possibility of recommending an amendment or deletion of paragraph 9 of the Appendix to IAS 18 if an Interpretation is finalised. This was re-enforced by some IFRIC members who noted that any Interpretation prepared would interpret the Standard, not the Appendix that accompanies but is not part of IAS 18. IFRIC noted the IAS 18.14(e) requirements about costs but noted that the interpretation should not deal with the allocation questions that arise (for example, costs attributable to the penthouse situated at the top of an apartment block are likely to differ from the costs of the ordinary apartment on the ground floor) as this is an area of judgement based on facts and circumstances. IAS 19 Post-employment Benefits - The Effect of a Minimum Funding Requirement (MFR) on the Asset Ceiling The key decisions made at the September 2005 meeting were as follows: 1. If an MFR obligates the entity to pay additional contributions to a plan, an additional liability should be recognised under IAS 19 to the extent that the assets derived from those contributions would not be available to the entity as a refund or reduction in future contributions. 2. It is not necessary for the refund or contribution reduction to be immediately available at the balance sheet date, provided that it would be available at some point during the life of the plan or when the plan liability is finally settled. 3. The amount available as a refund shall be recognised to the extent that any surplus existing on the final settlement of the plan liabilities will revert to the entity, after taking into account all the costs associated with the settlement. 4. The amount available as a reduction in future contributions is the present value, using IAS 19 assumptions, of: i. The service cost (if there were no surplus) excluding future employee contributions; less ii. the entity's minimum funding contribution requirement. The IFRIC considered a draft interpretation based on the above decisions. The IFRIC debated whether an obligation exists merely because of a requirement to place a certain amount into the bank account of the pension fund. The discussion included whether it is of significance if the entity is able to recover that amount through reduced future contributions or otherwise. IFRIC agreed that an obligation exists provided that the MFR is with respect to past service and that if the resultant asset (which may arise if the contribution is made) were recoverable, the liability to make an extra contribution (the MFR) may have a value of nil as a result of applying the IAS 19 methodology which offsets liabilities and assets. If at the balance sheet date the contribution had not been made to the pension fund, IFRIC discussed the possible accounting to recognise the obligation arising from the MFR. Some IFRIC members suggested that the debit entry should recognise a plan asset that would then be subject to an impairment test that takes into account whether or not it would be recoverable through reductions in future contributions. Any impairment would be recognised in profit or loss. Others believe this accounting cannot be achieved because IAS 19.103 precludes unpaid contributions from plan assets. IFRIC members commented that the draft interpretation should clearly separate the issue of the MFR liability from the asset ceiling issue that may arise once the MFR liability has been settled. IFRIC discussed the applicability of the draft interpretation to funding requirements in general, as some IFRIC members believe there to be no distinction in substance between MFR set out by governments and those set out by contract or otherwise between entities and employees (or their representatives, such as trade unions). It was not clear how IFRIC decided to proceed with that issue. Various questions that may arise on transition were discussed briefly, and staff suggested that a paper be prepared for consideration at a future meeting. The staff asked the IFRIC to consider the following outstanding issues: Future changes in the workforce At the previous meeting, the IFRIC rejected the view that the entity should make allowances for any future changes in the size and demographics of the workforce consistent with the management's most recent budgets/forecasts in determining the future contribution reduction available. The IFRIC decided that actuarial assumptions, including demographic assumptions, used in computing the net plan asset available should be consistent with the assumptions made to compute the benefit obligation at the balance sheet date. Some IFRIC members pointed out that, in practice, actuarial valuation techniques often consider normal attrition of the workforce and compensate for that by assuming new employees join to replace those that leave the employ of the entity. Following on from this, any significant future changes in the workforce would be accounted for as curtailments. Associated costs The staff recommend that the IFRIC should not issue guidance on how the present value of the associated cost should be determined (includes costs associated with gradual settlement or wind-up of the plan). The IFRIC appeared to agree with this recommendation. IAS 32 - Classification of a Financial Instrument as Liability or Equity The staff presented a paper in which the analysis provided the rationale that economic compulsion is an issue that may affect the manner of settlement but does not affect classification of a financial instrument as a liability or equity. IFRIC members generally agreed that the staff's analysis was accurate and reflected the contents of IAS 32. However, some IFRIC members said that although that is what IAS 32 requires (particularly, paragraph AG26), they did not like the answer. Some IFRIC members pointed out the need for an interpretation given the misunderstanding in practice of whether economic compulsion can create an indirect obligation that would affect classification on initial recognition. After agreeing that AG26 is clear, and therefore negated the need for an interpretation, IFRIC decided to remove this issue from its agenda, with public explanation of why, and possibly to release the staff paper as useful analysis for constituents via the IASB website. IFRS 1 - Cost of a subsidiary in the separate financial statements of a parent The IFRIC was asked to consider two issues regarding the accounting for investments in subsidiaries on adoption of IFRS 1 First-time Adoption of International Financial Reporting Standards in the separate financial statements of a parent. These issues are applicable only to the separate financial statements of the parent. 1. How to determine the cost of an investment in a subsidiary in the separate financial statements of the parent entity upon its transition to IFRS? 2. What is the dividing line for pre- and post-acquisition reserves of a subsidiary for the purposes of determining the carrying amount of the investment in a subsidiary in the parent entity's first IFRS separate financial statements? The point was made that the treatment of investments in subsidiaries in the separate financial statements of the parent was not addressed satisfactorily in IFRS 1. The intention of the exemption available for restating business combinations was to discourage the recreation of data that was not collected at the time of the transaction and that compelling entities to revisit every pre-transition cost of investment and pre-acquisition reserves calculation is inconsistent with the principles in IFRS 1. The Agenda Committee recommended that this issue could not be resolved by an Interpretation and that the Board should be requested to amend IFRS 1. The IFRIC agreed with this proposal. This summary is based on notes taken by observers at the IFRIC meeting and should not be regarded as an official or final summary.

2 March 2006: IFRIC 9 - reassessment of embedded derivatives
The IFRIC has issued Interpretation 9 Reassessment of Embedded Derivatives. An embedded derivative as a component of a hybrid (combined) financial instrument that also includes a non-derivative host contract (for example, the conversion option in convertible debt). Some of the cash flows of the combined instrument vary in a way similar to a stand-alone derivative. IAS 39 requires an entity, when it first becomes a party to a hybrid contract, to assess whether any embedded derivatives contained in the contract are required to be separated from the host contract and accounted for as if they were stand-alone derivatives. IFRIC 9 addresses whether IAS 39 requires such an assessment to be made only when the entity first becomes a party to the hybrid contract, or whether the assessment be reconsidered throughout the life of the contract. IFRIC 9 concludes that an entity must assess whether an embedded derivative is required to be separated from the host contract and accounted for as a derivative when the entity first becomes a party to the contract. Subsequent reassessment is prohibited unless there is a change in the terms of the contract that significantly modifies the cash flows that otherwise would be required under the contract, in which case reassessment is required. Click for More Information about IFRIC 9. IFRIC 9 is effective for annual periods beginning on or after 1 June 2006. Earlier application is encouraged. Click for Press Release (PDF 60k).