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Effective dates and transition methods

Date recorded:

The objective of the Effective dates and transition methods project was to gather information from stakeholders about the time and effort that will be involved in adopting several new accounting standards and when those standards should be effective, including:

  • for the IASB, standards surrounding financial instruments, revenue recognition, leases, insurance contracts, comprehensive income, fair value measurement and post-employment benefits
  • for the FASB, financial instruments, including netting of financial instruments, revenue recognition, leases, financial statement presentation, financial instruments with characteristics of equity and insurance contracts.

This project followed a 19 October 2010 FASB published Discussion Paper, Effective Dates and Transition Methods, and IASB published Request for Views on Effective Dates and Transition Methods, which was open for public comment with a comment period ended 31 January 2011, and included a scope surrounding preparation and transition to the new requirements, implementation approach and timetable.

Summary of comments

The Boards received similar feedback on the following issues, with the following key summarised feedback:

  • Preparing for and transitioning to the new requirements. Both FASB and IASB stakeholders said that implementation of some of the new standards as proposed could be a time-consuming, costly process
  • Effects on the broader financial reporting systems. Constituents of both Boards noted the possible effects of the new standards on a variety of regulatory and tax reporting requirements that would need consideration in determining effective dates
  • Early application. A majority of the FASB and IASB stakeholders preferred an early application option.

Stakeholders of the Boards expressed different views on other issues, such as:

  • The implementation approach. IASB stakeholders had a strong preference toward the single-date approach (e.g., all standards have a consistent implementation date). The reason cited most frequently in support of this view was that it would achieve economies of scale and minimise disruption on the impact upon financial statements only once. Approximately one-half of FASB stakeholders, however, supported the sequential approach (e.g., standards have different implementation dates), with concerns about the effect on the cost of implementation
  • Transition methods. Many of the FASB respondents expressed support for applying the new requirements prospectively given consideration to cost and faster implementation, while the majority of IASB respondents tended to agree with the proposed transition methods of the major projects. Constituents of both Boards expressed concerns over the transition method on the leasing project, however, with a preference for applying a full retrospective rather than a limited retrospective approach to transition.

Another point of commonality was the relatively limited feedback received from investors or representatives of investors, and likewise, relatively little feedback was provided from private companies.

Applying the above, the staff proposed the following plan going forward:

  • The FASB and IASB staffs are planning to conduct additional investor outreach to gain more feedback on the issues raised in this project
  • The staffs' plan to perform further analysis of disclosures during the period of implementation and adoption, while also realising that such assessment is highly contingent on the Boards conclusions surrounding transition requirements
  • The staffs intend to present staff analysis and recommendations on a proposed effective date and a holistic discussion on transitional provisions in the second quarter for the projects that are jointly developed by the Boards, while the IASB staff intends to present staff analysis and staff recommendations on the IASB-only projects at a future meeting.

In light of the above, the Boards, using information provided by the staffs, generally considered the following:

  • Assessment of the effective date and transition methods for projects on a standard-by-standard basis. It was noted that certain projects, such as financial instruments and insurance contracts, are inter-related, whereby a failure to consider both jointly would lead to distinction of asset and liability modelling in individual transactions.
  • Assessment of the various stages of projects currently underway, whereby certain projects have progressed to a stage closer to finalisation than other projects.
  • Assessment over the number of jurisdictions required to implement such guidance, including the need for time to translate guidance into local languages.
  • Historic implementation timing post-effective date on other standard issuances, which has historically approximated eighteen (18) months for the IASB.

In deliberations, the IASB generally supported distinction of a specific date for implementation of the projects, with a view of 1 January 2015 outlined by multiple members of the IASB as a single-date implementation approach, although multiple Board members of the IASB felt that a determination of an appropriate implementation date should be based on transition requirements associated with the project (e.g., retrospective or prospective application, for example), and other Board members of the IASB noted that an effective date of 1 January 2015 extended beyond the typical implementation timing period for much bigger projects such as adoption of International Financial Reporting Standards for many countries in the European Union and South America.

Multiple Board members of the FASB felt the most appropriate approach at this stage was to highlight to users and other respective parties a 'no earlier than' date, in which they would provide users and other parties with an expectation as to future implementation timing.

Collectively, both Boards agreed that at the current stage of the projects, when considering that transition requirements have not yet been specified, determination of an effective date was not yet determinable. The Boards highlighted that they would consider a reasonable timeline for transition considering the above impediments subsequent to a more formalised determination of transition requirements.

Other considerations surrounding transition requirements and related matters will be considered at a future meeting.

No decisions were reached at this meeting.

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