At the March 2013 IASB meeting a few IASB members noted that before deciding whether national authorities/standard-setters should be able to permit wider use of the IFRS for SMEs they would like to be provided with an analysis of the simplifications made from full IFRSs at the time the IFRS for SMEs was developed. It was noted that a similar analysis would also be useful to national authorities/standard-setters because it would describe the main changes to an entity’s financial statements if it moved from full IFRSs to the IFRS for SMEs. This would enable national authorities/standard-setters to better understand the consequences of widening the scope.

The IASB held an education session to discuss IFRS for SMEs. The IFRS for SMEs has been developed for general purpose financial statements for external users but do not have public accountability. The primary driver was to make changes to full IFRS to take into account the differences in information needs to the users of publicly accountable entities and to users of non-publicly accountable entities and also a cost benefit analysis in relation to those needs. However the IFRS for SMEs was also developed with the mind-set that there would be an alternative option for non-publicly accountable entities for those entities to still choose to use full IFRS so for example non-publicly accountable entities that want comparability with publicly accountable entities and want to make use of complex options and enter into complex transactions may find that full IFRS suits their needs better than the IFRS for SMEs. So whilst the user needs of the non-publicly accountable entities were the primary driver and the Staff understanding is that the IASB Board members that the IFRS for SMEs was more intended for those entities with perhaps limited resources to adopt full IFRS with less complex transactions and also were comparability to listed entities is less of a consideration. So for this reason some of the complex options and also the guidance from full IFRS addressing complex transactions have been omitted from the IFRS for SMEs. In actual fact when this project was first started by the IASB it was primarily intended to address the needs of smaller entities and also for emerging economies.

IFRS for SMEs does not address the following topics as they are not considered to be relevant for SMEs:

1. Earnings per share (“EPS”);
2. Interim financial reporting; and
3. Segmental reporting

One Board member asked to the extent that an SME would like to prepare segmental reporting which is not required under IFRS for SMEs and not compliant with IFRS 8, given that entities may refer to guidance under full IFRS but they don’t have to follow it and also in relation to EPS and Interim financial reporting. If an entity decides to go beyond the requirements of IFRS for SMEs an entity should be transparent and, as a minimum, disclose why an alternative option to the full IFRS guidance has been selected.

The Staff noted that essentially they can use any basis but there is an accounting policy hierarchy in section 10 so when using any guidance from anywhere else entities need to ensure it is in accordance with the accounting policy hierarchy and the guidance there.

Another board member noted that many entities have converted to IFRS for SMEs not from IFRS but from local GAAP and to the extent they have choose to make disclosures over and above the IFRS for SMEs they would probably have used the local GAAP equivalent of for example Segmental Reporting. A lot of pressure would be added to entities if they have to refer to the big book every time they want to make any additional disclosures and would cause entities to be discouraged from making any additional disclosures.

The Staff noted that if the IFRS for SMEs does not specifically address a transaction, other events or conditions, there is no requirement to look to full IFRS.  Instead management is required to use judgement in developing and applying an accounting policy that is reliable and results in information that is relevant to the economic decision making needs of users.  The IFRS for SMEs establishes the following hierarchy for an entity to follow in deciding on an appropriate accounting policy:

1. Requirements and guidance in the IFRS for SMEs dealing with similar and related issues; and
2. The definitions, recognition criteria and measurement concepts for assets, liabilities, income and expenses and the pervasive principles in Section 2 Concepts and Pervasive Principles.

One member asked about the treatment of cumulative exchange differences that relate to a foreign operation under Section 30 of the IFRS for SMEs where there is no recycling of the cumulative OCI and still remains in equity without any segregation on disposal of the foreign operation.

Staff noted that the treatment depends on what the local legal requirements are. The purpose was having this cumulative OCI remaining in equity is to avoid having the company track those exchange differences.

This point will be looked into again in the context of the conceptual framework.

No decisions were made by the Board.

Another member commented that given there is nothing on Earnings per Share and if somebody wanted to calculate its EPS or diluted EPS they ought to calculate this in accordance with IAS 33 by listed or non-listed entities if this is required by such entities in the future.

No decisions were made by the Board.

Use of IFRS for SMEs by publicly accountable entities

At its March 2013 meeting the IASB started to discuss whether the scope requirements of the IFRS for SMEs are currently too restrictive for publicly accountable entities (Issues 1 and 2 for that meeting). No decisions were made at that meeting.

The Staff asked the following questions to the IASB Board:

1. Does the IASB agree with the staff recommendations that paragraph 1.5 of the IFRS for SMEs should be deleted and replaced with the disclosure requirement set out in paragraph 26?
2. Does the IASB agree with the staff recommendation that the IFRS for SMEs should remain clear that its intended scope is entities that do not have public accountability (as defined) and its requirements should not be amended to cater for publicly traded entities or entities holding assets for a broad group of outsiders as one of their primary business?
3. Does the IASB agree with the staff recommendation that additional guidance should be provided to jurisdictions as set out in paragraph 24?

One member answered no to this question as the expansion of scope is contra to the original purpose of the standard and it raises the risk that publicly accountable entities will not be comparable to those preparing full IFRS accounts. If an entity has fiduciary responsibility such as a small bank or a credit union should be deemed to be publicly accountable and it would be reasonable to expect these type of entity to follow the guidance under full IFRS.

Another member noted that if an entity meets the definition of a publicly accountable entity but they choose to use the IFRS for SMEs (as allowed by their regulator) they should be allowed to and clearly disclose it.

A member notes that paragraph 26 needs improving by including under “(a) a statement saying that applying IFRS for SMEs even though that accounting under IFRS for SMEs is designed to be adopted by non-publicly accountable entities” to make it absolutely clear they are using a framework which was not designed for non-publicly accountable entities.  Another member noted that it should also include that if entities want to include any additional disclosures these should be consistent with full IFRS and highlight which accounting policy they have used.

Another member opposed the removal of para. 26 which is consistent with the recommendation made by the Staff, which would be detrimental to the public and might be perceived as thought the IASB is encouraging entities to use IFRS for SMEs in public markets. Suggested taking out the barrier and leaving the decision with the local regulators and assist regulators to make an informed decision of how this can be used in their market and provide them with an analysis of the differences in recognition and measurement between IFRS for SMEs and full IFRSs.

A member did not perceive this to be a big risk even though there is no size limit or consideration for complexity. Those entities that are not listed on a regulated market should be allowed to use IFRS for SMEs which is better protection for investors instead of the local GAAP. The ESMA letter says the board should not commit that companies not listed on the regulated market should not be allowed to use IFRS for SMEs instead of full IFRS.

Another member raised the issue that small entities which are thinly traded (e.g. having only two or three investors holding their debt or shares) will still be classified as being a publicly accountable entity and would push them into full IFRS.

A member noted that publicly accountable entities may be using local GAAP which does not have the same standing of IFRS for SMEs and this prohibition would deter them from using a better set of standards or only from prohibiting them from calling them IFRS for SMEs.

7 out of 16 board members voted in favour to remove para. 1.5 so the Staff recommendation was not supported.  The Staff will, however, follow up on the definition of ‘fiduciary’ and provide some recommendations to the board.

New and revised IFRSs

At its March 2013 meeting the IASB considered the framework for how to deal with new and revised IFRSs during this comprehensive review and future reviews of the IFRS for SMEs. At that meeting the IASB developed the following principles:

1. New and revised IFRSs should be considered individually on a case-by-case basis to decide if, and if so how, their requirements should be incorporated in the IFRS for SMEs.
2. New and revised IFRSs should not be considered until they have been published. However, it would generally not be appropriate to wait until the post-implementation reviews have been completed.
3. Minor changes to IFRSs, e.g. as part of the IASB’s Annual Improvements project, should also be considered on a case by case basis.
4. In order to provide a stable platform for SMEs, the IFRS for SMEs should only be updated for changes at the next three-yearly review.

The Staff asked the board how should they address the following new or revised IFRS?

1. IFRS 10 Consolidated Financial Statements
2. IFRS 13 Fair Value Measurement (and whether guidance should be moved from Section 11 into a separate section
3. IFRS 11 Joint Arrangements
4. IFRS 3 (2008) Business Combinations
5. IAS 19 (2011) Employee Benefits

The Staff asked the board to take account of two key points when considering the individual IFRS standards during this review, firstly the staff think there is an additional need for more stability during the initial review and hence to limit non-essential changes. Even though the IFRS for SMEs has been issued during 2009, in the 80 plus countries it has been adopted this has been effective for a much short period of time (e.g. 2012/2013) and for many SMEs these are relatively new standards. Secondly, the staff believes that changes should be weighed against the primary aim of the IFRS for SMEs and the staff of the IFRS for SMEs implementation group believe that the aim to have a standalone simplified standard for entities without public accountability with less complex transactions limited in resources to apply full IFRS and where comparability with entities applying full IFRS is not so important.  The Staff has made recommendation to the board standard–by-standard and the reasoning for recommending no changes to IFRS 3, 10, 11, 13 and IAS 19.

One member noted that it would be more appropriate to adopt the changes now when the standards have not been widely adopted rather than wait two or three years when more entities would have adopted the standards and introduce a wave of changes later.  Another member notes that when changes are available these should be put through to facilitate the process and not create a back log.  IFRS 10, 11, 12 and 13 by the time they have been simplified for application in IFRS for SMEs the extent of the changes might not be so burdensome. IAS 19 for example would actually make things simpler because it will remove options at the moment under the current standard in IFRS for SMEs, actuarial losses are put through the profit or loss account or OCI and the revised standard just says to put it into one place.  It is understood that there is more complexity in the other standards however it would be useful to have an analysis to understand the simplifications to evaluate if these are going to be burdensome or not.

The Staff noted that there will be changes in the definition of termination benefits in the short term and with many of these standards one may think that there will be a lot of changes but it may be that when making the overall changes there would not be much differences to the actual outcome and a better assessment may be made once the full IFRS standards have been adopted.

A member noted that waiting for post-implementation could create enormous time lags.  The timing of IFRS 10, 11, 12 and 13 is very unfortunate in that we have virtually no experience and hopefully for other standards there will be a year or so in between when they will be going live and when they are getting into the process of reviewing, therefore the timing might not always be an issue.

The Staff noted that in the case of IFRS 10 is more on the boundary of controls so for most of the simple parent subsidiary they won’t be affected, similarly for IFRS 11 many of the jointly controlled entities and also with IFRS 13 maybe the overall effect of these standards won’t need to change the amount of fair value.

This could also mean that it would help the SMEs as they would have a clearer definition of what is fair value and clearer guidance, however simplified it may be.  There is simplified guidance of fair value measurement which makes it less burdensome.

One member agreed with the staff recommendations but had one comment in relation to “the presentation of actuarial gains and losses under full IFRSs may be revisited” where the word maybe is in conflict with the conclusions reached on the conceptual framework and will not be considered at this meeting and avoid might raise some concerns in peoples mind.

The board voted in favour of the Staff recommendations including a window for stability.

Issues relating to accounting policy options

There are three questions in the Request for Information (“RFI”) that relate to whether SMEs should be able to apply a more complex accounting policy based on requirements currently required or permitted in the full IFRSs.  These questions are as follows:

1. Revaluation of property, plant and equipment (“PPE”);
2. Capitalisation of development costs;
3. Capitalisation of borrowing costs on qualifying assets.

The Staff asked the Board:

1. Should be an option to use the revaluation model for PPE be added to the IFRS for SMEs?

The Staff have received a lot of feedback that not having a revaluation option is a barrier to adoption of IFRS for SMEs. For example in jurisdictions where SMEs already revalue PPE and where there is significant inflation.  The Staff recommend why they don’t support the complex option of adding revaluation to the IFRS for SMEs and they have concerns that if they add one they will have to add others.

One member noted that adding the revaluation model would add the complexity of issues such as how often an entity needs to revalue its PPE and adds other complexity around tax accounting.

The Board all agreed with the staff recommendation.

2. Should the IFRS for SMEs be changed to permit or require capitalisation of development costs meeting criteria for capitalisation on a similar basis to IAS 38?

The Board all agreed to not permit or require capitalisation of development costs meeting criteria for capitalisation.

3. Should the IFRS for SMEs be changed to permit or require capitalisation of borrowing costs on a similar basis to IAS 23?

The Board to not permit or require capitalisation of borrowing costs.

Optional fall back to IAS 39 Financial Instruments: Recognition and Measurement

The Staff noted that the IFRS for SMEs currently permit entities to elect to apply either Section 11 or 12 of the IFRS for SMEs in full or the recognition and measurement provisions of IAS 39 and the disclose requirements of Section 11 and 12 and this is the only fall back to full IFRS in the IFRS for SMEs. One of the main reasons to give SMEs the fall back was that to give them the same accounting policy options as IAS 39 pending completion of the Financial Instruments project. This reason is expected to remain valid based on the principles the IASB developed on the new revised IFRS 9 will not be considered for incorporation during this review as it is not yet completed. IAS 39 will have to be maintained separately for this purposes and perhaps the only reason for keeping IAS 39 is if later they did not drop the fall back to full IFRS then if an entity was currently applying IAS 39 it would need to change to IFRS 9 and then when the fall back is dropped to IAS 39 in the next review then it would need to move to IFRS 9 so it would adopt IAS 39 to IFRS 9 for the first few months and then move to Section 11 and 12.

One member noted that IAS 39 is there to stay for some time and consider in the future how the incurred loss model impacts SMEs and should be tweaked.

The Staff asked the IASB board members how should the current option to use IAS 39 in the IFRS for SMEs be updated once IFRS 9 has become effective?

The Board all voted in favour of the staff recommendation.

Accounting for income tax

There are three questions in the RFI on income tax.  The staff suggested that the IASB discuss these questions together:

1. Approach for accounting for deferred income taxes;
2. Consideration of exemption from recognising deferred taxes and other differences under IAS 12 Income Taxes;
3. Rebuttable presumption that investment property at fair value is recovered through sale

1. Should SMEs recognise deferred income taxes and, if so, how?

The Staff noted that people are complaining that the overall temporary difference approach is too complex and it’s not just the difference between IAS 12 and the current standard.  The main two comments received by the Staff are one being that IAS 12 is a better standard and that SMEs are not familiar with the temporary differences approach altogether and would prefer to use a simpler standard than IAS 12.

One member noted that from experience SMEs do not have tax experts and have difficulty with the notion that somehow there is a tax basis that is in liabilities in jurisdictions that don’t have that concept.

Assuming a temporary difference approach is followed for SMEs:

2. Should Section 29 be revised to conform it to IAS 12, modified as appropriate to reflect the need of the users of SME financial statements?

3. Should Section 29 include an ‘undue cost or effort’ exemption for some or all of its requirements?

The Board advised the Staff develop a way of simplifying IAS 12 to reflect the needs of users of SME and agreed with the staff recommendations.

4. Should Section 29 be revised to incorporate a rebuttable presumption that the carrying amount of investment property measured at fair value will be recovered entirely through sale?

The Staff noted that in December 2012 the IASB amended IAS 23 to introduce this rebuttable presumption which is a new and revised IAS issue since the IFRS was published and the Staff is recommending to introduce this into the standard as it is already effective with what implementation experience as some entities have adopted this early and results in simplification and if they are aligning Section 29 to IAS 12 it would make sense to incorporate this at this time.

The Board all agreed with the Staff recommendation.

Other issues addressed by individual questions in the RFI

The following are the remaining questions in the RFI:

1. Amortisation period for goodwill and other tangible assets
2. Presentation of share subscriptions receivable
3. Inclusion of additional topics in the IFRS for SMEs
4. SMEIG Q&As

The Staff noted that the first issue related to the amortisation period for goodwill and other intangible assets. Currently the IFRS for SMEs requires that, if an entity is unable to determine a reliable estimate of the useful life it is presumed to be a fixed life of ten years, however they have been told that firstly in some cases even though a reliable estimate cannot be determined it is clear that ten years may be too long also the fixed life causes a problem in some jurisdictions as the laws may require a different default life for example five years. The SME Implementation Group (“SMEIG”) have recommended alternative wording for the IASB to consider that is ‘If an entity is unable to make a reliable estimate of the useful life of an intangible asset, the useful life shall be determined based on management’s best estimate and shall not exceed five years’.

The Staff supports this but suggests retaining the ten years so that there will be adjustments to the financial statements with the ten year being an upper limit when management cannot make a reliable estimate.

The Staff asked the Board the following questions:

1. Should paragraph 18.20 be modified?

One member noted that the concern is that the way this was originally worded entities would have a fairly short date of intangible that would not be able to say how many years but they would know its four or five years and the standard obviously forced them to take ten years even though the gut feel was that four/five years was more appropriate but not auditable. The revised approach is to go for the lower number even though it is not auditable as long as it does not exceed ten years.

Another member recommended it should be an accounting policy election with a limit to not exceed ten years.

The Board voted in favour of the Staff recommendation.

2. Should paragraph 22.7(a) be modified or deleted?

The Staff noted that this relates to the presentation of share subscriptions receivable where the IFRS for SMEs currently requires the offset against equity and received mixed views from respondents on whether receivable should be presented as an asset or as an adjustment to equity.  Also some national laws require presentation as an asset and the requirement in IFRS for SMEs was added as an additional guidance whereas full IFRSs is silent.

The Staff is suggesting that paragraph 22.7(a) should be deleted.

One member opposed the recommendation because (1) the big book is silent and most people would say that showing a receivable for share subscription as an asset would be against the accounting in many jurisdictions (2) in the conceptual framework they are thinking they will not allow this. This would be good to bring consistency and by removing this it could imply that entities can recognise this as an asset which is not necessarily the right answer.

The Staff commented that this was included in the standard as some laws require it to be presented as an asset and also a difference between the IFRS for SMEs and the EU directives.

Another member commented that the guidance will need to make it very clear that there should be a legally enforceable right to the cash.

8 of 16 Board members voted in favour of the staff recommendations and no decision was taken at this stage.  It will be discussed again at another meeting.

3. Are there any topics that are not specifically addressed in the IFRS for SMEs that should be covered (i.e. where the general guidance in paragraph 10.4-10.6 is not sufficient)?

The Board voted in favour of the Staff recommendation.

4. Should the Q&A programme continue after this comprehensive review is completed?

5. If so, does the IASB agree with the two tier system recommended by the Staff and SMEIG?

The Staff noted that there was a mixed response on Q&As. Those expressing concern noted that they add another set of rules on top of the IFRS for SMEs and  could create conflicts with full IFRS as they deal with issues relevant to both IFRS for SMEs and full IFRSs. They also commented that Q&As do not go through adequate due process and documents are issued under the control of the Board and some respondents think that these should go through the same process as Interpretations. The Staff consider these Q&As as non-mandatory and educational in nature unlike Interpretations. The Staff recommend a two tier system for Q&As: in rare cases a full due process should apply and would become authoritative guidance and would be included in the Interpretations; and tier two would be the norm constituting educational material.

A member highlighted the potential impact of IFRIC interpretations for IFRS for SMEs and should formally state that these should not be incorporated in IFRS for SMEs and remaining silent on this point will be perceived as an omission and seen as ignoring all the work done by IFRIC. The Staff clarified that the intention was not to ignore them but to bring in the five Interpretations that were considered to be most significant for IFRS for SMEs based on what was in the standard at the moment and they did not say in the paper that they will be bringing the others to future meetings.

The board all voted in favour to continue with the Q&A program and adopt a two-tier system.

6. Should the IASB establish a procedure for constituents to submit issues to SMEIG via its website?

It was noted that the Staff and the SMEIG believe that the IASB should establish a procedure for constituents to submit issues to the SMEIG via the IASB website. It was proposed by the Staff that issues are not posted online and instead, say, that they be dealt  as part of the the development of the IFRS Foundation’s education material and only significant issues that are raised be forwarded to the SMEIG for consideration (ie those meeting the three criteria in the terms of operation of the SMEIG).

The Board voted in favour of the staff recommendations.

7. How should Q&As be incorporated into the IFRS for SMEs?

One member commented that these Q&As should be incorporated into the educational material but not maintain them as they are a separate supplemental stream of information about the SME standard and inform entities that there is one standalone document and there is educational material to support it.

The Board voted in favour of the above proposals.

Comment letter analysis

In May 2011, the IASB issued IFRS 13 Fair Value Measurement and, as a consequence, modified some of the disclosure requirements in IAS 36 Impairment of Assets relating to the measurement of the recoverable amount of impaired assets or cash-generating units.  The amendments resulted from the IASB’s decision in December 2010 to require additional disclosures about the measurement of impaired assets with a recoverable amount based on fair value less cost of disposal (formerly referred to in IAS 36 as ‘fair value less cost to sell’).

However, the IASB has been made aware that one of the amendments made to IAS 36 makes the disclosure requirements broader than it intended.

During its meeting in December 2012 the IASB decided to propose a narrow-scope amendment to address this issue.  The Exposure Draft was published in January 2013 with a 60-day comment period.

1. Do you agree with the staff’s recommendation to finalise the proposed amendment to IAS 36?

2. Do you grant the staff permission to begin the balloting process for the amendment to IAS 36?

A member noted the difference in language ‘cost to sell versus ‘cost to disposal’ to which the Staff noted that IFRIC will be looking into align the wording and looking also at other standards and this is not relevant only to IFRS 5 and IAS 36 where these words appear.  The Staff will follow up on these editorial differences.

The Board  agreed with the Staff recommendations.

Summary of due process

In January 2013 the IASB published the Exposure Draft ED/2013/1 Recoverable Amount Disclosures for Non-Financial Assets (the ‘Exposure Draft’) proposing a narrow-scope amendment to IAS 36 Impairment of Assets. These amendments sought to better represent the IASB’s initial intention when it amended some disclosure requirements in IAS 36 as a result of the development of IFRS 13 Fair Value Measurement. The Exposure Draft was published within a 60-day comment period.

On the basis of the discussions previously held, the IASB has tentatively decided to proceed with the publication of the final amendments to IAS 36. The balloting process of the final amendments is expected to start after this meeting with publication scheduled for the second half of May 2013.

The Staff asked the Board the following questions:

1. Is the IASB satisfied that all required due process steps that pertain to the publication of final amendments have been complied with?

The Board was satisfied that all the required due process steps pertaining to the publication of final amendments have been complied with.

The Staff summarised the main changes since the previous draft:

• description of previous debt / equity approaches was expanded;
• changed the labels of two approaches as ‘narrow equity’ (vs. one-step approach) and ‘pure cash’ (vs. two-step approach); and
• moved examples into the Appendix.

and explained that the objective of the discussion was not to re-debate the draft but to get an overall agreement.

There did not seem to be any major concerns from the Board members; most of the comments related to the wording and structure of the proposed DP.

One of the Board members queried the phrase ‘wealth transfer’ in paragraph 14(c)(iii).

Another Board member suggested include a paragraph explaining the main difference in the outcomes from the two proposed approaches.

Another Board member raised a concern about the labelling for the ‘secondary equity claim’ as it implied that the instrument should be classified as equity.

In terms of structure, one Board member suggested that it might be easier for respondents if the Board’s questions are integrated in the text (vs. a list at the end).

In terms of the proposals’ practical applications, one Board member wondered whether the Board at this stage should start considering which instruments were going to be equity or liability. For example, preference shares with dividend. This was not necessarily something for the Conceptual Framework and would be addressed in the future at the standard’s level, but the DP should start building in the implications. Perhaps include some of the examples back in the DP.

A Board member raised a question about the terminology in paragraph 10 of the agenda paper (10E(a)) that talks about ‘measures of equity instrument’ as equity instruments are not remeasured. It was decided that the best term would be ‘allocations’ (vs. measures).

Another Board member would like to change the new labels for two approaches again: ‘pure cash’ should be replaced with ‘economic resources’ and ‘narrow equity’ with ‘subordinated’.

It was also noted that the structure of Appendixes A and B was difficult to follow; therefore it needed restructuring; some examples will be potentially removed.

The Staff will revisit the paper’s terminology and structure based on the feedback from the discussion.

During the April meeting, the IASB discussed the [staff] papers that together comprise the initial draft of the DP. There is no plan to bring a DP to the May meeting. At the May meeting, the Staff will present a paper reviewing the due process steps with the intention to circulate the pre-ballot draft of the DP to the Board shortly after the May meeting.

The sections of the DP are likely to include:

• Introduction and invitation to comment (no paper)
• Purpose and status of the Conceptual Framework
• Elements of the financial statements, including additional guidance to support the asset and liability definition
• Recognition and derecognition
• Definition of equity and distinction between liabilities and equity instruments
• Measurement
• Presentation and disclosure (general)
• Presentation in the statement of comprehensive income

There were two other papers which will be incorporated in the above sections of the DP after the meeting:

• Capital maintenance
• Business model

The Staff provided feedback from the meeting with Accounting Standards Advisory Forum (ASAF) held on 8-9 April. The three topics discussed at the meeting were: Measurement; Presentation in the statement of comprehensive income and uncertainty in recognition of assets and liabilities. It was reported that there were a number of comments from ASAF members expressing a diversity of views; a Board member said it had been an informative discussion. The main conclusion from the discussion was that in its future request for responses the Board should also ask the respondents to provide alternatives in case they did not like what the Board was proposing.

One Board member raised a question about the going concern notion.  The Staff responded that going concern would be brought forward unchanged from the existing framework.

Another Board member questioned whether the Board should ‘take an inventory’ of the existing standards on the basis of the new Conceptual Framework (i.e. IFRSs would need to be changed). The general response was that this would take time as the standards get developed in the future.

No decisions were made by the Board.

The main discussion evolved around the purpose of the Conceptual Framework. As stated in the agenda paper currently the primary purpose of the Conceptual Framework is ‘to set out concepts that underlie the preparation and presentation of financial statements as a practical tool to assist the IASB in developing future IFRSs and reviewing existing IFRSs’.

The concern raised by several Board members was that there was too much emphasis on the IASB and not enough emphasis on other users. In other words the Conceptual framework should also serve preparers and users of financial statements.

The Board decided to give in the DP more prominence on how other stakeholders use / benefit from the Conceptual Framework.

A Board member also raised a question whether the DP should explain not only the purpose of the Conceptual Framework but the DP should also explain what the Conceptual framework actually did, which could be summarised as that it was not just for the development of individual standards but also for ensuring consistency between standards as a whole.

There seemed to be a lot of support for this clarification.

Another discussion, which was not conclusive, was around the potential conflict between the Conceptual Framework and an IFRS. As stated in the current agenda paper, ‘Where there is a conflict, the requirements of the IFRS prevail over the Conceptual Framework’. One Board member felt that this sounded like a ‘promise’ / commitment and therefore he questioned whether this statement should be in the DP.

The discussion started with how the business model should be considered in the standard setting.  The general feeling was that it is useful in some instances and it has been used by the Board in the past (e.g. insurance), but it also has some limitations.

The biggest part of the discussion, however, was around whether the term ‘business model’ should be defined in the Conceptual Framework. Some Board members thought that it would useful to provide a definition; others felt that the definition would not be of much value in the context of the Conceptual Framework.

The Board decided not to define the ‘business model’.

This issue was referred to the Board by the Interpretation Committee.

The amendments to IFRS 7 Disclosure – Offsetting Financial Assets and Financial Liabilities were issued in December 2011 (dealing with the reconciliation from gross to net presentation). Paragraph 44R of IFRS 7 stated that ‘An entity shall apply those amendments for annual periods beginning on or after 1 January 2013 and interim periods within those annual periods.’ There was uncertainty about whether the additional disclosures should be included in condensed interim financial statements prepared in accordance with IAS 34 Interim Financial Reporting on an on-going basis given that IAS 34 has not been amended.

The Board members re-visited the history of the amendments: they were introduced during the economic crisis; FASB introduced similar amendments with a requirement to include the disclosures in the interim financial statements. However, IAS 34 was not consequentially amended at the time.

With the benefit of hindsight, the Board confirmed by a majority (12 voted for View 1), that the additional disclosures are not required in condensed interim financial statements, as this would lead to the unnecessary hardship and excessive information, besides any material movements should be disclosed anyway in accordance with IAS 34.

The Board decided to amend IFRS 7 (paragraph 44R) accordingly.

The Staff summarised the changes to the previous draft:

• 'control' was moved back in the asset’s definition;
• 'past events' were moved back in the liability’s definition; and
• a new conclusion was included in the discussion about the existence uncertainty.

There was a brief discussion about moving the ‘past events’ back into the liability’s definition, i.e. whether it was necessary. The Staff explained that yes, perhaps it was redundant but it was helpful for the process of thinking things through.

The new conclusion in the discussion about the existence uncertainty (which is mainly relevant in the context of IAS 37 mainly) has reflected the recommendation from ASAF: when there is uncertainty, the entity should decide what is relevant (versus assessing the probability threshold).

The Staff summarised that the existence uncertainty was reflected in recognition of an item and the probability uncertainty was reflected in measurement of the item.

One of the Board members questioned why 'profit or loss' was not defined. The response was that nobody could come up with a good definition so far.

There were other wording suggestions from various Board members.

The Staff will revise the paper based on the feedback from the discussion.

It is currently intended that the Conceptual Framework will include the following additional guidance on:

definition of an asset

• the meaning of 'economic resource'
• the meaning of 'control'

definition of a liability

• constructive obligations
• the impact of future events
• the meaning of 'transfer of economic resources'

definition of both an asset and a liability

• reporting the substance of contractual rights and obligations
• executory contracts.

Main changes compared to the last draft relate to the discussions on:

• future events that depend on the entity’s future actions (contingent liabilities)
• constructive obligations
• past events
• contractual obligations – whether the economic compulsion should be considered?

The main discussion during the meeting was about the future events that depend on the entity’s future actions. The paper listed three approaches to determining whether a present obligation exists:

1. an obligation must be unconditional;
2. an obligation arises when an entity receives benefits for which it accepts a responsibility to transfer a resource; and
3. focus on past events instead of future events.

The paper also included several examples which were assessed for each of the above Approaches sometimes with similar and sometimes with differing conclusions.

Then followed an extensive discussion on various examples; there were a number of comments and questions from various Board members, one of whom proposed that perhaps the DP should not provide definitive answers. One of the main difficulties in applying the definition seemed to relate to the 'obligating event', i.e. it was not always obvious.

None of the Board members appeared to like Approach 1. Many of the Board members appeared to be inclined towards Approach 2 as a preference because the liability would be built over time; however when the vote was drawn the views were split between Approaches 2 and 3.

One Board member suggested (and many supported this suggestion) that the Approaches should be re-ordered as Approach 1 (last event is an obligating event); Approach 3 (first event is an obligating event) and Approach 2 (first event and benefits).

Another Board member questioned the assumption in the paper about an unavoidable obligation (paragraph 72(c)) which states that the entity cannot stop operating as a going concern (and therefore the obligation is unavoidable), which, that Board member believed, was inconsistent with current IAS 37. It was suggested that this issue should be raised as a question to respondents.

The Staff will revise the paper based on the feedback from the discussion.

The Staff member updated the Board about the changes to the paper, the one of which related to the measurement principles. They have been extended and Principle 3 was added, as a result the three current are:

1. The relevance of information provided by a particular measurement method depends on how it affects the statement of financial position, the statement(s) of profit or loss and comprehensive income and if applicable, the statement of changes in equity and the notes to the financial statements.
2. The cost of a particular measurement must be justified by the benefits of reporting that information to existing and potential investors, lenders, and other creditors.
3. The number of different measures used should be the minimum necessary to provide relevant information. Unnecessary changes in measurement methods should be avoided, and necessary changes should be clearly explained.

Various Board members had different reactions to the principles as they were currently stated with a general feeling that they were formulated at a very high level and therefore they were not specific / operational enough.

One Board member believed that Principle 1 should be re-drafted back as it was written in February, i.e. measurements should provide relevant information. Someone proposed that the text from paragraph 65 could be used as Principle 1: ‘the measurement method used for a particular asset should be based on how it contributes to future cash flows’.

Another Board member wondered whether Principle 2 (cost vs. benefit) was necessary at all, given that it was already included in the Conceptual Framework.

Another discussion was around the three categories of measurement methods:

1. cost
2. fair value and other current prices
3. other cash-flow measures.

More specifically, some Board members felt that ‘fair value’ was not an accurate description and should be labelled as ‘market-based values’.

The Staff will revise the paper based on the feedback from the discussion.

At its January meeting the IASB discussed issues raised on the draft hedge accounting requirements for IFRS 9 relating to macro cash flow hedging as a result of which the board requested an analysis of the scope of the hedging chapter of IFRS 9 and its interaction with macro hedging activities. A Staff paper containing this analysis together with papers considering due process, re-exposure and permission to draft were discussed at this meeting.

Scope and interaction with macro hedging activities

The Staff summarised the issue and the options open to the board, noting that a lot of the unease around this topic was due to incorrect perceptions relating to proxy hedges and that no practical examples of problems were provided during their outreach. The Staff recommended that the Board confirm the scope of the draft IFRS 9 hedge accounting requirements i.e. only provide a scope exception for fair value hedges of the interest rate exposure of a portfolio of financial assets and liabilities.

The majority of board members found it difficult to see the issue, but could see how they may have contributed to the perceived issue by separating consideration of the (fair value) macro hedge accounting model from the general hedge accounting model.

A number of Board members expressed frustration that this issue which may impact only a handful of preparers in the EU was delaying the finalisation of, and so adoption of, requirements for preparers in other regions. Although a few suggested further outreach to better understand the issue, the majority felt it was important to complete the project as soon as possible. The need to quickly resolve the issue was also emphasised by the Chairman.

Only one Board member favoured addressing concerns by introducing a narrow scope exemption, specifically aimed at excluding macro cash flow hedges. The Staff reiterated their concerns around being able to adequately define such an exemption, and these concerns were echoed by other Board members.

Most Board members agreed that if a change were to be made they would favour a providing general choice between applying the hedge accounting requirements of IAS 39 instead of those of IFRS 9. The Staff stated that they believed given this choice most preparers would choose to apply the requirements of IFRS 9, as the advantages in other areas would out way any disadvantage of applying the requirements to macro cash flow hedges. However, a number of Board members felt that preparers, including those not undertaking any macro hedging activities, would use this option to delay adoption of the IFRS 9 requirements. It was raised that the option to apply the hedging requirements of IAS 39 would need to remain in place until the mandatory effective date of the macro hedging requirements and it was generally acknowledged that this could result in the co-existence of two different hedging models for a substantial period of time. A number of Board members were very concerned about the implications of this on comparability.

Further concerns were raised about issues that may arise in relation to applying the IAS 39 hedge accounting requirements in combination with the requirements of IFRS 9 in other areas, and the time that will be required to investigate these issues. In addition, it was noted that if the IAS 39 model were to continue to be used, the practice issues noted during the development of IFRS 9 (e.g. the treatment of cross currency basis) would need to be addressed.

It was agreed with little discussion that the inclusion of a general choice between applying IAS 39 instead of IFRS 9 for hedge accounting need not impact the existing scope exception for fair value macro hedges of interest rate risk.

The Board tentatively decided, with a majority of ten votes to six, to provide a general choice between applying IAS 39 instead of IFRS 9 for hedge accounting.

Due process considerations, re-exposure and permission to draft

The Staff presented a paper analysing the IASB’s compliance with due process requirements over the course of the general hedge accounting project and another paper discussing the due process requirements relating to re-exposer and requesting permission to begin drafting the Ballot Draft of the new IFRS 9 incorporating the final version of Chapter 6 Hedge Accounting. The Staff believed that the Board have complied with the requirements, and stated that they had previously presented their papers to the Due Process Oversight Committee (DPOC). The Staff explained that the DPOC agreed with the staff’s conclusions and further that this conclusion would not be impacted by the decision to amend the scope discussed above, i.e. that this decision would not result in the need to re-expose. However, it was noted that the DPOC had advised caution in the use of review drafts in future.

One Board member stated that he did not believe due process had been followed, because had the proposal to allow the two hedge accounting models to be applied in parallel for a prolonged period been exposed the feedback received would have been very different. He also reiterated his concerns relating to comparability, the interaction the IAS 39 hedging model the requirements of IFRS 9 and the issues noted with IAS 39 hedging model. That Board member stated that he would consider dissenting from the proposal on these grounds, and another two Board members said that they would also consider doing so for the same reason.

When put to the vote, the Board decided by fourteen votes to two, that all necessary due process requirements had been met and by twelve votes to four to grant permission to the Staff to begin drafting the Ballot Draft.

The Staff member went through the changes comparing to the previous draft of the paper:

• simplify the description of the objective of primary financial statements;
• include a discussion of the advantages and disadvantages of aggregation;
• simplify and focus the discussion of the relationship between primary financial statements; the term ‘cohesiveness’ has been removed to avoid confusion with the cohesiveness principles proposed in the Financial Statement Presentation project;
• clarify what types of ‘forward-looking’ and risk information should be included in the financial statements; and
• remove some discussion on faithful representation and replace it with a discussion about communication principles.

The main discussion concerned the materiality concept in the presentation and disclosure chapter of the Conceptual Framework.

One Board member believed that the discussion of materiality (in paragraph 48) was one-sided, i.e. do not provide information if it is too costly. However, there might be instances when the information is so vital that the cost should not be a consideration.

Another Board member believed that materiality should be discussed in more detail. For example, the fact that an item was material in the balance sheet did not automatically mean that all disclosure requirements were material / relevant as well.

The Staff member explained that the DP was aimed at the IASB and not at the preparers; nevertheless, there was a concern from several Board members that materiality needed to be explained better.

Another discussion was around cohesiveness and whether the principle should be moved back in.

A couple of Board members wondered whether the section on Communication Principles should say anything about digital communications.

The Staff will revise the paper based on the feedback from the discussion.

The paper includes three approaches, with Approach 2 being a new one:

1. all items are recognised in profit or loss unless presenting an item in OCI provides more relevant information; items are recycled as and when it results in relevant information about financial performance (i.e. recycling always takes place, it is only a matter of timing);
2. as above, but recycling takes place only if it results in relevant information (i.e. current model); and
3. a single statement of comprehensive income with no sub-total for profit or loss; recycling does not apply.

It appeared that a few Board members supported Approach 1 as they believed it introduced a discipline to whether an item should be in OCI in the first place because it would get recycled later anyway.

Other Board members did not like Approach 1 because they believed that recycling is not always meaningful.

It was pointed out that the Board members did not need to come to a tentative view for the DP’s purposes.

Overall, the Board members felt that Approach 3 would not get much support from respondents.

It was suggested that the Approaches were summarised differently: Approach 1 OCI and recycling with added variations on when an item goes to OCI and when it gets recycled and Approach 3 no OCI. Approach 2 will be taken out.

The Chairman said that the best outcome for the Board from this project would be to introduce as much discipline as possible. For example, OCI cannot apply to non-recurring items. It would not be good outcome if the Board said that ‘anything goes’.

In terms of titles for the line items in the statement of comprehensive income: there was a proposal to change the label of Total Comprehensive Income to Total Income – this proposal did not get support from the Board. Another proposal about to re-label Other Comprehensive Income as Remeasurements Outside of Profit or Loss – the Board supported this proposal.

The Staff will revise the paper based on the feedback from the discussion.

In May 2012 the Interpretation Committee (IC) published the draft interpretation (of IAS 37) on the accounting for levies charged by public authorities on entities that participate in a specific market. At its March 2013 meeting, the IC completed its deliberations and reached a consensus on the levies interpretation. The final interpretation was attached to the agenda paper.

The objective of the discussion at the IASB meeting was to ratify the interpretation.

The main changes in the final interpretation comparing to the draft relate primarily to the scope of the interpretation as the final interpretation now also addresses the levies with minimum thresholds.

The Board was satisfied with the due process.

When put to the vote to ratify, one Board member said that he would agree but with a ‘hard feeling’. Another Board member believed that there was no benefit in the interpretation as it seemed to contradict to the Board’s discussions about the new Conceptual Framework. Besides, the scope seemed too broad as it covered all levies but there was a variety of arrangements around the world and therefore there might be some unintended consequences.

All, but one Board members voted to ratify the interpretation.

The application date is going to be 1 January 2014 (with retrospective application).

The IC will issue Interpretation X Levies.

The IFRS Interpretation Committee (IC) had received several requests regarding the classification of cash flows. Therefore, it requested its Staff to consider how the definitions of operating, investing and financing cash flows in IAS 7 could be made clearer so that greater consistency could be achieved. Currently, cash flows should be classified in accordance with the nature of the activity in a manner that is most appropriate to the business of the entity, in accordance with the definitions in IAS 7.

The Staff has considered the request and recommended the following:

1. not to amend the definitions operating, investing and financing cash flows in IAS 7 on the basis that this would be too broad for the IC to address and beyond the scope of the Annual Improvements project
2. not to amend IAS 7 on a piecemeal basis
3. to amend paragraph 16 of IAS 7 regarding the classification of expenditures which states that ‘only expenditures that result in a recognised asset in the statement of financial position are eligible for classification as investing activities’; it was introduced in 2009 as part of the Improvements project at the time (mainly to address IFRS 6) and is believed by some that it could potentially lead to a presumption / secondary principle that cash flows should be classified on the basis of the related items in the balance sheet (vs. on the basis of IAS 7 definitions); the Board did not believe that paragraph 16 read as a secondary principle and did not feel comfortable with changing it only four years since it was amended whilst the reasons for it were still valid.

The Board decided not make amendments to IAS 7 in respect of its definitions of operating, investing and financing activities at this stage.

The exposure draft was issued in May 2012; it aimed to clarify the requirements for the calculation of the accumulated depreciation / amortisation at the date of a revaluation when applying the revaluation method.

Both standards provide two different treatments for accumulated depreciation / amortisation at the date of revaluation. Accumulated depreciation / amortisation is treated in one of the following ways:

1. restated proportionately with the change in the gross carrying amount of the asset, so that the carrying amount of the asset after revaluation equals its revalued amount (the gross approach); or
2. eliminated against the gross carrying amount of the asset and the net amount restated to the revalued amount of the asset (the offset approach).

Practice differed in restating the accumulated depreciation when applying the gross approach (a) above. A submission received identified that a restatement of accumulated depreciation proportionate to the gross carrying amount is not possible in cases in which a residual value, the useful life or the depreciation method has been re-estimated before a revaluation.

The IC recommended that the IASB proceeded with the following amendments:

1. to make clear in the Basis for Conclusions of IAS 16 and IAS 38 that accumulated depreciation / amortisation would not be able to be restated proportionately to the gross carrying amount in situations in which both the gross carrying amount and the carrying amount are revalued non-proportionately to each other; this is regardless of whether a re-estimation of the residual value, the useful life or the depreciation method occurs prior to revaluation
2. the transition requirements should be changed so that:
   1. the proposed  amendments should be applied to all revaluations recognised in annual period beginning on or after the date of initial application of that amendment and in the immediately preceding annual period; and
   2. that an entity may also present adjusted comparative information for any earlier periods presented, but is not required to do so. If an entity presents unadjusted comparative information for any earlier periods, it shall clearly identify the information that has not been adjusted, state that it has been presented on a different basis and explain that basis.

The Board approved the revised proposed amendments to IAS 16 and IAS 38 for inclusion in the final Improvements to IFRSs.

The papers summarised the process and findings of the post-implementation review (PIR).

The first question from the Staff was whether the Board was happy that the constituents were consulted adequately. The Board believed that Yes. One Board member noted that - given a) the importance of the segment information and b) FASB’s similar approach to segment reporting – the analysts group could have been extended to the US. Something the Board needed to consider for the next PIR on IFRS 3.

There were some questions and comments on the messages and responses from the constituents, but it was decided not to prioritise them.

A couple of Board members noticed in feedback that many people believed that two years after the implementation of the standard was not a long enough period to fully assess its PIR.

The Staff member pointed out that it was important to manage people’s expectations during the PIR so that there was no presumption that the PIR would automatically lead to changes to a standard; any identified issues will be dealt with in the agenda-setting process.

There was also a discussion about whether the Board should co-ordinate any potential revisions with FASB that went through a similar PIR process. It appears that it plans to have some narrow scope amendments and the management approach will remain. The Staff did not have more detailed information at this stage about the FASB’s key issues.

The Board will continue to assess key messages and consider them in the agenda-setting process.

Most of the discussion evolved around the relationship between relevance and faithful representation in the context of recognition and derecognition with a general feeling that a better explanation was needed.

One Board member questioned whether the Board needed to reach a conclusion on control and risks and rewards in the Conceptual Framework, as this was important for derecognition. Perhaps this was something the DP could ask the respondents.

The Staff will revise the paper based on the feedback from the discussion.