In a session that lasted only five minutes the Board went through a due process paper presented by the staff. Specifically, the Board was asked (a) to agree that no re-exposure was necessary, (b) whether any member intended to dissent, and (c) to confirm that all necessary steps had been observed.

On (a) and (c) the Board agreed unanimously that re-exposure was not necessary and that all necessary due process steps had been adhered to. With regard to item (b), one Board indicated that she was likely to dissent because of non-cash distributions and the permission granted to preparers to take into account the notion of 'undue cost and effort'.

Given that there had been no objections, the Board agreed that staff could begin with the balloting process.

Reconciling constituent feedback with academic research findings

Having presented an academic literature review to the Board in September, Professor Ann Tarca, Research Fellow with the IASB, presented a paper whose purpose was to link academic evidence to constituent feedback received on the Request for information on IFRS 3. Although she cautioned Board members that the evidence presented is, to a certain degree, jurisdiction-specific (as most studies surveyed U.S. companies), there seemed to be support for two key aspects: Firstly, the recognition of intangible assets separately identifiable from goodwill that is mandated by IFRS 3 seems to yield information that is perceived as being valuable; Professor Tarca caveated this by saying that the support differed according to the jurisdiction analysed. Secondly, the impairment-only approach seemed to lead to the conclusion that although some managers might use their discretion in performing the impairment test, the information produced under the model is still regarded useful. Professor Tarca summed up her presentation by saying that, overall, the model seemed to work, though improvements to the model could be made. The enforcement differed between jurisdictions, but seemed to yield a high level of compliance with the standard. She then turned it to the Board for questions.

A Board member referred to the association between impairments booked and share prices evidenced by some studies. Specifically, he was interested in whether impairments caused share prices to react of whether a decrease in share prices was leading to impairment charges. Professor Tarca said that the studies showed that impairments lagged price movements and that the time span was more pronounced the weaker the enforcement regime. This triggered the Chairman to comment that if that was true, it meant that the model was dysfunctional as managers would only make impairment charges when they could no longer avoid it. Professor Tarca replied that if both the impairment charge and the share price movement occurred in the same period, it could still mean that the model was working, even though the time lag was more profound in some jurisdictions.

Another Board member wondered whether there the recent calls for amortising goodwill meant that the old model gained new support. Professor Tarca cited a U.K. study that amortisation was not value relevant whereas impairments were. This led a fellow Board member ask the question as to whether there was any evidence as to the cost associated with either model (i.e. amortisation and impairment-only). Professor Tarca replied that they had not specifically looked at amounts, but some studies seemed to suggest that the information produced under the impairment-only approach – while costly – was still perceived useful.

A Board member had a question regarding the manageability of impairment charges as CGU could be changed in composition following an acquisition. Professor Tarca responded that some studies suggested that management had incentives to influence the timing and occurrence of impairment charges. These studies were focussed more on U.S. GAAP rather than IFRSs though. The Chairman suggested this could be due to U.S. contracts being more related to performance. Professor Tarca agreed.

Another Board member stated that she found it extremely useful to have the academic evidence next to the feedback from constituents. It showed that allowing for some time before a post-implementation review was done was important in order to allow meaningful research to be carried out. She then raised a question regarding compliance: She recalled from the research forum held in November in Oxford that preparers and auditors were said to be looking at a disclosure list only and that compliance was assumed met if all disclosure requirements had been met. She wondered where materiality came into play as no-one seemed to assess whether the disclosures were meaningful or not and what this meant for compliance. Professor Tarca said that she did not remember the study but would follow up on it.

The previous Board member came in again on the impairment-only approach. He said that a big advantage of amortising goodwill was that comparability with entities that grew organically would be improved. This was one of the reasons why preparers came out so strongly in favour of amortisation and against impairment-only.

The Chairman thanked Professor Tarca for her presentation and asked her, based on the findings presented, what she would advise the Board to do. Professor Tarca said that whilst she understood the criticisms and reservations vis-à-vis the current model, on balance it seemed to work and provide useful information. She suggested sticking to the impairment-only approach, but simplifying/improving its implementation. Further, she noted that she would advise the IASB to talk to the FASB on any future steps as IFRS 3 was a converged standard. She understood that in the U.S., the FASB had come under pressure to reintroduce an amortisation approach; based on the feedback received and the studies surveyed, however, she had not seen any new arguments that had not been discussed at the time when the standard had been developed, so she did not see an obvious reason to change it.

Findings of the post-implementation review

The project manager presented a paper summarising the key areas of IFRS 3 that, in the staff’s view, had attracted the majority of the feedback and warranted a consideration for potential follow-up by the Board. In the accompanying paper the staff had included a table containing the areas raised and comparing the feedback received from investors, preparers, auditors, regulators and the ASAF. It also showed whether and what the FASB was proposing to do anything. Lastly, it contained an assessment of the significance of the areas mentioned.

A Board member kicked off the discussion by saying that he found the table very helpful and agreed with the assessment and ordering of the issues. That being said, he believed there to be an inconsistency in that the Board concentrated on the accounting for impairments without looking at the performance of the acquiree. This had been an area that he had commented on in his former role at the CFA Institute, saying that disclosure about the performance of an acquired company following an impairment was of utmost importance. This should now be rectified and added to the list.

A fellow Board member agreed with the staff's assessment. However, he said he would give the highest weightings to the issues recommended for follow-up by ASAF, given that this advisory group shows a good representation of how the issues are being seen around the globe. If the staff wanted to pursue some areas on the list short- to medium-term, he wondered how this would come into play with the upcoming agenda consultation. The Director of Implementation Activities replied that some of the items listed were already on the FASB's agenda, so it would make sense to at least monitor what the FASB were doing, though his preference was to deal with the same issues at the same time. As regards the remainder of the issues in the table, he suggested that the Board would decide whether or not they should be included in the agenda consultation. The Vice-Chairman stepped in saying that the Board did not have a proper process for dealing with issues that came out of a PiR (i.e. whether they should be reviewed first or go on the agenda straight away).

A Board member commented on the issue of amortisation vs. impairment-only and stated that if he had to decide, he would probably opt for keeping the current model and working on the impairment model to simplify it. Nonetheless, he agreed with his colleague who had raised the point before that an impairment-only approach was discriminating entities with organic growth. He also believed that intangibles played an important part in some acquisitions, so it made sense to separately recognise them even if it proved to be challenging for the acquirer.

A fellow Board member wondered why the staff had ranked NCI as of lower priority. He would prefer to give it a higher rank. Another Board member said that he generally agreed with the list but was concerned about the treatment of step acquisition. The fair value measurement involved in these cases proved to be a real challenge for preparers. A further Board member felt that the disclosures in relation to impairment testing were weak and required beefing up. Hence, they should be given a higher priority. The project manager responded saying that staff had subsumed the disclosures in the area of impairment. He wondered whether the disclosures were giving the information that user sought. Another Board member wondered whether there was an issue with the standard or with the enforcement of applying the standard. The former Board member thought it was both. Another Board member agreed that disclosures needed to be made more meaningful.

The Chairman asked the Director of Implementation Activities as to the next steps. The Director responded that staff would provide the information in a formal feedback statement that is planned to be issued in March 2015. As regards the way forward, the staff would need to work on the next steps following the PiR and bring back a paper at another meeting. This would also include the table updated for the comments received in this session.

IAS 40 Investment property – Accounting for a structure that appears to lack the physical characteristics of a building

In the interest of time, the Senior Technical Manager did not provide a summary of the arguments in favour of and against extending the scope of IAS 40, but pointed Board members at the staff’s summary and recommendation. The staff was in favour of considering an expansion, and if the Board agreed, the staff would suggest further research to better understand the issue.

The Chairman started off stating that he saw very limited benefits and did advise against the staff's recommendation. A fellow Board member agreed based on cost-benefit grounds, though, conceptually, she believed the scope could be broadened to include structures. In her view, the main cost arising on including structures in the scope of IAS 40 would lie in disclosing their fair values – whether or not the owners valued them that accordingly.

Another Board member advised to reach out to national standard setters for researching the issue. He had heard that it could be issue in Latin America. The Senior Technical Manager responded that the IFRS Interpretations Committee had already performed some outreach, which revealed only one jurisdiction being significantly affected. A further Board member hinted at changing business models which might provide the Board enough support for pursuing the topic further. Another Board member said she was sceptical as to whether the Board should invest more resources into the issue. She suggested asking the Interpretations Committee whether they believed that not expanding the scope of IAS 40 could lead to issues in the future. A fellow Board member said that he felt the fair values of such structures to be highly judgmental and subjective. He believed the information provided under the cost model to be sufficient.

The Chairman called for a vote as to who would agree with not pursuing the issue. Eight Board members showed up, causing the Chairman to see a sufficient majority for turning the issue down.

IFRIC Update

The Director of Implementation Activities briefly highly five issues from the November edition of the IFRIC Update. The first issue concerned uncertain tax positions where the Interpretations Committee would be looking into the scope as well as the unit of account. He advised the Board that the Committee would prepare a draft interpretation according to which an entity should measure the amount at either the most likely amount or the expected value, depending on which method led to a better prediction of the future outflow. This would, in essence, create a GAAP difference with U.S. GAAP, as using a 'more-likely-than-not' amount would not be permitted. The draft interpretation would be expected in January 2015.

The second issue concerned the cost for testing PPE and the accounting for net proceeds. The Interpretations Committee had published a tentative agenda rejection; however, negative feedback received on the rejection note had led the Committee to put the issue back on its agenda. The third item was on the exchange rate to be used when a transaction involved a prepayment. The Committee had tentatively come to the conclusion that IAS 21 was not clear on this issue and that an interpretation should be developed. The fourth point concerned an agenda decision relating to transactions that take place in a jurisdiction where exchange restrictions applied and high inflation was present. Although the issue was discussed against the background of Venezuela originally, the Committee had concluded that the issue was too broad for it to be considered within its remits. Furthermore, the issue had been flagged on the research agenda of the IASB, so would be catered for.

The last issue concerned a set of tentative agenda decisions, seven of which were related to IFRS 11 Joint Arrangements. The IFRS Interpretations Committee had deliberated on several IFRS 11 issues over recent months and had now issued the agenda decisions for comment with a view to them being finalised at the March 2015 meeting. There were no major comments by Board members.

Definition of a lease

The FASB's Lead Project Manager introduced the agenda paper on the definition of a lease. He said that in October 2014, the Boards had reached a number of decisions with respect to the definition of a lease. In that session the Boards had tentatively decided that:

• a lease would be defined as a contract that conveyed the right to use an asset for a period of time in exchange for consideration;
• an asset was identified either explicitly or implicitly in the contract and the supplier had no substantive rights to substitute that asset;
• the customer controlled the right of an identified asset if the customer had the right to both (i) direct the use of the identified asset and (ii) obtain substantially all the economic benefits from directing the use of the identified asset during the applicable period; and
• a supplier’s protective rights would not in isolation prevent the customer from having the right to direct the use of the asset.

He pointed out that the Boards had not reached a decision on whether a customer must have the ability to derive the benefits from directing the use of an identified asset on its own or together with other resources that were sold separately. He said that the Boards would be presented with three alternatives to decide on the topic.

He introduced alternative 1 by saying that under this approach, in order to meet the definition of a lease, a customer must have the ability to derive the benefits from directing the use of an identified asset on its own or together with other resources (e.g. a good or service) that were sold separately (by the supplier or any other supplier) or can otherwise be sourced in a reasonable period of time (e.g. by hiring an employee or an independent contractor). He then presented alternative 3 which he said that it did not include the ability to derive the benefits requirement. He said that alternative 3 would conclude that a lease existed when a customer had the right to both (a) direct the use of an identified asset; and (b) obtain substantially all the benefits from directing the use of the identified asset even if the customer cannot realise those economic benefits independently from the supplier. Finally, he presented alternative 2 which he said that it represented some middle ground between alternatives 1 and 3. He said that conceptually alternative 2 was closer to alternative 1 but with some changes to address possible unintended consequences, it would apply the ability to derive the benefits requirement only to those contracts in which the asset was incidental to the delivery of services. The identified asset would be considered incidental only when the asset component was substantially lower that the service or services component in the arrangement.

He concluded that the staff recommended the Boards to adopt alternative 3 because it would retain a simpler, less complex definition of a lease with less application issues and best information for users and would avoid unintended consequences.  He said that since their last meeting in October the staff had spoken with large practitioners, and they had concluded that alternative 1 would not result in significant differences as compared to alternative 3 in most leases because most services were available or sold separately. He also said that the staff did not recommend alternative 2 because it would be more complex to apply and would require more guidance. He then moved the discussion to the Boards.

Several FASB Board members indicated that they believed that alternative 1 was conceptually the best answer but, in case it were necessary to reach a converge decision, they could also accept alternative 3 because it would be easier to apply.

The FASB Chairman said that he believed that alternative 1 was the best answer conceptually but alternative 3 was easier. He said that he agreed with the staff analysis that the differences between alternative 1 and 3 would be applicable to limited cases.

One FASB member pointed out that there would not be many leases to which alternative 1 would be applicable. If there was a lease that met the criteria in alternative 1, it would not qualify as a lease, and for that reason he would support alternative 1. He could also support alternative 3.

Another FASB member said that he agreed with prior comments and he would support alternative 3 on cost benefits considerations.

Another FASB member said that he believed that the staff did a better job of articulating alternative 1. He said that he would accept alternative 3 as his first choice, but he could also accept alternative 1 if necessary to reach a converge decision.  

One FASB member asked how alternative 3 would work in a contract that did not specify the asset but where the contractor only owned one asset. He asked whether it would be assumed that the asset was implicitly specified because the supplier could not use any other asset. The FASB Lead Project Manager said that there would not be a different answer between alternatives 1 or 3. Further, he indicated that it would be concluded that the asset was implicitly specified and that the same conclusion would be reached under the current or in the future standard. He pointed out that just because of one single aspect it would not mean that there was a lease. The case would be similar to the T-shirt factory [the example discussed in October]. He said that just because there was a specified plant it would not mean that there was control of the use of the identified asset; it would also be necessary to direct its use and to have the ability to derive its benefits.

Another FASB member said that he believed there would be differences in alternatives 1 and 3 for example in the drilling industry. He said that it would not be the same if a customer requested a provider some drilling rigs to drill some holes vs requesting a provider to drill the holes. He pointed out that alternative 1 would capture the differences better because it required to derive the economic benefits from the use of the asset. The FASB Lead Project Manager responded that the differences in those scenarios would not be captured by alternatives 1 or 3; it would be captured by the control criteria. He said that for example if a customer asked a provider to drill 10 holes at an specified location, generally, that would not be a lease; however, if a customer instead had a contract stating that in the next 3 years the customer would direct where to drill and when (meaning that the customer would be setting for and what purpose the asset would be used), then it would have to pass the control criteria. Assuming that it would pass, in order to differentiate between alternative 1 vs alternative 3, it would be necessary to analyse whether the customer could obtain other resources that were sold separately to provide the services. He said that they had found in their discussions that for most large classes of assets they were being sold separately.

Another FASB member said that there was fine line between the notions of controlling the use of asset vs the ability to derive benefits from it. He said that for example if a customer hired a provider for construction and the provider had only one bulldozer and hired the provider to move something from point A to point B, that scenario would not be a lease because the customer did not control the use of the asset; on the other hand, if a customer hired the provider with his equipment for a particular period of time (more than one year) to provide the service, then it would be a lease. In both cases the customer was hiring a vendor to move something from point A to point B. He acknowledged that his concern was not related to apply alternative 1 vs alternative 3; instead, it was a general question to understand how the model apply. The FASB Lead Project manager responded that the ability to change how and for what purpose an asset was used was the key question to apply in that scenario. He said that in that scenario the customer could not decide on whether to move the bulldozer to another project and it would be different from a scenario where a customer locked a provider for a year and decide during that period what the bulldozer was going to do. He said that the objective of the lease definition was to capture assets for which during a period of time the customer could decide about how to use the asset. Further, he provided another example for IT services: He said that if the customer could not decide how to use the servers even though the assets were explicitly specified in the contract, this would not mean that there was a lease. He pointed out that the customer had to be able to decide how the asset would be used throughout the lease term.

One FASB member asked whether there would have to be a "magic" period of time or multiple tasks. The FASB Lead Project manager responded that it would not be necessary. Further, he provided another example by which if a customer leased a car, the customer would decide where to drive and what to hold in the card during the period of the lease, the notion that a customer could decide what purpose the asset was used was not different from contracting a vendor to use a specific bulldozer for a three year period and the customer deciding how and when to use the bulldozer. However, that would be different from hiring a vendor to build a building and the vendor could decide how to use the bulldozer, which bulldozer use etc. because the customer would not have the ability to control the use of the asset. He pointed out that the control analysis was a requirement to consider before analysing alternative 1 vs alternative 3.

Another FASB member said that although he would conceptually prefer alternative 1vs alternative 3, he could accept alternative 3, because, for example, in a scenario where a provider was a rig supplier and had a specialised rig patented that only his employees could operate, also that no-one else could supply because of the unique knowledge required, that would not be a lease because the customer did not have the ability to operate it. The FASB Lead Project manager said that in that particular scenario it showed where alternative 1 and 3 would differ. Further, he said that the facts that the asset was highly specialised and that nobody else could supply it, would lead to a different answer; however, he pointed out that it would be applicable to a very small population. The FASB member said that for that reason he would support alternative 1 because he would not want to capture those contracts as leases.

The discussion then moved to the IASB Board. The majority of the IASB members expressed support for alternative 3 because they were still concerns about unintended consequences. On the other hand, some members expressed support for alternative 1 because they believed it was better articulated than the one discussed in the October meeting.

The IASB Chairman said that he found alternative 2 difficult to apply although safer; he said that he would prefer alternative 1 because it was better reformulated since it removed the concept of 'readily available'. He also said that alternative 1 would not add much complexity because it would not be applicable for most cases and it would show that the Boards had listened to concerns expressed by many users that they were trying to capture too many leases.

Another IASB member expressed support for alternative 2 because it would cover only a narrow population and would scope out some obvious service contracts. He provided an example in which a customer entered into a home security contract which would require alarm equipment and he said that the majority of the contract was for service, and with alternative 2 that contract could be easily scoped out. He also said that alternative 3 could be appropriate although he preferred alternative 2.

Another IASB member said that in the example of the specialised drilling rig discussed before, the customer still could decide many fundamental questions about the asset, for example where the rig would go, how deep to drill, and how to address environmental concerns. However, she said that under alternative 1 the contract would not be a lease because the provider was the only one able to operate the asset. The IASB's Technical Principal confirmed her assessment although she stressed that the population would be very narrow (that particular provider was the only one able to operate the asset and the provider did not sell the asset separately). The IASB member responded that she found it very difficult to accept alternative 1. Further, she said that if a customer bought the rig and hired a provider to operate it, there would be no doubt that the customer had control of the asset.

Several IASB members agreed with those concerns. One IASB member indicated that he had discussions with oil and gas operators in his jurisdictions and found the same concerns. He believed that alternative 3 was the best answer. Another IASB member said that he agreed with the concerns expressed before and he would prefer alternative 3 because it was the appropriate answer, he said that he did not think that alternative 1 provided the right answer even in those limited number of circumstances discussed. One IASB member also expressed support for alternative 3, although he was concerned about the scope. He said that most countries had different kind of licences; he did not believe that just because there was a licence requirement that only the vendor could operate the asset, then it would not be a lease.

The Vice Chairman indicated that he would prefer alternatives 1 or 3. Another IASB member expressed the same opinion and he indicated that if alternative 1 were adopted, then they would have to address too many questions, interpretations etc. in the future, and alternative 3 was much easier to apply. The Chairman pointed out that the issue came out to them many times and would prefer the Board to keep that in mind.

The FASB Vice Chairman called a tentative vote and four members voted for alternative 1 and three members voted for alternative 3. Then the IASB Chairman called a vote and two members voted for alternative 1 while eleven members voted for alternative 3. In order to reach a converged solution, the FASB Vice Chairman called a second vote to ask the members whether they could accept alternative 3; six FASB members said they could.

The Technical Principal introduced the agenda papers on 'principles of disclosure' and informed the Board that the cover paper included a summary of the proposed topics in the Discussion Paper. One Board member asked why, for the financial statements as a whole, the Discussion Paper would include a discussion on materiality whilst for the notes it was stated in the summary that materiality would be covered by the materiality project. The Technical Principal replied that at that point there was no intention to address the notes separately. The overall guidance on financial statements also applied to the notes.

Principles of Disclosure: Cohesiveness in financial statements

The Technical Manager informed the Board that the agenda paper addressed the question of whether the Discussion Paper should include a discussion on cohesiveness in financial statements. The paper included views from constituents as to how cohesiveness could improve the usefulness of financial statements. Cohesiveness could be described as grouping, labelling and ordering of information in financial statements. The Technical Manager warned that too strict application of cohesiveness might lead to disclosure of less relevant information in financial statements. Cohesiveness could be introduced to IFRSs by introducing a principle in a disclosure standard that required an entity to structure and organise information in the financial statements in a cohesive manner or by ways of a communication principle in a disclosure standard that explains to preparers the advantage of cohesiveness. Staff recommended the latter option.

One Board member said that he had been one of opponents of the July 2010 Staff Draft of Exposure Draft to Financial Statements Presentation (the ‘FSP staff draft’). He therefore also disagreed with the staff recommendation. He said that the basic structure of the financial statements was functional as it was but agreed that minor improvements could be made.

A Board member struggled with the wording of the communication principle and said that the principle should also extend to the notes. The Technical Principal replied that the notes were included in the term 'financial statements' and that relationships between the primary financial statements and the notes should be highlighted through consistent use of terminology, grouping and ordering in different sections of the financial report.

Another Board member asked whether the 'principles of disclosure' project would also address the minimum line items issue. She agreed with the staff's view that it was difficult to distinguish between disclosure and presentation, i.e. the notes and the primary financial statements. She understood that the project would not go as far as the FSP staff draft but she said that users expressed strong demands for guidance on disclosure issues. She said that the statement of cash flows should be excluded from the cohesiveness principle. The Technical Principal replied that it was not the intention of staff to bring in cohesiveness as proposed in the FSP staff draft. The Board member said that it should be clarified in the Discussion Paper that the principle that was now proposed was different from the principle in the FSP staff draft.

A fellow Board member asked what the 'principles of disclosure' project wanted to achieve. He believed that the paper suggested that cohesiveness was a recommendation. He would therefore not see it as a principle of disclosure. The Technical Principal said that cohesiveness could also be listed as a characteristic, if the Board preferred this term.

One Board member believed that cohesiveness should rather be addressed in the performance reporting research project but agreed that results of that project would interact with the ‘principles of disclosure’ project. He said that to him, cohesiveness was a subset of the qualitative characteristics of financial reporting. In his view, cohesiveness might not work for all statements in a financial report but could work for the income and the cash flow statement. He therefore suggested excluding the balance sheet from the cohesiveness discussion.

Another Board member said that she agreed with reminding preparers to think about linkage and relationship in financial statements and by that increase their understandability. She suggested avoiding the term 'cohesiveness' as past discussions had already defined cohesiveness with different meanings. The Technical Principal agreed but said that staff had been unable to find a different term that described the same meaning.

One Board member commented on the concerns that were raised by constituents about cohesiveness in the FSP staff draft. One concern had been that the planned structuring of profit or loss was too prescriptive. The Board member said that, in his view, preparers still had enough discretion in this point. Another concern had been that cohesiveness would necessitate a direct cash flow statement. He disagreed with that understanding and said that cohesiveness could be achieved with both, direct and indirect cash flow statements. As long as the operating cash flow was consistent with operating profit, the operating cash flow could be derived by adjusting operating profit. The issue was that different numbers could be used as a starting point for operating cash flow. Also, he disagreed with the concern that cohesiveness could lead to a balance sheet that was counterintuitive. To him it improved the clarity of the statement of financial position. A fellow Board member replied that the issue was that the principles of cohesiveness and disaggregation had been combined in this discussion. The former Board member disagreed with that. The Technical Principal replied that most constituents felt that the balance sheet provided most relevant information when reported on a liquidity or current vs. non-current basis. The Research Director added that the proposal in the FSP staff draft suggested five sections in the balance sheet which looked very fragmented.

The Technical Principal said that staff was trying to point out that financial statements could be more understandable if an entity wanted to structure its notes according to the primary financial statements. One Board member asked whether this meant that cohesiveness would not be a requirement. The Technical Principal replied that staff wanted to ensure that the communication principle covered the idea of consistency across the financial statements. Another Board member asked whether this would mean that operating profit should not exclude tax and interest whilst operating cash flow should not include tax and interest? The Technical Principal replied that this decision would be in the entity's discretion but should be applied consistently throughout the entire set of financial statements.

One Board member asked how grouping and ordering would be different from aggregation and disaggregation. The Technical Principal replied that aggregation and disaggregation only related to recognised amounts.

The Chairman asked whether the Board supported the staff recommendation. Eleven Board members voted in favour.

Cash flow statements - 'cash and cash equivalents' and the management of liquid resources

The U.K. Financial Reporting Council’s Director of Research informed the Board that the agenda paper included three issues related to the cash flow statement, i.e. the definition of 'cash and cash equivalents', providing information on liquid resources, and net vs. gross presentation of cash flows. He conceded that the discussion in the agenda paper did not apply to cash flow statements of banks and other financial institutions.

The agenda paper suggested focusing on cash, rather than 'cash and cash equivalents', for the statement of cash flows. IAS 7 intended to reflect the entity's liquidity management but by doing this, the Standard made too many assumptions on the entity's behalf.

One Board member disagreed with changing guidance that worked in practice. He did not see a difference between cash demands with a bank or a money market fund that was managed by the same bank. He conceded that the threshold between cash equivalents and other financial assets was not a bright line. A fellow Board member agreed but favoured the approach in the agenda paper. He referred to the tentative staff view that allowed net presentation on cash flows only for those relating to financial instruments that were of the same class. He asked whether all assets in one class had the same credit risk. He said that money market instruments that had the same credit risk as cash could be presented as cash whilst instruments that had a different credit risk should not be classified as cash. The former Board member agreed with that and said that net presentation was needed for instruments that were used for liquidity management as otherwise vast amounts without relevance would be presented. One Board member asked whether it should be distinguished by liquidity risk rather than credit risk. The former Board member agreed.

One Board member asked whether the amendment of the definition would be required to proceed with the 'principles of disclosure' project. She said that the discussion reminded her of the 'classification of liabilities' project where there was a long discussion about whether or not a roll-over of debt was with the same lender. One Board member shared that concern.

Another Board member referred to the tentative staff view that the statement of cash flows should include a section that included cash flows relating to the management of liquid resources. He supported that view as consolidation in group financial statements eliminated information about liquidity. A fellow Board member agreed and said that in this light she would also support the tentative staff view that entities should be required to disclose their policy for the management of liquid resources.

No further comments were made.