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Research project

Date recorded:

Agenda Paper 8A: Project Update

The Senior Director for Technical Activities introduced the agenda paper which gave an overview of the changes in classification of research projects.

Rate-regulated activities had been moved to Standards-level activities, i.e. the IASB had decided that there was a need to develop a proposal for new or revised accounting requirements.

Dynamic Risk Management, the Disclosure Initiative and Financial Instruments with the Characteristics of Equity were in a development stage, i.e. the IASB had decided that those projects warranted further investigation but no decision had been made about whether a revised or new IFRS would be required.

Business combinations under common control (BCUCC) and the equity method of accounting were named as examples for assessment phase projects, i.e. projects where staff were undertaking research to identify and assess practical application issues to understand if there was a financial reporting problem.

The Senior Director for Technical Activities named income taxes as an example for projects in the exploratory phase. Projects in that phase lent themselves to assessing whether a fundamentally different approach to the financial reporting issue might be worthwhile.

Post-implementation review (PIR) follow-up work was a separate category that included projects that had been identified as a consequence of the post-implementation review of IFRS 3.

One Board member expressed concerns about BCUCC being in the assessment phase as the IASB had already identified this project to perform further work. He would rather see it in the development phase, particularly because IOSCO had urged the IASB to develop guidance in that area. Another Board member shared this concern and wondered whether more resources should be allocated to the project. The Senior Director for Technical Activities agreed to move the project to the development phase but said that the allocation of resources was a different question.

A Board member said that having PIR follow-up work as a separate category would spike criticism that it was unclear which phase these projects were in. The Senior Director for Technical Activities replied that they would presumably be classified as in the development stage and would not object if the Board wanted to classify them there.

One Board member suggested that the list of suspended / inactive projects should state why those items were not pursued. This should indicate that the IASB had acknowledged those areas as issues.

The Senior Technical Manager then continued to update the Board on the BCUCC project. She said that targeted outreach with users, standard-setters and preparers had been performed. The outreach had focussed on two types of BCUCC – those involving non-controlling interests and those which were conducted in preparation of an IPO. The outcome of the activities had been mixed and inconclusive. Whilst users had favoured the acquisition method for BCUCC that involved non-controlling interests, they had expressed less support for fair value accounting for BCUCC in preparation of an IPO. Instead, they had favoured the predecessor method for those types of BCUCC. The next step would be an outreach to the regulators. The staff expected to present agenda papers on this issue to the Board in Q3 or Q4 of 2015. The Senior Director for Technical Activities added that several national standard-setters were involved in that project. One Board member welcomed the staff’s intention to examine the issue using journal entries and T-accounts. He suggested that all projects should follow this approach.


Agenda Paper 8B: Performance reporting – project considerations

The Senior Technical Director opened the topic by saying that the scope for the project had not been set. He said that the project would deal with those parts of the suspended financial statements presentation (FSP) project that had not been picked up by the projects on the Disclosure Initiative or the Conceptual Framework. This included specific disclosures, line items and subtotals of the P&L. However, it was difficult to consider only the P&L when deciding about structure and content. Hence, the Senior Director for Technical Activities suggested also considering the statement of financial position as part of the project. He therefore suggested renaming the project to the examination of the purpose, structure and content of the primary financial statements, including the relationship between the individual statements.

One Board member had strong concerns about the boundaries of the project, especially considering that the principles of the disclosures project addressed similar issues. The Chairman suggested that the staff prepared a paper that outlined the interrelation with other projects.

Several Board members agreed with renaming the project as it closed an expectation gap and was more neutral. One Board member said that in his country there had been a very strict format for financial statements before the introduction of IFRS. The introduction of IFRS had led to frustration in that respect. Therefore, a best practice format had been developed that was recommended for all industrial companies. This format had quickly been adopted by almost all entities. Users had preferred this format as it had become easier to compare financial statements. The IASB should therefore consider developing application guidance or illustrative examples.

One Board member asked whether the work would heavily rely on the work performed in the FSP project. He said that the FSP project had almost led to an Exposure Draft had it not been for the financial crisis. During the deliberations, the IASB had identified some larger issues. He asked whether those issues would be ignored for this project. A fellow Board member agreed and said that a clear message of the scope was therefore vital.

A Board member made reference to the agenda paper where the staff asked if ‘performance’ should be defined or if the IASB should re-open the discussion on the distinction between profit and loss and OCI. She said that the Board had been struggling with those questions in the Conceptual Framework project and decided it would be a Standards-level decision. She was confused to find those questions again in this project. The Chairman agreed and said that it could be perceived as an appetite for starting discussing the Conceptual Framework again. He added that there were multiple ways of measuring identical items and therefore it would not be possible to have one number that encapsulated the performance of an entity. A Board member replied that the information was in the statements and not in the bottom line.

The Technical Manager said that the FSP agenda papers could be used as a starting point but the Board would have to decide whether they wanted to discuss OCI as the staff draft on FSP did not include a discussion on OCI. She warned that in the FSP project the Board had first assumed that OCI would merely be a presentation question but had then quickly discovered that it was also a measurement question.

The Chairman concluded that the Board agreed with renaming the project and that the project should remain in the assessment phase.

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