The Board discussed a proposal developed by an advisory group of the French Conseil National de la Comptabilite (CNC). The proposal is to replace SIC 8 with a new standard applicable to a company using IFRSs for the first time as its primary basis of accounting.

The proposals contain three key definitions:

• Date of adoption - the beginning of the financial year when an enterprise publishes financial statements described as using IFRS for the first time as the primary accounting basis;
• Date of first application - the beginning of the earliest year presented in the first set of published IFRS financial statements; and
• Other GAAP financial statements - statements prepared using a primary basis of accounting different from IFRS.

During discussion, the Board indicated tentative agreement with the following approach:

Which periods to present?

The number of years of comparative information required is a matter for the individual country regulators to decide. IAS 1 requires, at a minimum, comparative information for the previous financial year.

Which IFRS?

In general, IFRSs applicable at the date of adoption should be used, with transactions occurring before the date of first application restated using the standards effective at the date of adoption.

If a new standard became effective between the date of application and the date of adoption, IFRSs applicable at the date of adoption would generally still be used from the date of application, even if the requirements are applicable on a prospective basis from the effective date -- though IASB may decide to reach a different decision in the case of a few Standards.

Recognition of assets and liabilities

Assets and liabilities recognised under other GAAP that do not meet IFRS definitions and recognition criteria should be derecognised (with the exception of business combinations, which are to be subject to separate decisions set out below). Assets and liabilities recognised under IFRS but not other GAAP should be recognised, with two possible exceptions (to be discussed at a future IASB meeting): intangible assets and the financial instrument items detailed in IAS 39.172 (h) (securitisations, transfers, and other derecognition transactions).

Measurement

The measurement of assets and liabilities at the date of first application is to be based on restatement of the initial cost (gross carrying amount) and subsequent adjustments of the initial cost (such as depreciation and impairment losses) to arrive at the net carrying amount at the date of first application under IFRS. However, if the initial cost of an asset or a liability cannot be determined without undue cost and effort, remeasure the asset or the liability at its fair value at date of first application; this value will be the deemed cost of the asset or the liability for any subsequent measurement purposes.

Business combinations

For business combinations, it is proposed that there be no restatement for a business combination that occurred before the date of first application. Hence, for example, the classification of any business combinations that occurred before the date of first application and the purchase price allocation to assets and liabilities are deemed to have been properly determined. Intangible elements acquired in a business combination recognised as intangible assets under other GAAP but do not meet IFRS definitions and recognition criteria are, in fact, goodwill and should be reclassified as such. The IFRS principles for the amortisation of goodwill and the recognition of negative goodwill as income will apply to any remaining goodwill (negative goodwill) existing at the date of first application, on a prospective basis as from the date of first application. In addition, the recoverable amount of any remaining goodwill in the opening balance sheet should be estimated under IAS 36 and impairment losses recognised at the date of first application accordingly.

The tentative decision for the treatment of business combinations that occurred before the date of first application does negate the fact that, at the date of first application, the opening balance sheet should include all (but only those) assets and liabilities existing at the date of first application that meet the IFRS definitions and recognition criteria (subject to the two possible exceptions mentioned above). Any adjustment to the other GAAP financial statements for the recognition/derecognition and measurement of those assets and liabilities at the date of first application, whether or not they arose from a business combination, should be accounted for against retained earnings.

Financial instruments

Regarding financial instruments, it was proposed that the principles of IAS 39 should apply and that the IAS 39 transitional provisions should be retained. Initial measurement of financial instruments should follow IAS 39. If measurement is at fair value, then it would be fair value at the date of first application. If measurement is at amortised cost, then it would be based on information that was available when the contract was negotiated or issued. Where split accounting is required by IAS 32, go back to the information available at issue/contract date. If it is not possible to separate out embedded derivatives, then the entire instrument should be classified as a trading instrument. Hedging relationships are to be judged against the IAS 39 tests at the date of first application looking forward.

Other matters

It was tentatively agreed to remove certain transition provisions in IAS 17, IAS 19, and IAS 37 but to retain the transitional provisions of IAS 21. It was proposed to clarify that the lease classification occurs at the date of first application, based on information available when the contract was entered into. Also, if an enterprise applies the corridor approach to defined benefit employee obligations, the corridor is reset to zero at the date of first application.

Although difficult to regulate, the use of hindsight will be restricted to information available at the date of first application. Information available subsequent to the date of first application should not be taken into account.

In the first set of IFRS financial statements, a reconciliation should be prepared between equity under other GAAP and equity under IFRS. The Board stated that it was necessary to have a 'road map' of what had been put through equity as a result of the conversion, together with a reasonable amount of detail in relation to what adjustments had been needed. If measurement at fair value is made at the date of first application because it was not possible to restate measurements under IFRS without undue cost and effort, , further disclosures would be required.

A draft of an Exposure Draft is due to be presented to the January 2002 meeting of the Board.

This project is to develop a Standard requiring appropriate presentation and disclosures in the financial statements of entities that carry out deposit-taking, lending, or securities business activities. The Standard would replace IAS 30.

Scope of the project

Three possible approaches to scope have been identified:

1. A pure activity-based approach (which is the approach the IASB agreed upon) extending to all entities that carry out deposit-taking, lending, or securities business activities;

2. A pure entity-based approach (which is the approach taken in IAS 30) limited to certain defined types of entities, such as entities regulated and supervised by banks; and

3. A mixed approach (which was the approach recommended by IASB's Advisory Committee) under which the scope is defined based on both entity and activity-related criteria, such as quantitative tests relating to an entity's or business segment's involvement in deposit-taking, lending, and securities business activities.

The IASB concluded that the scope should be activity based.

Presentation

The IASB discussed whether the eventual standard should specify balance sheet and income statement formats. Concern was expressed about which presentation would be required by an entity with, say, 40% of its activities within the scope of this project and 60% manufacturing.

The IASB concluded that it did not wish to specify mandatory performance statement formats, although the standard will require that certain components are included in the performance statements, including the cash flow statement. Examples of suggested performance statement presentation will be given.

Disclosure

The Board discussed whether the disclosures, which will be narrative as well as numerical, should be within the financial statements or outside them, such as in an 'MD&A'. The Board expressed a preference for the information to be in the financial statements.

With respect to disclosures on risk it was suggested that entities would disclose the impact of a risk on the activity within the scope of the standard, rather than disclosing the impact of the risk on the entity. For example, interest rate risk is likely to affect not only an entity's activities that fall within the scope of the standard but also its other activities; it is only the impact on the activities within the scope of the standard that would have to be given.

The standard will require disclosure of regulatory constraints (from the lead regulator), such as capital adequacy.

It was suggested that the disclosures proposed should be as specific as possible and should include disclosures on what happened in a period as well as what is expected to happen going forward.

It was noted that the disclosures proposed under this project would be monitored against IAS 32 to ensure that the two tied together.

There are three components of phase II of the project:

• application of the purchase method;
• fresh start accounting (re entities under common control); and
• issues excluded from the scope of phase I, being business combinations involving two or more mutual entities, and business combinations creating a reporting entity via contract and not through ownership interest, e.g., a dual listed company.

Components (1) and (2) are running as joint projects with FASB.

All matters discussed at the meeting related to the application of the purchase method.

The Board accepted the following working principle:

The accounting for a business combination is based on the assumption that the transaction is an exchange of equal values. The total amount to be recognized should be measured based on the fair value of the consideration paid or the fair value of the net assets acquired, whichever is more clearly evident.

• If the consideration paid is cash or other assets (or liabilities incurred) of the acquiring entity, the fair value of the consideration paid determines the total amount to be recognized in the financial statements of the acquiring entity.
• If the consideration is in the form of equity instruments, the fair value of the equity instruments ordinarily is more clearly evident than the fair value of the net assets acquired and, thus, will determine the total amount to be recognized by the acquiring entity.

In a business combination, the acquiring entity obtains control over the acquired entity and is therefore responsible for the assets and liabilities of the acquired entity. An amount equal to the fair value, on the date control is obtained, should be assigned to the identifiable assets acquired and liabilities assumed.

• If the total fair value exchanged in the purchase transaction exceeds the amounts recognized for identifiable net assets, that amount is the implied fair value of goodwill.
• If the total fair value exchanged in the purchase transaction is less than the amounts recognized for identifiable net assets, that amount should be recognized as a gain in the income statement.

At its meeting in January the Board will discuss the final bullet point in the working principle above and ensure that its application ties in to the principle agreed in October that where negative goodwill arises, the carrying amounts recognised for those acquired identifiable net assets that do not have a 'readily ascertainable market value' are reduced (if necessary to nil). The tentative view was that the working principle would apply to any residual and so was not inconsistent with what was agreed in October.

It was agreed that issues within the scope of phase II are:

• how is minority interest recorded (tentative view is to record identifiable assets and liabilities at 100% of fair value rather than part at fair value and part (re minority interest) at historic carrying values);
• if subsequently buy out the minority how is the transaction measured;
• step acquisitions (the improvements project will clarify what IAS 22's rules require whereas phase II will look again at the issue from first principles);
• what is the measurement date for equity consideration paid;
• what is the date of acquisition;
• when measuring equity consideration should large blocks be valued at a discount/premium to the market value;
• should direct costs of acquisition be included in the cost of acquisition (as part of the improvements project it has been agreed that the costs of issuing equity should be deducted from equity and are not part of the cost of acquisition);
• contingent consideration;
• acquisition provisions for restructuring;
• deferred revenues;
• recognition of deferred tax asset/liability arising as a result of the acquisition;
• assets to be disposed of (it was suggested that the US and IAS definitions of temporary control differ);
• contingencies of the acquired entity (in particular, can fair value be determined for contingent assets);
• hindsight period for adjusting fair values.

The project will not consider:

• stock options issued to employees (this will be considered as part of the stock options project);
• whether current standards on income taxes give fair values for taxes;
• whether the standard on pensions gives the fair value of pensions.

The project director reported that she did not think that convergence between FASB and IASB would be reached on in-process research and development because FASB is not currently reconsidering IPR&D.;

The Board discussed several issues relating to IAS 33, Earnings Per Share:

Contracts that may be settled in cash or shares

SIC 24 takes a different approach compared to GAAP in the Canada, United Kingdom, and United States. SIC 24 requires the calculation of diluted EPS to assume that shares will be issued under the contract whereas the latter three do not require the calculation of diluted EPS to include the shares if available facts such as past experience or stated policy suggest that the contract will be settled in cash.

The Board considered the two approaches and expressed a preference for the approach in Canada, UK, and US.

Premiums on repurchase of preference shares

The Board agreed that where an entity purchases (for cancellation) its own preference shares for more than the carrying value of those shares, the excess over carrying value should be dealt with in calculating basic EPS as though it were a dividend on those preference shares.

Format of the Standard

IAS 33 is to be revised for the above points and for other minor issues. Most paragraphs in the standard will be affected. Accordingly it was discussed whether the Board wished the Standard to be redrafted in the style of a new IFRS. It was agreed that much of the detail would be pulled out of the Standard and put in appendices and that the standard would be drafted as an IFRS.

The IASB considered amendments to IAS 39 and IAS 32 on financial instruments proposed in light of issues identified by audit firms, national standard-setters, regulators, the IGC, process, and IASB Staff. Topics addressed are not intended to introduce fundamental change to the standards. The Staff's proposals, presented by John Smith, partner in Deloitt & Touche and chairman of IGC, fall into the following categories:

• Clarification of some definitions and scope, for example loan commitments, insurance contracts containing financial risks, commodity contracts or financial guaranties;
• Changes to reduce complexity caused by the application of IAS 39 'mixed measurement model' by extending the use of fair value;
• Clarification on how to bifurcate compound instruments under IAS 32;
• Introduction into IAS 39 some of the IGC interpretations which will increase convergence between IAS 39 and US GAAP;
• Clarification of how to classify derivatives on own shares: equity instruments or financial assets/liabilities?

Extending the use of fair value

The IASB tentatively agreed that it should permit measurement at fair value of certain financial assets or financial liabilities through designation at inception of financial instruments as part of the held for trading portfolio.

The purpose of this 'open' designation aims to ease natural hedge accounting of financial assets and liabilities that are managed on a portfolio basis. Under current IAS 39 rules trading assets are recorded in the held for trading portfolio and measured at fair value with changes recognised in the income statement but liabilities are not permitted to be marked to market due to the very restrictive definition of trading liabilities.

This option will also be applicable to originated loans under certain circumstances (for example, mortgage loans).

It will also permit the recognition in the income statement of changes in fair value of securities which do not meet the current criteria for classification in the trading portfolio but are held as a 'natural hedge' of embedded shares options contained, for example, in convertible debt. It also will enable embedded derivatives contained in a liability host contract not to be bifurcated by measuring the compound instrument at fair value with changes recorded in the income statement.

IASB tentatively agreed to eliminate the option to recognise changes in fair value of the AFS portfolio in the income statement. Therefore all fair value changes shall be recognised in equity. This amendment aims to converge with US GAAP.

The IASB tentatively agreed some changes regarding compound instruments for example, extending the exception regarding the bifurcation of embedded foreign currency derivative to situations including contracts written in a routinely used foreign currency in a country (for example US dollars in a highly inflationary environment).

The IASB also tentatively agreed that in applying split accounting for the liability and equity elements of an issued compound instrument, measurement should be made of the liability component first with any residual amount assigned to the equity element.

The IASB tentatively agreed that hedge accounting requirements should be amended as follows:

• hedges of firm commitment should be classified as fair value hedges and not cash-flow hedges;
• basis adjustment should be prohibited when a cash flow hedge of a forecasted transaction results in the recognition of an asset or a liability.

These proposals would converge with US GAAP.

Classification of derivatives of own shares as equity instruments or assets/liabilities

The Board had considerable discussion regarding the classification of derivative contracts on own shares:

• where the contracts can only be settled by cash or are indexed to own share value, the Board tentatively agreed that these derivatives were assets/liabilities to be measured at fair value with changes in fair value recognise in the income statement;
• where the contracts are required or permitted to be settled by physical delivery of own shares, such as a forward to sell, a purchase put or written call, the Board tentatively agreed that these derivatives should be classified as an equity instrument.

Disagreement existed where there was physical settlement of own shares received, for example, a forward to buy, a purchase call or a written put, to classify these derivative as a financial asset/liability. This specific issue may be discussed at a future Board meeting.

Loan losses

Considerable discussion took place regarding whether a loan loss provision should be recognised on a portfolio basis for a group of similar financial assets. The Board tentatively concluded, subject to development of further guidance to be discussed at the Board's January meeting, that large loans that had been individually reviewed and not identified as impaired could be included in groups of similar loans for an additional group assessment on a portfolio basis. The further guidance would be intended to clarify which factors are used to determine that a large loan should be included and timing of loss recognition.

Matters discussed and tentative decisions reached:

1. Whether to eliminate the allowed alternative in paragraph 21 of IAS 21 to capitalise certain foreign exchange differences.

The Board agreed that capitalisation should be eliminated. Capitalisation of exchange differences is to overcome hyperinflation, but because of the provisions in IAS 29, capitalisation is not appropriate, as it would double-count for the hyperinflation.

2. Whether to eliminate the choice of IAS 21.33 to translate goodwill and fair value adjustments to assets and liabilities that arise on the acquisition of a foreign entity at either (a) the closing rate or (b) the historic transaction rate.

The Board agreed that the choice should be eliminated. A closing rate method should be used because the assets and liabilities belong to the acquired entity, and the closing rate method fits in more appropriately with the subsequent cash flow test proposals for goodwill. Board members also felt that goodwill should be treated like all other assets. This issue will be discussed further in connection with the business combinations project.

3. A possible inconsistency between IAS 21 and IAS 39 regarding translation of foreign currency derivatives such as forward contracts.

The Board proposed to remove all derivatives that are covered by IAS 39 from the scope of IAS 21, leaving IAS 21 to cover just a few remaining derivatives. This would remove any inconsistencies.

4. Various issues to do with the measurement currency, the presentation currency, and convenience translations. This includes whether to incorporate the approach set out in SIC 19 and the proposals in SIC D30 into IAS 21.

This issue was discussed at length, starting with clarifying the following terms:

• Measurement currency is the currency in which daily transactions are recorded. Monetary items in other currencies will therefore give rise to foreign exchange differences when translated into the measurement currency. The US representatives in the meeting preferred to refer to this as the functional currency and wanted the IASB to use this term in its Standard.
• Presentation currency is the currency in which the financial statements are produced.
• Convenience translation is the currency into which financial statements may be translated for the convenience of their users. It was agreed that the Board is not concerned about clarifying this definition.

The Board noted that IAS 21 currently appears to assume that the measurement currency is the same as the presentation currency, which is clearly not the case when a company has overseas listing. As a result, SIC 19 was issued to provide guidance for choosing the appropriate measurement currency.

The Board addressed how a company should determine the measurement currency. The Board agreed that measurement currency should not be a matter of choice but, rather, should bv the currency of the country whose economy drives the business. It is the measurement currency that determines the gains and losses that the company will recognise.

The Board discussed measurement currency in the context of a group of companies whose subsidiaries are in different countries to the parent. It was agreed that the measurement currency of each subsidiary in the group is the currency of the country that drives that subsidiary's economy (usually the country it is incorporated in). The Board's tentative conclusion was that the group financial statements can use any of the currencies used by the other group companies as their measurement currency and can present the consolidated financial statements in any of those currencies as well.

The Board then discussed whether the group could present its financial statements in any other world-wide currency that is not a measurement currency within the group. This is something that SIC 19 currently allows. It was concluded that free choice of currency presentation should be allowed and IAS 21 translation rules should be followed.

SIC D30 proposals are to be incorporated into IAS 21 which means that if a simple conversion was done into any currency (i.e. using closing rate for everything) rather than a proper translation, extra disclosure would need to be given as the conversion is not in compliance with IAS 21.

5. Whether, if the Board adopts SIC 19's approach to defining a measurement currency, to eliminate the present distinction in IAS 21 between integral foreign operations and foreign entities and instead require that all foreign operations are translated using a single method.

The Board's tentative conclusion is that no change in this area should be proposed.

6. Whether all discussion of hedging that is presently in IAS 21 should be moved to IAS 39.

This was agreed.

7. Whether SIC 7, SIC 11, SIC 19, and SIC 30 should be incorporated into IAS 21?

The Board decided that SIC 7 on the Euro should remain in place as countries may still wish to join the Euro in the future. SIC 11 on capitalisation of foreign exchange differences was already addressed in issue 1 above and therefore will not be merged into IAS 21. SIC 19 and 30, as discussed above, will be brought into IAS 21.

8. Whether to provide specific transitional provisions to the revised standard.

No transitional provisions are proposed although it may be appropriate to issue an Interpretation until the amended Standard is produced.

The Board is considering whether to eliminate the choice in IAS 23 to either capitalise borrowing costs that meet certain conditions or to report all borrowing costs as an expense in the period in which they were incurred. In addition to these two alternatives, the Board is considering a possible third approach, namely to capitalise an asset-specific cost of capital (including both a cost of borrowing and a cost of equity capital).

Board members indicated that they did not consider this to be a major issue and whichever way the Board concludes, they felt there will be mixed feedback. The Board tentatively agreed that all borrowing costs should be reported as an expense. The Board recognises that this will not lead to convergence, as most countries currently either require capitalisation or allow a choice. Therefore, before the Board makes a final decision the issue will be put on the agenda of the next National Standard Setters meeting.

If capitalisation were to be allowed, then the Board believes that detailed guidance is needed. The third approach was seen as being too subjective and dismissed.

Subsequent Cash Flow Test for Goodwill

At its last meeting the Board decided that goodwill should not be amortised but should be subject to an annual impairment review that is calculated based on cash flows. The discussions considered whether extra disclosure is needed.

It was agreed that extra disclosure was needed to show how the impairment or non-impairment is arrived at and would include: -

• Methodology of the process
• Sensitivity to future events
• If the estimation process was changed or if there was a change in assumptions, how would this impact on the value of goodwill in the balance sheet.

Draft disclosures had been drawn up and were to be discussed during the afternoon session. Discussion is expected to continue at the December or January meetings.

Identifying an Acquirer when a New Entity is Formed to Effect a Business Combination

The Board continued its discussion of whether, when a new entity is formed to issue equity instruments to effect a business combination, that new entity or one of the combining entities that existed prior to the business combination should be determined to be the acquirer. The Board had tentatively agreed not to take a position in the Phase I exposure draft but, rather, to seek respondants' views. The Board is reconsidering that decision, with a view to reaching a tentative conclusion to include in the Exposure Draft.

Business Combinations Issues Arising in the Improvements Project

1. Can a finance lease be reclassified to an operating lease on acquisition using a new fair value calculation on acquisition? The Board decided that under IAS 17.10 it is the classification at the inception of the lease which is important, and this classification should continue on acquisition (unless there are certain conditions defined within IAS 17). The Board concluded that no additional guidance was required and no changes would be made.

2. Accounting for a reverse acquisition: The Board deferred discussion until its next meeting.

3. Possible contradiction between IAS 22 and IAS 39 on whether to include the costs of arranging debt for acquisition: The Board concluded to make the IAS 22 wording consistent with IAS 39.

4. Measurement of acquirer's shares issued for acquisition: Which date should be used? Should the quoted market price on that date always be used if available? The Board will consider these at its December meeting.

5. Costs of registering and issuing equity instruments: The Board concluded that reference in IAS 22 to the cost of issuing equity instruments should be deleted.

6. IAS 22.39(k) states that the fair value of onerous contracts equals the present value of the amounts to be disbursed. A query had been raised concerning non-onerous executive contracts. The Board agreed that all contracts should be included in the fair value assessments including non-onerous executive contracts, and IAS 22 should be clarified.

7. There is a discrepancy within IAS 22 regarding a subsidiary's recognition of deferred tax. The Board concluded not to address this in Phase I.

Chapters 1, 2, and 3 of the DSOP, prepared by the Insurance Steering Committee, were presented to Board. Chapters 4, 5, 6, should be available to the public for the December Board meeting. Field visits with insurance companies are already taking place, particularly in the UK. Other visits are scheduled in Europe by the end of the year and in Asia at the beginning of 2002.

Links between the insurance project and the projects on performance reporting and financial instruments, and liabilities recognition were pointed out.

The Board discussed the principles stated in chapters 1 and 2:

• Principle 1.1 A future IFRS on Insurance Contracts (the Standard) should prescribe the accounting and disclosure in general purpose financial statements by insurers and policyholders for all insurance contracts, other than those excluded by principle 1.5. The Standard should not address other aspects of accounting by insurers or policyholders (except as specified in principles 4.9, 7.4, 10.1, 10.2 and 11.2 ).
• Principle 1.2 Insurance contracts should be defined as follows in all IFRS and IAS:
  • An insurance contract is a contract under which one party (the insurer) accepts an insurance risk by agreeing with another party (the policyholder) to compensate the policyholder or other beneficiary if a specified uncertain future event (the insured event) adversely affects the policyholder or other beneficiary (other than an event that is only a change in one or more of a specified interest rate, security price, commodity price, foreign exchange rate, index of prices or rates, a credit rating or credit index or similar variable).
• Principle 1.3 A contract creates sufficient insurance risk to qualify as an insurance contract if, and only if, there is a reasonable possibility that an event affecting the policyholder or other beneficiary will cause a significant change in the present value of the insurer's net cash flows arising from that contract. In considering whether there is a reasonable possibility of such significant change, it is necessary to consider both the probability of the event and the magnitude of its effect.
• Principle 1.4 A contract that qualifies as an insurance contract at inception or later remains an insurance contract until all rights and obligations are extinguished or expire. If a contract did not qualify as an insurance contract at inception, it should be subsequently reclassified as an insurance contract if, and only if, a significant change in the present value of the insurer's net cash flows becomes a reasonable possibility (see principle 1.3).
• Principle 1.5 Although the following items arise under contracts that may meet the definition of insurance contracts, they should be excluded from the scope of the Standard:
  • (a) financial guarantees (including credit insurance) measured at fair value;
  • (b) product warranties issued directly by a manufacturer, dealer or retailer;
  • (c) employers' assets and liabilities under employee benefit plans (including equity compensation plans);
  • (d) retirement benefit obligations reported by defined benefit retirement benefit plans;
  • (e) contingent consideration payable or receivable in a business combination; and
  • (f) contractual rights or contractual obligations that are contingent on the future use of, or right to use, a non-financial item (for example, certain licence fees, royalties, lease payments and similar items).
• Principle 1.6 An insurer or policyholder should not account separately for the components of an insurance contract that bundles together:
  • (a) an insurance element and a non-derivative investment element; or
  • (b) an embedded derivative and a host insurance contract.
• Principle 2.1 There should be a single recognition and measurement approach for all forms of insurance contracts, regardless of the type of risk underwritten.
• Principle 2.2 Insurance assets and insurance liabilities are assets and liabilities arising under an insurance contract. An insurer or policyholder should recognise:
  • (a) an insurance asset when, and only when, it has contractual rights under an insurance contract that result in an asset; and
  • (b) an insurance liability when, and only when, it has contractual obligations under an insurance contract that result in a liability.
• Principle 2.3 An insurer or policyholder should derecognise an insurance asset or insurance liability or a component of an insurance asset or insurance liability when, and only when, it no longer has the contractual rights or the contractual obligations that resulted in that insurance asset, insurance liability or component.

These principles led to some discussion but no fundamental disagreement was expressed with them. They will be regarded as basic premises with which to analyse the remainder of the DSOP.

The Board started to consider chapter 3 and to examine the concepts of 'entity specific value' and 'fair value'. Analysis will continue at the December Board meeting.