Date recorded:

- Other Issues

The Board discussed whether the option for proportional consolidation in IAS 31 should be eliminated and therefore the equity method of accounting would be required for joint ventures. The Board noted that there is the intention to change or eliminate the equity method of accounting in the future, but in the mean time, the elimination of the proportional consolidation method would make sense. The Board acknowledged, however, that there is a definitional problem between what is a JV and what is an undivided interest in net assets. No decision was made.

The Board identified certain differences between FASB Statement 146, Accounting for Costs Associated with Exit or Disposal Activities and IAS 37 and IAS 19. The staff believes, with the exception of employee termination benefits, the application of SFAS 146 will likely result in a later recognition of restructuring liabilities under IAS 37. This is because SFAS 146 specifically states that an entity's commitment to a restructuring does not result in the entity incurring a liability. In contrast, under IAS 37, an entity's commitment to, and announcement of, a restructuring plan means that a constructive obligation has been incurred and a provision shall be recognised.

The Board clarified that the measurement issues are too difficult to resolve in this limited term project and therefore, the focus should be on recognition.

The Board tentatively decided to amend the definition of a constructive obligation. The proposed definition would require that the other party could reasonably rely on the entity discharging its responsibilities. The Board noted that this definition should be similar to the notion of promissory estoppel noted in SFAS 143-and the basis for the definition in SFAS 146. One member noted that the current requirement for a valid expectation does not seem different from the reasonable reliance notion.

The Board further decided to withdrawal the restructuring paragraphs in IAS 37 (paragraphs 70-83). The Board noted that a plan and announcement do not always create an obligation and therefore, the provisions of IAS 37 should apply. The intent of this change is to move the recognition dates under IFRS and US GAAP closer.

The Board decided to add a rule to the final standard that a obligation related to future payments on a contract for a building, for example, should be recorded once the entity actually exits that building.

The Board discussed the current requirements for the recognition of an obligation under an onerous contract. The Board acknowledged that the current wording may be unworkable. However, such improvements should be deferred to a project on the recognition of liabilities and should not be included in this short-term project.

The Board also decided on the following amendments to IAS 19:

  • Recognition of involuntary termination benefits requires the communication of the termination benefits to the employees;
  • Involuntary termination benefits are recognised over the future service period when employees are required to render service to be entitled to those benefits;
  • Voluntary termination benefits are recognised when employees accept the offer of voluntary termination.

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