Convergence – Short-term Issues

Date recorded:

The staff listed the IASB and FASB exposure drafts that have been issued or that will soon be issued that intend to converge.

The Boards discussed what issues could be added to the short-term convergence project. The topics discussed were:

  • components approach to depreciation of fixed assets: IAS 16 requires components of an asset that have different useful lives to be accounted for separately, including the costs of a major inspection. When the scope of the short-term convergence project was originally determined last year, US GAAP was silent on the question of components but there was a draft Statement of Position issued by the AICPA that proposed a components approach. However, under those proposals the costs of planned major maintenance activities could not be regarded as a separate component. The scope of the AICPA project has since been reviewed, so this issue could become a candidate for the Boards to consider in the short-term convergence project. It was agreed to monitor the AICPA project and reconsider the issue at a later stage.
  • equity accounting for associates: differences on (i) associates acquired and held for disposal and (ii) conformity of accounting policies. These issues were originally excluded from the short-term convergence project because the IASB was considering whether to review proportionate consolidation (for joint ventures) and equity accounting (for associates) in general. The focus of the IASB's immediate concern has narrowed to proportionate consolidation only. Issues on equity accounting could, therefore be looked at within the short-term convergence project, although the staff is aware of continuing concern over the equity method in general.
  • pensions and other employee benefits: FAS 87 and IAS 19 are broadly similar at present. However relatively small differences (such as transitional arrangements and past service costs) can create large and lasting reconciling items. Further, the IASB has developed a draft exposure draft of amendments to IAS 19, the main aspects of which would create substantially greater divergence with US GAAP. The IASB is currently considering the timing and possible additions to the content of that exposure draft. The question is whether it is possible to improve some aspects of IAS 19 relatively quickly, for example by removing the options for deferred recognition and prohibiting the presentation of an expected return on assets separate from other changes in the plan assets' value, without reconsidering other major issues such as the measurement of the plan liabilities and in the absence of a revised statement of comprehensive income. It was noted that certain aspects of this would not be a short-term project and that the staff should reconsider what can be done in the short-term.
  • disclosures: various disclosure differences were identified but excluded from the short-term convergence project because the priority was on removing recognition.and measurement differences that cause reconciling items. The staff believes that a general convergence project on disclosures would now be helpful to the Boards' constituents. The staff were requested to consider which EITF and IFRIC or SIC pronouncements could be converged in the short-term.

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