Improvements to IFRS

Date recorded:

Improvements - IAS 40, Investment Property and IAS 17, Leases

The Board discussed whether entities can classify property interests held under operating leases that qualify as investment property on a property-by-property basis. The staff proposed that this allowance be retained provided all investment properties are carried under the fair value option.

Some Board members queried whether the property by property operating lease choice should dictate the accounting policy choice for all investment properties.

In addition it was proposed that this would only be available at inception of the lease, to prevent operating leases over property that was owner occupied from being classified as investment property if there was a change in circumstances. In addition IAS 40 already deals with transfers between categories.

The Board agreed with the restriction in accounting policy but did not include the restriction on classification at inception only.

The Board previously decided to clarify that the fair value of a property interest held under a long-term lease, and classified as an investment property asset under the fair value model in IAS 40, should be determined by reference to the rights given by the lease, and that the obligation under the lease should be accounted for as a liability.

The staff proposed that IAS 40 clarify that a leasehold property interest is valued by reference to expected cash flows - both inflows and outflows - but without deduction for any outflows that are separately recognised in the balance sheet as a liability.

The Board agreed to include this in the standard.

Improvements to IAS 19, Employee Benefits

The Board considered how to proceed with the improvements to IAS 19 given that an exposure draft on Other Comprehensive Income will be delayed.

The staff proposed that IAS 1 should be amended to create a second performance statement similar to the statement of other comprehensive income (OCI) in the US and the statement of total recognised gains and losses (STRGL) in the UK. In addition IAS 19 should be amended to reflect both the Board's decisions in the project to date, including the immediate recognition of actuarial gains and losses, and also to require particular actuarial gains and losses to be recognised in OCI rather than in the income statement.

It was noted that this is not just a presentation issue but that other issues such as recycling and some measurement issues would also be addressed. Concern was also expressed that this may give the impression that the main Other Comprehensive Income project is halted.

It was proposed to allow entities to record the IAS 19 unrecorded smoothing effects in the IAS 1 alternate comprehensive income statement provided agreement can be achieved on the separation between amounts recorded in the income statement and those in the other comprehensive income statement.

Some Board members expressed concern as to the affects this may have. The Board asked the staff to consider the issue further and bring it back to the next meeting.

Improvements - General

The Board was asked to consider removing the references to 'benchmark' and 'allowed alternative' when standards are revised. The Board agreed that these references would be removing whenever possible and replaced with appropriate wording.

It was noted that IAS 31.33 expressed a preference for the benchmark treatment. Some Board members disagreed with this preference. The Board agreed that this could not be removed without due process but that it should be noted that this may change when accounting for joint ventures is considered.

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