The staff summarised recent events, including IASB roadshows, the public roundtable on SMEs, and staff presentations in various countries, for the Board. Staff noted:

• Wide support for global SME standards issued by IASB.
• Wide support for simplifications apart from recognition and measurement (things like eliminating difficult options, scope exceptions that require calculations or complex judgements, and eliminating guidance not relevant to SMEs).
• Wide support for Recognition and Measurement simplifications. However:
  • Different constituents support different recognition and measurement simplifications.
  • And for different reasons.

The Board discussed whether it should defer consideration of recognition and measurement simplifications pending completion of a draft exposure draft that reflects simplifications other than recognition and measurement. Some Board members expressed concern that constituents might perceive that the Board is 'going to stop the project' and/or that it is 'not serious' about producing meaningful SME standards. Others objected to that characterisation, saying that they were serious, but they wanted to approach the problems in a disciplined way.

Staff proposed to review all IFRSs with a view toward eliminating the complex options, scope exceptions, and implementation guidance not generally relevant to SMEs. The resulting principles would be reorganised topically. Based on this approach, staff will prepare a rough draft of a major section of an exposure draft, for consideration by the Board in January 2006. Staff also proposed that further exploration of specific recognition and measurement simplifications should continue while the other aspects of the exposure draft are being developed.

The Board agreed with this approach.

The Board moved on to discuss the staff recommendations. These focused on possible recognition and measurement simplifications that were addressed in a large number of Questionnaire responses and included a staff recommendation and request for Board decision.

IAS 2 Inventories

The Board agreed that no simplification of the major principles in IAS 2 was needed for SMEs.

Use of the percentage of completion method for contracts under IAS 11 and for service revenue under IAS 18

The Board agreed, in principle, that no simplification of the major principles relating to construction contracts and service revenue in IAS 11 and IAS 18 was needed for SMEs. However, several Board members were concerned about the tax consequences of such transactions, bearing in mind the staff proposals with regard for IAS 12.

IAS 12 Income Taxes

The Board agreed that the staff should explore further, with preparers and users of SME financial statements, the issue of recognition of deferred income taxes by SMEs and bring a recommendation to the Board at a future meeting. One Board member stated that, given the concerns over front-loading percentage of completion revenue noted above, they would require full tax allocation accounting.

IAS 17 Leases

The Board expressed a preference to allow staff to explore further with both preparers and users of SME financial statements the following possibilities:

• All leases as finance leases with measurement simplifications.
• Retaining the operating and finance lease split but with measurement simplifications.

A Board member cautioned the Board that they needed to be very careful when considering simplifications in IAS 17 that they not trap SMEs into bad decisions because the management of such entities do not understand the economics (that is, accounting for leases should not drive the financing decision).

IAS 19 Employee Benefits

Board members expressed concern that the Board should not be seen to aid any attempt to obfuscate the true cost of obligations created by defined benefit plans established by the entity or imposed by government (such as gratuity or long-service plans). All employee benefit obligations should be accounted for using the IAS 19 principles.

The Board agreed that the staff should explore further an approach that would simplify the defined benefit measurement (for example by allowing triennial actuarial valuations in the absence of any triggers that would call into question the actuarial assumptions used in the last actuarial valuation; requiring all actuarial gains and losses to be recognised immediately in profit or loss, thus removing a significant record-keeping burden).

IAS 27 Consolidated Financial Statements

The Board agreed to require consolidated financial statements when one SME controls another entity.

The equity method of accounting under IAS 28 Investments in Associates and under IAS 31 Interests in Joint Ventures

The Board agreed that SMEs should measure investments in associates using either the equity method or as investments at fair value with gains and losses recognised in profit or loss.

The Board agreed that SMEs should measure interests in joint ventures using either method permitted in IAS 31 (equity method or proportionate consolidation).

IAS 36 impairment of goodwill and intangible assets

The Board agreed with the tenor of the staff recommendation that an indicator approach (but not an amortisation approach) should be explored for recognising impairment of goodwill and other indefinite-lived intangibles.

IAS 36 other impairment issues

The Board agreed that the staff should explore the following approach to impairment for all items other than goodwill and indefinite-life intangible assets:

• Retain the key principle that assets should not be carried at more than recoverable amount.
• Simplify recognition by requiring impairment only when clear under-usage, damage, or intent to sell. However, the impairment indicators should be based on those in IAS 36 paragraph 12.
• Simplify calculations - fair value rather than a value-in-use calculation.

The agenda paper included staff recommendations on other matters for which time did not permit discussion, plus a list of additional simplifications that the staff is studying. Staff plans to bring all of these to the Board in December.