On Monday 12 November 2007, the IASB conducted a public roundtable on a revised staff draft of an amendment to IAS 32. The issue is whether financial instruments puttable at fair value and obligations arising on liquidation should be classified as debt or equity. Here is a brief report:

• Thirty-three individuals and organisations participated in the roundtable, as did eight IASB members and several staff.
• The revised draft amendment can be downloaded from the IASB's Website (PDF 888k).
• During the roundtable, the IASB indicated that it does not consider the changes from the June 2006 Exposure Draft significant enough to warrant re-exposure.
• While most participants agreed that amendment of IAS 32 for puttable instruments is needed, and many spoke in favour of the revised draft amendment, numerous technical issues were raised with respect to the proposal. Staff indicated that it plans to consider whether and how to reflect the views expressed at the roundtable in a revised draft of amendments to IAS 32 that it plans to present at the Board's December 2007 meeting.
• The IASB is aware of the need to finalise the amendment as soon as it can to allow early adoption for many entities. The Board intends to post a near-final draft of the final amendments on its website when available.

The IFRIC Co-ordinator reported the results of the November IFRIC meeting (Click Here for the IAS Plus report of that meeting). She noted in particular the forthcoming Draft Interpretations on customer contributions and non-cash distributions to owners acting in their capacity as owners. With respect to the latter Draft Interpretation, she explained the background of the issue, the considerable degree of consensus achieved on contentious matters and the one area of considerable disagreement on which an alternative view is being included in the basis for conclusions and highlighted in the invitation to comment. From the immediate reactions of Board members, there seemed to be significant support for the consensus view.

The Board held a discussion on various aspects of the Measurement phase of the Conceptual Framework project. Staff from the FASB participated in person and by telephone.

Project phase summary

Board members discussed the project summary prepared by the staff for release on the Boards' websites. Included in this summary is an appendix listing 'definitions of measurement basis candidates', which attracted considerable comment. Some Board members were concerned that the appendix included, as 'measurement attributes', things that were not attributes but allocation methods (such as value in use); others were concerned about including candidates that, in a paper presented subsequently, it was obvious were non-starters. The staff will highlight those possible candidates for which further analysis will not be undertaken.

Project phase plan

The Board discussed a revised plan for the measurement phase up to the release of a discussion paper or preliminary views document. Included in the plan were proposals for 'collateral topics' that the staff might examine, including 'the meaning of financial position and comprehensive income'. Several Board members expressed considerable disquiet with this potential scope creep. The consensus appeared to be that the project plan should not be extended to these items. If the project plan is met, a discussion paper would be issued in late Q4 2008.

Measurement basis decision tool

The staff introduced a proposed rationale that they intend to use when assessing measurement basis candidates. The rationale would result in an 'ideal' measurement candidate in a given context with other surrogates. The Board would then be able to assess these candidates taking into account further decision criteria before setting a measurement attribute in a given standard.

Board members expressed concerns with aspects of the proposed staff approach, in particular the idea of a search for 'an ideal' measurement attribute (a search which one Board member described as 'over-zealous'). As a result, the staff agreed that they would return to a subsequent meeting (probably February 2008) with some examples of assessments of measurement attributes made using the tool.

At the October joint meeting between the IASB and the FASB, the staff presented a summary of both the measurement and customer consideration models. The objective of the November meeting is to provide the Board with a more thorough explanation of the measurement model described as the asset and liability approach. The objective of the discussion is for the Board to focus on the measurement model and not compare it with the customer consideration model.

An asset and liability approach

The Board first discussed Agenda Paper 4B, which describes why the Boards did not pursue a revenue recognition model based on notions of realisation and an earnings process. The paper also describes why the Boards have instead pursued a model based on changes in assets and liability and includes the Boards' initial definition of revenue in terms of an entity's contract with a customer.

The staff introduced the paper and noted that although this paper was the basis for a chapter in the forthcoming discussion paper on revenue, it was not intended to be the complete chapter. Any finalised chapter would include additional information explaining the background to the project and why certain decisions were made.

The staff noted the following key points in the paper:

• The chapter will be common to both the measurement and customer consideration models as both models focus initially on the customer contract.
• Many constituents believe that the asset and liability approach is 'code' for fair value. Staff does not believe this is the case.
• Much of the accounting that exists under the existing model will not change as a consequence of adopting an asset and liability approach.
• Both the measurement model and the customer consideration models focus on the contract. However, it is recognised that in some industries this information may not be the most decision useful information. An example is agriculture. In such industries the focus may be better placed on an asset more generally (the growth of a tree) rather than a contract with a customer.
• Obligations are satisfied by the transfer of economic resources. Both models need to describe the criteria for transfer.

The Board then discussed the agenda paper, and a number of concerns were raised. One Board member noted that a particular concern is that contract with customers in some jurisdictions may be 'firm' where as in other jurisdictions it may be more behavioural in nature. That is, there is a shared understanding of what will be done under the contract, but no formal terms are agreed until a later point. The Board member queried whether this project was talking only about irrevocable non-cancellable contracts, or something else? The Board discussed the need to clarify the meaning of a contract.

The same Board member also noted that the Board needed to consider the cost-benefits of the models.

The Board discussed the issue of whether the asset and liability approach is requiring fair value. It was noted that not all increases in assets should be referred to as revenue (fir instance, agriculture). It was argued by some that performance should be measured on the same basis regardless of which model is used.

One Board member noted that the section outlining the shortcomings of IAS 18 Revenue in the agenda paper was short and cryptic. It was suggested to staff that the final discussion paper should also include discussion of aspects of IAS 18 that are not flawed, and also include more examples and explanation. Another Board member reminded the Board that IAS 18 was written prior to the conceptual framework.

The Board then moved on to discuss the decision usefulness of information and a tentative definition of revenue. One Board member emphasised that the key issue is whether people are able to understand the information.

In relation to how an asset or liability arises, the issue of 'right of return' and cancellability of contracts was highlighted as critical. One Board member noted that a right of refund is inseparable from cancellability of a contract. This was considered to be a critical point in understanding if and when revenue should be recognised. The staff noted that the papers focussed on enforceable cash flows, which may be contingent on the performance of a supplier; however they have not addressed the issue of any intangible asset that may arise as part of a contract relationship.

Measurement

The Board then moved on to Agenda Paper 4C, which considers how a contract asset or liability should be measured. The staff highlighted the four main reasons why current exit price was selected as the measurement attribute as:

• The measurement reflects the future cash flows associated with the remaining rights and obligations in the contract.
• The measurement includes a margin at each measurement date for all of the remaining contractual obligations.
• The measurement is current.
• The measurement enhances comparability.

The Board discussed these reasons at length. One Board member noted that the model is not a predictor of cash flows, as it is highly unlikely that the contractor is going to lay off the obligation. The requirement to measure the contract at current exit price was highlighted by the staff as a significant change to current practice. An extensive discussion ensued on issues related to measuring assets at exit price. Some Board members said that they were uncomfortable with the issue that sales price is not remeasured, but cost is.

Accounting for the contract with the customer

The Board then moved on to Agenda Paper 4D, which explores the implications of the proposals for revenue recognition. The Board agreed that revenues cannot arise before a contract with a customer exists. The Board discussed the issue of when revenue should be recognised, and noted that it was not clear from the current papers when this would occur. The issue of contract cancellability was raised again. Some Board members thought that cancellability may be outside the scope of the project. One Board member noted that unless there are legal remedies, all contracts are cancellable - it is just that you may be required to pay your way out of the contract. This issue was referred to staff for further research and consideration.

Following extensive discussion, staff noted that some people disagree with the asset and liability model on a conceptual basis because it gives rise to 'day 1 revenue' whereas others disagree with the model on the basis of measurement difficulties.

It was noted that delivery of the good or service is fundamental to revenue recognition. The links between asset derecognition and obligation satisfaction was agreed by Board members to be critical to both proposed models of revenue recognition. Staff said they would expect the approach to derecognition for purposes of revenue recognition would be consistent with the approach adopted in the financial instruments project. One Board member noted that such consistency should not be limited to derecognition - the revenue project should also be consistent with the current projects on liabilities and insurance.

The Board agreed to continue discussing the model at the December meeting.

The Board was presented an Agenda Paper dealing with accounting for policyholders' rights under insurance contracts. The staff explained that no specific standard or guidance exists for policyholder accounting. It was noted that in the past this was not considered to be a significant issue and for that reason no guidance was developed. The staff noted that the need for accounting guidance has grown over the last years and that US GAAP already includes some guidance in that area.

The Board discussed the issue of symmetry in accounting and if policyholder accounting should remain part of the Insurance Contracts project (as it is already within the agreed scope).

The Board agreed that policyholder accounting should remain part of the Insurance Contracts project and that there should be more focus on these issues. Also the Board tentatively agreed that no Discussion Paper would be required and any output would result directly in an Exposure Draft. It was not decided if it will be an amendment to existing standards or a stand-alone standard.

Staff informed the Board that the redeliberation of the ED is close to its end but that constituents raised concerns about certain aspects within IFRS 2, in particular in relation to the grant date, where it was noted by that there are significant differences to US GAAP. Therefore, the staff asked the Board how it wishes to continue with this project. The following alternatives were presented:

• The Board proceeds with the proposed Amendment with no further work on the other issues;
• The Board proceeds with the Amendment and adds a separate new project to its agenda to consider other critical issues, including the determination of the grant date; or
• The Board does not finalise the amendment and, instead, adds a new project to its agenda to consider a range of critical issues, including the determination of the grant date and the issues addressed in the proposed Amendment.

The Board had a short discussion on the merits of a more comprehensive project on IFRS 2 with a focus of convergence with US GAAP. The Board also expressed concern that dropping the ED as proposed would not help as it fixes certain problems but does not worsen other perceived issues. The Board agreed to proceed with the proposed amendment as soon as possible to allow for early adoption at year end, but also allocate resources to investigate on ways to improve IFRS 2 and share-based payment accounting as a whole. That should preferably be done together with the FASB. The result should be a proposal to add a new project to the IASB's agenda at the next agenda meeting.

The Board continued its deliberations on various issues to be addressed in the initial discussion document of this project.

Statement of cash flows

The Board discussed which presentation formats for the statement of cash flows should be presented in the initial discussion document.

The discussion mainly focussed on the question whether the direct or indirect method of presentation provides more useful information to users of financial statements. Two Board members pointed out that, in their view, the indirect method is superior to the direct method in relation to the projection of future cash flows and that it has broad acceptance in practice. Board members in favour of the direct method stressed that this method achieves a high degree of cohesiveness with the statement of comprehensive income. Other Board members noted that both methods have their merits.

Finally, the majority of Board members were of the view that the direct method should be the preferred method. To generate discussion with constituents on this issue it was decided to illustrate both the direct and indirect method in the initial discussion document and to also describe advantages and disadvantages of both methods. When using the direct method an entity should use the same line items within the operating category on both the statement of comprehensive income and the statement of cash flows. The Board decided to describe two approaches of the direct method in the initial discussion document:

• 'Direct-direct" or 'bottom-up' approach: Under this approach, cash receipts and payments are determined by aggregating the cash flows amount from the cash ledger.
• 'Indirect-direct' or 'top-down' approach: Under this approach, cash receipts and payments are determined by adjusting items in the statement of comprehensive income (that is, revenue, expense, gains and losses) for the change in the related items in the statement of financial position over the period.

The Board acknowledged that the direct-direct approach may be very costly to implement and, therefore, an entity should be permitted to use the indirect-direct method. In addition, the Board agreed to seek input regarding the following issues:

• Costs and benefits associated with preparing a direct method statement of cash flows.
• For entities for which a statement of cash flows may not be relevant (such as financial institutions) ask how the statement could be modified to increase its relevance, or what information might be more relevant to be provided in place of the statement of cash flows.
• Whether the indirect schedule should continue to be required when the statement of cash flows is presented under the direct method and a reconciliation of statement of cash flows to statement of comprehensive income is presented.

Reconciliation schedule

The Board reaffirmed its preference for the disclosure of a reconciliation of the statement of cash flows to the statement of comprehensive income (the 'reconciliation schedule'). Such a schedule would begin with the line items and amounts in the statement of cash flows (based on the direct method) and reconcile to the amounts in the statement of comprehensive income.

The Board discussed which reconciling items (columns) should be required in the reconciliation schedule. The staff proposed that at a minimum the reconciling items should be disaggregated into the following four columns:

• Cash flows not affecting income
• Accruals and systematic allocations This column includes contractual accruals (such as changes in payables and receivables), systematic allocations (such as depreciation expense), other accruals and other non-remeasurements.
• Recurring valuation changes This includes changes to fair value from fair value only.
• Remeasurements other than recurring valuation changes In the staff's view these remeasurements are considered to be more persistent and separating these from recurring fair value changes would improve information.

The proposed format combines attributes of the preliminary IASB and FASB views and was labelled 'the converged view'. It is illustrated on page 4 of the appendix of agenda paper 7A available on the IASB website.

A number of Board members pointed out that it may be difficult to allocate reconciling items to the four columns and that divergence in practice may arise; for example, should impairment of inventories be included in 'accruals and systematic allocations' or 'remeasurements other than recurring valuation changes'? One Board member raised the concern that a fixed schedule could result in 'number crunching' to ensure that the schedule works out rather than providing useful information.

The Board decided to describe and illustrate the converged view in the initial discussion document and to seek feedback on the reconciling items (columns) including the definitions of the columns. In deviation from the format illustrated in agenda paper 7A the Board decided not to require a separate presentation of unusual or infrequent items.

Totals and subtotals in the financial statements

The Board discussed various alternatives for presenting totals and subtotals in the statement of financial position, statement of comprehensive income, and the statement of cash flows.

Common totals and subtotals

The staff presented the revised working format below including additional mandatory subtotals.

In general the Board agreed with the revised format. However, there seemed to be a consensus that no additional subtotals should be required for investing and financing items (subtotals A2, C1 and C2 above) because investing and financing items normally include only a few line items.

The Board noted that an entity should not be precluded from presenting additional subtotals in any of the statements.

The Board decided that an order of the sections in the statement of financial position (business, discontinued operations, income taxes, financing and equity) should not be prescribed. However, the same order of sections should be used in all statements.

Totals and subtotals unique to the statement of financial position

The Board made the following decisions:

• An entity that presents a classified statement of financial position should be required to present a subtotal for each short-term and long-term subcategory in each of the categories (unless there is only one line item in that subcategory). No further subtotals should be required.
• Operating assets should be separated from operating liabilities and an entity should be permitted but not required to include a subtotal for operating assets and for operating liabilities.
• The notes to financial statements should include totals for short-term assets, short-term liabilities, long-term assets, long-term liabilities, total assets, and total liabilities.

Totals and subtotals unique to the statement of comprehensive income

The Board decided to require the subtotal 'comprehensive income' in addition to the common subtotals required in the revised working format above.

Totals and subtotals unique to the statement of cash flows.

The Board decided that no additional subtotals should be required on the statement of cash flows other than the common subtotals required in the revised working format above.

Overall aggregation principle

The Board decided to add the following guidelines to the aggregation principle:

• An entity would be permitted to include additional line items on the financial statements and modify the descriptions used as necessary to explain the components of its financial results.
• Subtotals must flow from the order of the sections; that is, an entity cannot randomly choose subtotals or line items to add together.
• Additional subtotals an entity chooses to include should be presented with no more prominence than any required subtotals.

The staff was asked to prepare a draft of the initial discussion document reflecting the decisions made at this meeting.

At the October IASB meeting, the Board began its redeliberation of amendments to IAS 24 Related Party Disclosures as proposed in the Exposure Draft State-Controlled Entities and the Definition of a Related Party (the ED; published in February 2007) in the light of the comments received. Staff pointed out that some of the comments received recommended rewording or clarifications and will be considered when drafting the final standard.

The staff presented issues relating to the definition of a 'related party' that were raised by constituents subsequent to the publication of the ED. Firstly, commentators identified a perceived inconsistency in the proposal not to include the relationship between associates in the definition, but to include this relationship when the influencing party is part of key management personnel. The complete analysis can be found in Agenda Paper 5A, which is available on the IASB's website. During the discussion it was noted that other bodies are also currently deliberating related party transaction and it might be useful to consider the outcomes of those projects. As the Board could not agree on the staff proposal, staff were requested to come back after considering the issues raised in this session.

The second decision the Board was asked to make dealt with the definition of state and state-controlled entities. In their responses to the ED constituents asked if different parts or levels of a state should be viewed as one composite and if entities which are controlled or significantly influenced by different levels of government should be considered to be related. The staff analysed its definition concluded that the definition of state set out is principle-based and provides sufficient guidance. Consequently, the Board agreed keeping the definition in the ED.

Another concern raised in the comments on the ED was how to determine state-controlled entities under common control. Respondents seek for a definition of 'common state' (which is, the state controlling both transacting entities) or application guidance. The Board agreed with the staff recommendation not to provide a definition or application guidance.

The staff brought to the attention of the Board another possible source of confusion as many respondents see paragraph 17A(b) of the ED as defining entities that are both significantly influenced by the same state as being related parties. Therefore, staff recommended to amend the wording to make clear this was not the case. The Board agreed.

The staff also highlighted that constituents requested clarification in paragraph 17A(b) of the ED to make clear, that it only refers to influence between state-controlled entities. The Board agreed to amend the paragraph with the words 'influence exercised by a common state'.

The Board was then asked to possibly revise a former decision in connection with the definition of 'close members of the family', that the constituents raising this issue considered burdensome. By majority vote the Board decided that the reporting entity should have no discretion whether close family members are related parties or not, i.e. if transactions with close family members (as defined in the ED) occurred they need to be disclosed. Consequently, no changes should be made to the ED.

The next issue raised by commentators was the request for a definition of 'significant voting power' and other wanted the term to be deleted in total. The staff recommended deletion. Some Board members noted that significant voting power is different from significant influence and in some circumstances can exist in absence of significant influence. The Board did not reach a conclusion on how to exactly distinguish the two terms. However, there seemed to be a consensus that the existence of significant voting power should trigger the disclosure requirements in IAS 24. Accordingly, the Board decided not to delete the term significant voting power. The Board also agreed to the staff proposal for minor changes with regard to specific joint control situations and post-employment benefit plans.

The Board then discussed the definition of a related party transaction and other issues.

The Board was presented a perceived burdensome requirement with respect to commitments to future performance in a related party transaction (paragraph 20(j) in the ED). This issue was raised as those commitments might be difficult to be recorded in the financial reporting systems of entities. The Board agreed that it wanted to have those commitments and executory contracts within the scope and that the example should be kept.

The next point the Board dealt with was the request by commentators to define the term 'individual financial statements' as it is not defined in IFRSs. The staff considered such financial statements as neither separate financial statements nor consolidated financial statements, but recommended to include a definition for clarification purposes in IAS 27 Consolidated and Separate Financial Statements. The Board agreed.

Constituents were concerned over the proposed deletion of paragraph 14 in IAS 24. Users would consider such information as useful. The staff therefore recommended that the paragraph should be kept and amended to reflect that it is additional to other disclosure requirements. The Board agreed.

Some constituents asked whether key management compensation to be disclosed should be the amounts paid or payable or the amounts recognised as an expense and what should be disclosed for post-employment benefits (for example, how to treat the 'corridor approach', interest costs and the share of actuarial gains and losses) and share-based payments.

The staff expressed concerns about the consumption of resources such research and analysis would require and recommended to the Board that it should not deal with this issue in this project. It might look at other standard-setting institutions to gain some insight and put that information on the record for the next project on related party transactions. The Board agreed.

The next request for change proposed to change the categories for disclosure in paragraph 18 of IAS 24 for reasons of usefulness. The staff recommended not changing the categories. The Board agreed.

Another area of concern was if, within the definition of related party, an associate and a joint venture include subsidiaries of the associate and joint venture. The staff believed the paragraph is not clear on this point and recommended an amendment to add clarification. The majority of the Board members agreed.

The staff then asked the Board on the effective date of the final standard. The Board agreed to postpone this decision until it is clear when the standard is finalised.

The Board also agreed that full retrospective application would be required.

The last point was a proposed consequential amendment to IFRS 8 with regard to state-controlled entities. The amendment recommended by the staff would grant the same relief in paragraph 34 of IFRS 8 Operating Segments as the proposed IAS 24 would. The Board agreed.

The staff began the morning session by informing the Board about the latest developments in relation to the implementation of SFAS 157 Fair Value Measurements which is the basis for the Discussion Paper published by the IASB. The developments included the deferral of the effective date of SFAS 157 for non-recurring measurements (for example in business combinations). It was noted that these developments would have no impact on the IASB project on fair value measurements.

The staff presented its preliminary definitions of 'current exit price' and 'current entry price' for assets and liabilities that will be used in the standard-by-standard review. The Board and the staff reiterated that they do not want to change the measurement within the standards. The goal of the analysis carried out by the staff would be to find out which measurement attribute the Board and its predecessor (the IASC) had in mind when using the term 'fair value'.

The preliminary working definitions of the staff are as follows:

• Assets:
  • Current entry price: The price that would be paid to buy an asset in an orderly transaction between market participants at the measurement date.
  • Current exit price: The price that would be received to sell an asset in an orderly transaction between market participants at the measurement date.
• Liabilities:
  • Current entry price: The price that would be received to incur a liability in an orderly transaction between market participants at the measurement date.
  • Current exit price I (transfer notion): The price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date.
  • Current exit price II (settlement notion): The price that would be paid to settle a liability in an orderly transaction at the measurement date.

The Board had a short discussion on certain aspects of fair value measurement and was informed by staff that some of the issues will be discussed at the December Board meeting.

The Board agreed on the preliminary definitions of current entry price and current exit price for assets and liabilities and that staff should not consider other measurement bases for the purpose of the standard-by-standard review.

On 12 November the Board held two round table discussions on a revised Exposure Draft (the Staff Draft).

The staff presented a summary of the issues raised at these meetings. The staff concluded that the majority of participants supported the Staff Draft and that most of the issues can be resolved by revising the wording. The staff proposed the following ways forward:

• Incorporate in the Staff Draft the comments made by constituents
• Send a pre-ballot draft to Board members before the December meeting
• Board to discuss and vote on the pre-ballot draft at the December meeting
• Send a ballot draft to Board members after the December meeting

The Board agreed.

The Board redeliberated the effective date for the revised IFRS 3 Business Combinations and the amended IAS 27 Consolidated and Separate Financial Statements.

In April 2007 the Board decided that the effective date should be 1 January 2009. The staff noted that because of the additional administrative burdens of joint project and the preparation of a Feedback Statement the Standards will not be published before the end of November.

To restore the transition period of 18 months, the Board decided to change the effective date to 1 July 2009. The Board made clear that this postponement of the effective date to have an 18 month period again does not constitute a new policy with regard to the time between publication of a new standard and its effective date. This is done only as an 18 month period has already been agreed on and communicated. Additionally, one Board member noted that the period of five months between the acceptance of a standard by the Board and the actual publication should be exceptional.

The Board participated in an education session on the application of the proposed consolidation framework to structured entities (for example, special purpose entities) held by the consolidation project team. The purpose of this session was to receive feedback from the Board members about the principles for assessing the rights one entity has in another. A further request for input was in relation to the approach presented was helpful for an entity to decide if it should recognise all assets and liabilities of another entity (that is, consolidate) or only those assets and liabilities that it holds a direct interest in.

This was an education session and accordingly no decisions were made.

Although the session was educative, the Board had considerable discussion on certain aspects of the two Agenda Papers provided by the staff (which can be downloaded from the IASB's website).

In relation to the first Agenda Paper, the staff presented existing guidance on the accounting treatment for structured entities (namely, SIC-12 and FIN 46R) and possible other approaches. The staff also presented a proposed approach to consolidation of such entities. This approach would focus on a 'single control model' and not on a 'risk and rewards model', but this model would often involve assessing control by analysing risks and rewards. Some Board members saw no fundamental difference in this approach to a 'pure' risks and rewards approach. The staff pointed out that the ultimate goal is the recognition of all assets it controls and all obligations for which it is responsible, which is similar to the approach taken in ED 9 Joint Arrangements.

The second Agenda Paper presented specific (and simplified) fact patterns to show how the proposed consolidation model could be applied. The Board had some discussions on the examples presented and concluded that they do not extract the distinguishing feature that triggers consolidation or the partial recognition of assets and liabilities. Some Board members also noted that they had difficulties in identifying a principle in the examples. A number of Board members also expressed concerns that the examples might be too simplistic. The Board also suggested other fact patterns that the staff might want to consider in the course of the project.

The staff informed the Board that it will bring the issues back to the Board for consideration at a future meeting.