IFRS for Private Entities

Date recorded:

The Board continued its redeliberations on the exposure draft of an IFRS for Private Entities. Staff informed the Board that they did not want to discuss major issues today. Those would be brought back at the November meeting.


Temporary control exemption from consolidation

Due to the Board's decision at the September 2008 meeting to eliminate the 'held for sale' classification, the Board considered whether there should be an exemption from consolidation for a subsidiary that was acquired with an intent to dispose in the near future. Effectively, such an exemption currently exists under full IFRSs. The Board decided that a similar exemption from consolidation should be added for subsidiaries where on acquisition there is evidence that control is intended to be temporary (that is, there is an intention to dispose of the subsidiary within twelve months and management is actively seeking a buyer). The use of such this exemption would trigger additional disclosures by the investing entity.


Purchaed options as hedging instruments

The Board discussed whether purchased options should be permitted as hedging instruments for hedge accounting purposes. The staff explained that these instruments are rarely used by private entities and recommended not allowing them to reduce complexity. The staff also noted that an entity would not be prohibited to provide additional disclosures about this fact.

One Board member objected to this observation stating that from own experience he believed these are frequently used by private entities. Others believed except for some measurement challenges options would, from an accounting perspective, not be different than forwards or swaps. It was noted that this could impair neutrality of accounting as entity might refrain from using option because of the accounting consequences. One Board member responded that an entity is free to apply full IFRS and apply the guidance in IAS 39.

The Board decided not to permit purchased options in the IFRS for Private Entities.


Operating leases

Staff presented a revised proposal to modify the application of the straight-line method by lessees for operating leases if minimum lease payments are structured to increase to compensate the lessor for expected inflation. The Board supported the staff proposal but noted that it must be clarified that 'expected inflation' means changes in general purchasing power based on published statistics, rather than a general estimate of the lessor's future cost increases. The staff also informed the Board that it would bring back a proposal to add guidance on contingent rentals for operating leases.


Classification of equity/liability

The Board considered whether the February 2008 amendment to IAS 32 on puttable instruments and obligations arising on liquidation should be incorporated in the IFRS for Private Entities. The staff proposed to simplify the wording used in the original pronouncement. The Board agreed that the amendment should be incorporated but rejected the wording simplifications, noting that the words were carefully drafted to meet the objective and that any changes could potentially alter the content. Instead the Board decided that the amendment will be incorporated without revision in the IFRS for Private Entities.


Definition of government grant

The staff withdrew their recommendation to remove the phrase 'in return for past or future compliance with certain conditions relating to the operating activities of the entity' from the definition of a government grant.


Way forward

The Board will discuss outstanding issues in November and December. Some of the main outstanding issues relate to restructuring the financial instruments section, possible replacement of the term 'fair value', concepts and pervasive principles, measurement of equity-settled share-based payments, accounting for defined benefit plans, income taxes, and impairment of goodwill. The staff also indicated that it will propose that the Board revisit several of the tentative decisions made during redeliberations, including the name of the standard, consolidation, amortisation of indefinite-life intangibles, and recognition of actuarial gains and losses.

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