The staff noted that the Board had, in a previous meeting, completed their technical discussion in the limited scope project on Bearer Biological Assets (BBAs). Those recommendations included:

• The amendments to IAS 16 Property, Plant and Equipment should permit use of fair value as deemed cost for items of BBAs at the start of the earliest comparative period presented in the financial statements to avoid the need to reconstruct cost information.
• The amendments to IAS 16 and IAS 41 should be available for early adoption.
• The deemed cost exemptions provided for property, plant and equipment in IFRS 1 First-time Adoption of International Financial Reporting Standards should also be available for items of BBAs.

The staff asked the Board whether all necessary due process steps had been undertaken on the project and whether the staff could begin the balloting process for an Exposure Draft of proposed amendments to IAS 16 and IAS 41. The Board unanimously agreed that all necessary due process steps had been undertaken and granted the staff permission to begin the balloting process.

The staff proceeded to ask whether any members of the Board intended to dissent from the proposal.

One Board member noted that he had yet to conclude whether he would dissent to the proposals on the basis of the member feeling uncomfortable in relation to the use of the cost method before maturity of the biological assets which he felt violated the fundamentals of fair value measurement. The Board member noted he would wait until the staff had drafted its disclosure package proposals before making such a decision.

Another member of the Board noted his concerns with regard to the feedback received from respondents. He noted the Board’s proposals failed to take into account the representations made by respondents with regard to removing fair value information which was deemed useful to users of the financial statements.

The majority of the Board then responded that they had no intention to dissent and that the comment period of 120 days was appropriate.

Agenda Paper 6A saw the staff seeking the Board to consider the responses received to the questions in the IASB’s 2012 Request for Information (RFI) on the scope of the IFRS for Small and Medium-Sized Entities (IFRS for SMEs) and to consider whether any amendments should be made to the IFRS for SMEs in relation to the use of the IFRS for SMEs by publicly traded entities.

The IFRS for SMEs currently prohibits an entity whose debt or equity instruments are traded in a public market from using the IFRS for SMEs. Some respondents to the staff consultation believe that governments and market regulatory authorities in the respective jurisdiction should decide whether some publicly traded entities should be able to use the IFRS for SMEs on the basis of their assessment of the public interest and the needs of investors in their jurisdiction; thereby leading to questions about whether the current scope requirements of the IFRS for SMEs is too restrictive for publicly traded entities. The staff presented two alternatives:

View 1: No, do not change the current requirements. Continue to prohibit an entity whose debt or equity instruments trade in a public market from using the IFRS for SMEs.

View 2: Yes, revise the scope of the IFRS for SMEs to permit each jurisdiction to decide whether entities whose debt or equity instruments are traded in a public market should be permitted or required to use the IFRS for SMEs.

The staff noted the majority of the Small and Medium-Sized Entities Implementation Group (SMEIG) members recommended deleting paragraph 1.5 of the IFRS for SMEs which prohibits an entity whose debt or equity instruments trade in a public market from using the IFRS for SMEs. They felt that that local authorities are best placed to decide whether the IFRS for SMEs should be permitted or required for any entities in their jurisdiction.

The staff believe in some cases it may be beneficial for those authorities to permit entities with public accountability and the first question posed by staff related to paragraph 1.5 of the IFRS for SMEs and whether or not this should be deleted since staff consider the implications of paragraph 1.5 may be unduly restrictive.

The Board proceeded to discuss the nature of the IFRS for SMEs, who it was for and how it was designed for a set user and preparer group in mind. Some Board members discussed the need to protect the brand and, how globally, there were disparities with regard to application of full IFRS and hence they were not surprised to be facing a similar issue with regard to the IFRS for SMEs.

Several members of the Board noted several instances of emerging markets, how the Board should be promoting the growth of capital markets and how it was a high hurdle to ask emerging markets to use full IFRS when they did not have the systems and capital in place to do so.

The Board centred on their agreed belief that the aim when developing the IFRS for SMEs was to provide preparers and users a standalone, simplified set of accounting principles that are appropriate for entities that do not have public accountability, in particular those that have less complex transactions, do not have the resources to apply full IFRSs and where comparability with their listed peers is not so important. Such entities do not require complex accounting policy options or the detailed guidance in full IFRSs dealing with complex transactions. The staff think that all entities that have complex transactions, favour comparability with publicly accountable entities and have sufficient expertise should really be applying full IFRSs.

Other members of the Board focused on the staff analysis that 70 per cent of respondents favoured prohibiting an entity whose debt or equity instruments trade in a public market from using IFRS for SMEs on the grounds that entities that choose to enter a public market are publicly accountable and should apply full IFRSs.

Some members of the Board discussed the need for transparency, noting that if an entity chooses to apply the IFRS for SMEs, it should disclose the fact it has done this by virtue of their market regulator allowing it opposed to their eligibility under paragraph 1.5. There was further discussion as to the merits of this and how such a disclosure would potentially promote a lack of confidence. The Chair then requested a vote, to which the deletion of paragraph 1.5 passed by a slim majority. It was therefore felt that there needed to be further discussion and hence the staff were requested to take into account the Board’s discussion, considering options such as the use of the IFRS for SMEs with some form of disclosure. This will be presented at a future meeting.

The Board then briefly discussed not for profit (“NFP”) organisations. The staff questioned whether any changes were required to the definition of NFP entities in the IFRS for SMEs – particularly with respect to the fact some of the NFP entities solicit and request contributions from the public. The Board noted that they were satisfied with the definition and no further changes need be made.

In their Agenda Paper 6B, the staff requested the Board to consider the responses received to the questions in the IASB’s 2012 RFI with respect to new and revised IFRSs issued since the IFRS for SMEs was published in 2009. The staff summarised the main comments received from respondents and provided staff and SMEIG recommendations. The staff noted that this was an opportunity for the Board to discuss the framework as to how the IFRS for SMEs would be updated following the issuance of new or amended (full) IFRSs.

The staff paper suggested the main driver for changes to the IFRS for SMEs should be the implementation experience of SMEs, including that of users of their financial statements, with changes to full IFRSs being a secondary driver. Furthermore, the staff recommended changes to full IFRSs should be considered for incorporation in the IFRS for SMEs only after they have become established under full IFRSs and implementation experience has been assessed.

The Board acknowledged that the post-implementation review process for full IFRSs occurs many years after the issuance of a standard. With this in mind, the Board discussed the importance of keeping the IFRS for SMEs alive and relevant in order for it to remain a stable platform. Some members of the Board noted that whilst consistency is an important objective, the IFRS for SMEs is a different set. However, most Board members believed there ought to be consistency between full IFRSs and the IFRS for SMEs.

The Board agreed that assessing on a standard-by-standard basis would be the most meaningful way to consider the impact of full IFRS on the IFRS for SMEs.

The Board were in agreement with the staff recommendations and suggested slight tweaks to the staff proposals before bringing back to the Board at the next meeting in order to proceed more formally.

The IASB discussed an early draft of sections of a Discussion Paper (DP) on the Conceptual Framework addressing measurements other than cost or fair value and certain elements of financial statements (liabilities).

Measurement

The IASB previously discussed measurement bases, including general principles for measurement and when different measurement bases (e.g., cost, fair value and other bases) may be appropriate. At this meeting, the IASB discussed measurement methods in financial statements other than cost and fair value. The discussion focused on descriptions of measures based on estimated cash flows, possible high-level principles for using other cash-flow-based measures, considerations in determining when to use other cash-flow-based measures and current market prices other than fair value and when they might be useful.

Measurement based on estimated cash flows

The staff first asked the Board to consider not whether to use a fair value estimate, but if a fair value estimate has been determined not to be appropriate, which factors a cash-flow-based measurement should consider and from whose perspective (e.g., undiscounted estimates of most-likely cash flows, value-in-use and other entity-specific measurements, fair value based or partially updated measurements and other discounted cash flow measurements). The staff believed the IASB must first decide what the measure is intended to represent before deciding what factors should affect the measurement. The staff suggested the appropriate measurement method (what information a measure is intended to represent) for a particular asset or liability could depend on how the entity will realise value of an asset or what payment or performance a liability will require of the entity.

The staff paper appeared to lead to more questions than answers, as Board members repeatedly questioned the scope of what they were being asked to consider. In particular, Board members saw the staff paper as presenting a series of alternative cash-flow-based measures without specifying when such measures should be used. They believed the paper should address questions such as when is entity-specific value more appropriate than market value. Similarly, Board members asked questions such as when is a fair value estimate not appropriate and whether cash-flow-based measurement is intended to be a proxy for fair value when fair value is not available. Some Board members believed the measurement objective should always be to provide an approximation of fair value, but others did not believe measurement should be a surrogate for fair value in all cases; pointing to examples such as fulfilment value in the insurance project and a deprival value methodology to measurement, which are not necessarily indicative of fair value in the eyes of the market. Much of the discussion regarding the measurement objective was based on perspective, as most Board members supporting cash-flow-based measurement as a proxy for fair value were analysing asset valuation, while those who did not view all measurements as a proxy for fair value were primarily discussing liability valuation.

In response, the staff noted it was not the intention of this paper (or the DP) to answer questions about which measurement methods are appropriate and when they should be used. Instead, they hoped to gather feedback from constituents about the different alternatives with a view to develop more specific views in a future exposure draft on the Conceptual Framework. However, the staff acknowledged the need, within the DP, to more fully describe the scope of the work being undertaken, including specifying the questions the DP is not intending to address.

Board members also requested structural and editorial changes to the agenda paper – which will form the basis for the DP. Many of those comments were an attempt to more clearly define the inputs to cash-flow-based measurement relative to the outcomes achieved by the measurement models, but others were based on beliefs regarding the appropriateness of cash-flow-based measurement and the inputs which should be considered. The staff noted that it would consider this feedback in drafting.

What to consider in constructing a cash-flow-based measure

The staff asked the Board what should be considered in constructing a cash-flow-based measure. The staff believed that the inputs (e.g., amount and timing of future cash flows, time value of money, etc.) used in a fair value estimate provide a comprehensive starting point for thinking about other cash-flow-based measures. However, the staff suggested the DP should raise the following general questions in considering other factors relevant to a cash-flow-based measure:

1. Should cash-flow-based measures reflect the uncertainties in the amount and timing of a cash flow (or series of cash flows) or a single possible amount (or series of amounts)?
2. Should the measurement of liabilities reflect the possibility that an entity may not be able to settle its liabilities when they are due (the entity’s ‘own credit’)?
3. Should cash-flow-based measures be discounted and if so, at what rate or rates?
4. Should cash-flow-based measures reflect the amount market participants would charge for bearing the risk embodied in the uncertain cash flows?
5. Should cash-flow-based measures reflect the effects of other factors such as illiquidity premiums or discounts if they are identifiable?
6. Should the estimates and assumptions underlying cash-flow-based measures reflect the reporting entity’s perspective or market participants’ perspectives?
7. Should all the above estimates be current (i.e., updated at each reporting date), or should some or all of them be locked in (i.e., not updated)?

The staff proposed the DP would provide some general discussion behind each of these questions, however, the DP would not attempt to answer the questions. Instead, it would only ask respondents for suggestions and information.

Consistent with earlier discussions, many Board members feared the DP would have the unintended consequence of suggesting a broad suite of measurement techniques are available without providing insight as to when such measurement techniques/inputs should be used. However, considering the questions proposed to be included in the DP and the related discussion that followed each question, Board members provided a number of specific questions/concerns, including:

• A fear about the specificity of particular questions and the underlying interaction with IFRS 13 Fair Value Measurement. In particular, one Board member saw the questions proposed to be included in the DP as subsidiary to more basic questions and feared the proposed questions would result in inappropriate and unnecessary feedback from constituents. She also noted the questions should be internally linked to other questions in the document and IFRS 13 (or other IFRSs) for purposes of demonstrating overall cohesiveness.
• Overall concerns with the staff’s discussion of ‘own credit’ in the staff paper. Many comments related to semantics, such as characterising movements in own credit as gains or losses since some viewed the characterisation as perspective driven, but some Board members believed more detail about the nature of own credit adjustments was required in the DP, including discussion of wealth transfer and characterisation of gross and net gains.
• While many supported the staff’s discussion (in the staff paper) of the role of discounting in measurement, one Board member believed the discussion comingled two independent issues – time value of money and uncertainty of cash flows. She thought time value should be emphasised in the discussion of discounting, while uncertainties of cash flows was a measurement technique (a mechanic for achieving the objective) which should be discussed separately.
• A concern that the staff’s discussion of adjustments for bearing risk suggested risk adjustments for insurance contracts were inappropriate. The staff paper focused on identifiable and observable prices for bearing risk – failing to discuss when prices are not observable (e.g., in an insurance contract). The staff noted they did not intend to suggest that prices must be identifiable and observable, but rather, highlighted observations when such cases are present.

No specific vote was taken as to the inclusion or elimination of any specific questions and/or discussion of the topics included in the staff paper for purposes of drafting the DP. However, the staff noted it would consider Board feedback in drafting the DP.

The staff also asked the Board whether it preferred that the DP include discussion about current market prices other than fair value (e.g., other possible market prices that are not included in the definition of fair value such as different markets and different units of account). The staff paper highlighted a couple of examples as well as avenues the Board may consider in measurement. Without debate, the Board agreed that it was a relevant consideration, and thus, should be considered in the DP.

Elements of financial statements

The IASB discussed guidance to support the definition of a liability – specifically seeking to clarify the role of economic compulsion in identifying obligations and the difference between economic compulsion and a constructive obligation.

Distinguishing constructive obligations from economic compulsion

Previous Board statements have suggested that economic compulsion – where an entity is regarded as being economically compelled to take an action since a particular course of action is so economically advantageous, or less economically disadvantageous, than any other available alternatives - does not, in and of itself, create an obligation/liability. However, this general principle does not exist in the Conceptual Framework and certain perceived exceptions exist in existing IFRSs.

Conversely, constructive obligations – which are defined or alluded to in paragraphs IN3 of IAS 37 Provisions, Contingent Liabilities and Contingent Assets, IN6 and 4(c) of IAS 19 Employee Benefits and 41 of IFRS 2 Share-based Payment – can give rise to a liability.

Given difficulties in distinguishing constructive obligations from economic compulsion, the staff noted that it is difficult for practitioners to judge whether and to what extent an entity’s past practices, policies or statements are sufficient to have created a valid expectation among other parties that the entity will accept specific responsibilities.

In an effort to improve comparability and distinguish constructive obligations from economic compulsion, the staff suggested two alternatives:

• adding further guidance to support the definition of a constructive obligation in the Conceptual Framework (the additional guidance would emphasise that for an entity to have a constructive obligation, (a) it must have a duty or responsibility to someone other than yourself, (b) the other party must be one who would benefit from the entity fulfilling its duty or responsibility or suffer loss or harm if the entity fails to fulfil its duty or responsibility and (c) as a result of the entity’s past actions, the other party can reasonably rely on the entity to discharge its duty or responsibility); or
• limiting the definition of a liability in the Conceptual Framework to obligations that another party could enforce against the entity.

Alternatively, the Board could elect to not address this matter in the DP/Conceptual Framework.

Board members universally supported adding further guidance to support the definition of a constructive obligation in the Conceptual Framework, as outlined above. They acknowledged the need for clarifying guidance but found the latter proposal of limiting the definition of a liability to obligations that another party could enforce as being too prescriptive. They also noted that the proposal of adding clarifying guidance is not expected to undermine requirements in existing IFRSs.

Effect of economic compulsion on contractual obligations

The staff noted that questions about economic compulsion arise in situations where the entity’s future actions are constrained by a legal mechanism such as a contract (i.e., an entity has options under a contract but economic compulsion will limit the entity’s freedom to exercise its options). The staff noted that several IFRSs provide guidance on the factors that an entity should take into consideration in assessing the substance of contractual rights and obligations and there are consistent principles underpinning this guidance that may be useful to include in the Conceptual Framework to clarify the role of economic compulsion in assessing contractual rights and obligations. Those principles include:

1. an entity should report the substance of a contract;
2. a group or series of contracts that achieves, or is designed to achieve, an overall commercial effect should be viewed as a whole;
3. all terms—whether explicit or implied —should be taken into consideration;
4. terms that have no commercial substance should be disregarded.
5. one situation in which a right (including an option) has no commercial substance is the situation in which it is clear from the inception of the contract that the holder will not have the practical ability to exercise the right.
6. if, after disregarding options with no commercial substance, an option holder has only one remaining option, that option is in substance a requirement.

The Board discussed the possible inclusion of some or all of these principles in the Conceptual Framework. Multiple Board members expressed specific concerns with the principles. Some of those concerns included:

• A lack of clarity regarding the definition of ‘commercial substance’. The staff noted that IFRS 10 Consolidated Financial Statements and IFRS 4 Insurance Contracts provide guidance on commercial substance, although the guidance was not specifically aligned.
• A belief that the ‘commercial substance’ principle should be bifurcated to distinguish recognition and classification considerations. Namely, this Board member believed the principles should first consider whether a claim exists (recognition), and if so, the nature of that claim (classification – in particular, for classification as a financial liability or equity instrument when applying IAS 32 Financial Instruments: Presentation), with economic compulsion possibly relevant to the latter.
• A belief that the concepts of economic compulsion and constructive obligations should be linked in the proposed principles.
• Questions about whether the proposals require reassessment, specifically in the context of whether commercial substance should be reassessed.

No specific vote was taken as to the inclusion or elimination of any specific questions and/or discussion of the topics included in the staff paper for purposes of drafting the DP. However, it was clear from discussions that further discussion was required in the DP regarding the role of commercial substance in assessing contractual rights and obligations and the relevance of economic compulsion in classification determination. The staff noted it would consider Board feedback in drafting the DP.

At a previous (February 2013) meeting, the Board discussed questions received about the unit of account for financial assets that are investments in subsidiaries, joint ventures and associates measured at fair value. In particular, Board discussed whether the fair value of such investments should reflect the measurement of the investment as a whole or of the individual financial instruments included within that investment.

The staff noted their previous stance in that they believed that the unit of account for investments in subsidiaries, joint ventures and associates is the investment as a whole.

During the February Board meeting, the Board directed the staff to analyse the effects that different profiles of investors may potentially have on the fair value measurements of those investments. In this meeting, the staff discussed examples in which the investors are financial investors and strategic investors and have investments that will result in Level 2 or Level 3 fair value measurements. The staff conclusions in both cases was that measurements based on the unit of account being the investment as a whole would provide a better depiction of the underlying economics of the entity’s investment; and an entity should consider all relevant facts and circumstances when measuring the fair value of those investments.

The staff noted that regardless of the conclusion on the unit of account, IFRS 13 generally provides sufficient guidance to perform Level 2 or Level 3 fair value measurements. However, the staff noted that it was less clear with regard to Level 1 measurements. The staff submitted that where Level 1 inputs exist for the underlying financial instruments that make up the investment, the Board has two options to consider; namely, to use adjusted Level 1 inputs or unadjusted Level 1 inputs.

At the previous Board meeting (February 2013), the Board discussed that depending on what was considered more important (i.e., the unit of account or the requirement in IFRS 13 to prioritise Level 1 inputs), two views could develop:

View 1: That Level 1 inputs are defined as quoted prices for identical assets, there is no Level 1 price for the investment as a whole. Instead, the Level 1 price is for the underlying financial instruments, which are not ‘the asset’ being measured at fair value. Consequently, that Level 1 input cannot be the sole determinant of the fair value of the investment and the investment’s fair value must either be measured using another valuation technique or by adjusting the Level 1 input to reflect differences between the investment and the underlying individual financial instruments. Proponents of this view would prioritise the unit of account of the asset or liability that is measured at fair value above the availability of Level 1 inputs.

View 2: That because the investment comprises individual financial instruments that have a Level 1 price, that Level 1 input must be used and the fair value measurement of those investments would be the product of the quoted price multiplied by the quantity held (PxQ) without adjustments. Proponents of this view would prioritise the availability of Level 1 inputs above the unit of account (i.e., Level 1 inputs always provide the most reliable evidence of fair value).

The staff discussed pros and cons with regard to each of these and the approaches to fair value that have previously been discussed and agreed by the Board.

The staff summarised their recommendations in that the unit of account for investments in subsidiaries, joint ventures and associates is the investment as a whole. This conclusion would then imply certain amendments to the measurements requirements in IAS 27 Separate Financial Statements, IAS 28 Investments in Associates and Joint Ventures and IFRS 10 to clarify that references to IFRS 9 Financial Instruments should be understood to refer only to the measurement basis rather than to the unit of account.

The Board was asked whether it agree with the staff’s conclusion that the unit of account in the Standards dealing with the accounting for subsidiaries, joint ventures and associates should be the investment as whole. Assuming agreement, the Board was also asked to comment on which of the options they consider to be the most appropriate for:

1. measuring investments in subsidiaries, joint ventures or associates at fair value, whose underlying individual financial instruments have a Level 1 price:
1. Option 1 (unit of account is considered to be more important), or
2. Option 2 (prioritisation of Level 1 inputs is considered to be more important)?
2. measuring fair value less costs of disposal for impairment testing purposes:
1. Option 1 (unit of account is considered to be more important), or
2. Option 2 (prioritisation of Level 1 inputs is considered to be more important)?

The Board discussed the nature of the staff proposals and there was a particular focus on how the unit of account should be determined at the level the market participants are dealing in. After deliberation, a vote was taken to which the Board tentatively supported the staff’s conclusion that the unit of account in the Standards dealing with the accounting for subsidiaries, joint ventures and associates should be the investment as whole. The Board then voted that prioritisation of Level 1 inputs is considered to be more important when measuring investments in subsidiaries, joint ventures or associates at fair value, whose underlying individual financial instruments have a Level 1 price. In the same way, the Board also tentatively decided that the fair value measurement of cash-generating units (CGUs) for impairment testing when those CGUs correspond to a quoted entity should be the product of their quoted price multiplied by the quantity of instruments held (P × Q).

The Board asked the staff to prepare a summary of the due process steps undertaken, before preparing an Exposure Draft of proposed amendments to IFRS 13.

The IASB discussed an early draft of sections of a Discussion Paper (DP) on the revised Conceptual Framework, addressing:

1. presentation and disclosure;
2. certain elements of financial statements (distinguishing liabilities from equity particularly in the context of a written put option on own shares; and the definitions of income and expense and whether to define different types of income and expense); and
3. a proposed approach to capital maintenance in the DP.

Presentation and disclosure

Presentation and disclosure

The IASB discussed presentation and disclosure issues. The existing Conceptual Framework does not have a section on presentation and disclosure, resulting, in the views of some, in disclosure requirements that are not always focused on the right/relevant disclosures and are too voluminous.

The staff prepared a draft section of the DP to discuss the conceptual principles that should underlie the IASB’s decision to provide guidance on presentation and disclosure.

The staff’s draft DP proposed that the objective of primary financial statements is to depict an entity’s financial position, financial performance and cash flows in a summary that is useful to a wide range of users for their assessment of the amount, timing and uncertainty of the entity’s future net cash inflows, and how efficiently and effectively the entity’s management and governing board have discharged their responsibilities to use the entity’s resources. Following from this primary purpose, the staff considered the conceptual principles underpinning:

• Classification and aggregation;
• Offsetting;
• Cohesiveness;
• Scope of information that should be included in the notes to the financial statements (i.e., disclosure).

Board members outlined many views on the staff’s proposed objective of primary financial statements. In particular, the IASB Chair believed the primary objective related to how efficiently and effectively the entity’s management and governing board have discharged their responsibilities to use the entity’s resources – an objective he viewed as synonymous with a stewardship role – as opposed to providing information to users to assess the amount, timing and uncertainty of an entity’s future net cash inflows. Several others, building on this view, noted that the revised Conceptual Framework should make clear that the objective of the primary financial statements should not be to allow users to forecast cash flows.

Beyond the objectives, Board members outlined several recommendations to discussion underpinning the objective. Examples of recommendations included requests to more clearly specify preparer responsibilities in presenting and disclosing risks and uncertainties in the business and further information related to the risks and pitfalls associated with aggregation.

On the topic of disclosure, Board members expressed varying levels of support for the direction of the staff paper – which noted that the notes should be inextricably linked to the primary financial statements and provide relevant information (capable of making a difference to the decisions made by users) that is faithfully represented (complete, neutral and free from error; clear, balanced and understandable; comprehensive; consistent over time; comparable amongst entities; and timely). The staff paper also proposed that notes to the financial statements should be limited to information arising from past and current conditions, transactions and events in order to provide relevant information to financial statement users.

Specific concerns/recommendations expressed by the Board to the staff paper included:

• The revised Conceptual Framework should include discussion about the intent of notes (e.g., disaggregation of information, insight into the business, etc.).
• A view that the revised Conceptual Framework should make clear that disclosures are intended to ‘communicate’ rather than result in a compliance exercise for preparers.
• Concern that some of the principles underlying the concept of faithful representation, such as ‘comprehensive’ and ‘comparable’, are not appropriate as overall objectives.
• Concern with the staff’s commentary that forward-looking information would be disclosed outside of financial statements, for example, in management commentary, so as to limit the financial statements to past and current conditions, transactions and events. The overriding concern with this statement was a discomfort as to what constitutes forward looking information. Therefore, it was requested that the staff more clearly specify what information should be captured in the financial statements (e.g., maturity analyses for items recognised in the primary financial statements are not considered forward looking information).

The staff acknowledged the comments from the Board and will consider such comments in further developing the Conceptual Framework DP.

Presentation in the statement of comprehensive income

The IASB discussed presentation in the statement of comprehensive income, including the purpose of the statement of comprehensive income, principles and concepts for presentation in profit or loss or other comprehensive income (OCI), how these principles and concepts apply to current and proposed OCI items and suggestions for changing the name of the statement of comprehensive income.

The staff, pre-empting the Board discussion, noted that there is no principle in IFRS to determine which items of income or expense should be presented in profit or loss and which should be reported in OCI, and when items initially recognised in OCI should be recycled into profit or loss. Therefore, the staff prepared a draft section of the DP to discuss the conceptual principles that should underlie the IASB’s future decision on these areas. On the basis of its analysis on these two topics, the staff recommended:

• (Topic 1) The DP should include a set of principles for determining whether a recognised item of income or expense should be presented in profit or loss or in OCI. Those principles include:
  • Principle 1: Items presented in profit or loss communicate the primary picture of an entity’s financial performance for a reporting period.
  • Principle 2: All items of income and expense should be recognised in profit or loss unless presenting an item in OCI provides a better depiction of financial performance (i.e., OCI is an exception to presentation in profit or loss).
  • Principle 3: An item that has previously been presented in OCI should be reclassified to profit or loss if the reclassification results in relevant information about financial performance in that period.
• (Topic 2) Two groups of items would be eligible for presentation in OCI applying the above principles: bridging items and mismatched remeasurements. A bridging item arises where the IASB determines that the statement of comprehensive income would communicate more relevant information about financial performance if profit or loss reflected a different measurement basis from that reflected in the statement of financial position (e.g., reflected changes in fair value in OCI for financial assets measured at fair value through OCI in the proposed limited scope amendments to IFRS 9), although the Board would need to determine circumstances that warrant different measurement bases being presented concurrently. A mismatched remeasurement arises where an item of income or expense represents an economic phenomenon so incompletely that, in the opinion of the IASB, presenting that item of income or expense in profit or loss would provide information that has little or no relevance for assessing the entity’s financial performance (e.g., reflecting the effective portion of changes in fair value for cash flow hedging instruments under IAS 39 Financial Instruments: Recognition and Measurement).
• (Topic 3) The DP should include discussion of an alternative approach in which a single statement of comprehensive income (removing the distinction between profit and loss and OCI) is presented.

These recommendations elicited a long discussion by Board members.

(Topic 1)

Several Board members expressed significant reservations with the staff paper/early draft of the DP. While they acknowledged the discussion furthered the debate about what should be presented in OCI, they believed it ducked the core questions of defining OCI and financial performance, and instead, tried to optimise presentation and reverse engineer principles based on existing decisions by the Board regarding what should be presented in OCI. These Board members generally sought to provide constituents with a tool kit for identifying items to be reported in OCI. They also noted that as a first step, it was important that the Board decide more conceptually what financial performance is, with a subsequent step of how best to depict financial performance (i.e., through profit or loss or OCI).

Other Board members saw value in the information the staff had prepared. They believed the staff paper adequately portrayed the fact that all the primary financial statements provide relevant information, but acknowledged that profit or loss was generally seen to provide primacy of information (at least from the perspective of a starting point for commonality). They recognised that in its current form, the staff analysis failed to define financial performance, but they believed performance could not be analysed, understood or communicated in only one statistic. Instead, some suggested the Board could develop a ‘by exception’ definition, for example, financial performance is not necessarily driven by recurrence of earnings, controllability or volatility. They also supported the principles developed for determining whether a recognised item of income or expense should be presented in profit or loss or in OCI. While they acknowledged that OCI was being treated as a ‘parking lot’ for certain items/transactions, they were accepting of this solution where profit or loss was not an appropriate recognition measure for movements in equity.

From this general discussion, it become clear to many that the Board could not escape a more thorough discussion of financial performance.

(Topic 2)

Many Board members expressed concern that the proposed principles failed to capture practice considerations which would ultimately result in a large number of exceptions to the basic principles at a standards level. Some offered alternative suggestions. For example, one Board member believed that the bridging principle was just a construct of the mismatched remeasurements notion. He saw two categories – mismatched remeasurements and disaggregation – where disaggregation may be indicative of bridging and ultimately provide a recognised measurement basis.

Of particular concern to many Board members was the failure of the proposals to appropriate deal with pensions. Applying the staff proposed principles, it was unclear whether a remeasurement of a net defined benefit pension asset or liability would be presented in OCI.

Other Board members expressed support for the direction of the staff paper. One Board member noted that he could accept the bridging principle for many of the items where OCI is currently allowed on the basis that bridging responds to environments where a different valuation basis makes sense in the statement of financial position as compared to the profit or loss (e.g., value through usage may dictate a profit or loss valuation basis). He pointed to value realisation as the basis for recycling. When asked how he would explain the pensions quandary, he noted a belief that the correct profit and loss treatment would be the locked-in rate because that is the methodology the Board has chosen. He noted that if the Board chooses to make an exception for this, he believed an override should be included in the revised Framework which says if we make an exception that flows through, preparers must follow through with that exception.

Speaking specifically to the proposed value realisation basis for recycling, some were troubled by this basis, believing it contradicted some of the earlier Board discussions, and others were not convinced a mismatched remeasurement basis worked well in determining when items should be recycled.

Others outlined alternative views about applying a mixed measurement model, such as showing both a pure cost-based and pure fair valued-based model in the primary financial statements, but this proposal was swiftly refuted by others on the basis of relevance of information communicated.

Summarising the discussion, the IASB Chair noted a lot of concerns about the bridged items notion. He saw a general need for broad principles so as to avoid a significant number of model exceptions, but noted that the principles could not be so broad so as to introduce use of OCI for all remeasurements.

(Topic 3)

Most Board members were supportive of including in the DP discussion of an alternative approach in which a single statement of comprehensive income is presented. However, some individual concerns were expressed. The most significant of these concerns was a fear that a single statement was code for the elimination of profit or loss, which contradicted earlier discussions on the primacy of this measure. The Board member raising this issue believed much more work would be required to develop this approach, in particular, determining a sensible disaggregation of performance measures. He preferred that the DP merely ask whether the Board should look to redefine the statement of comprehensive income, but leave open the possible approaches. One approach he mentioned was the further disaggregation of the statement of comprehensive income by presenting the remeasurement of the net defined benefit pension asset or liability as a separate line item within profit or loss.

Other recommendations

Subsequent to this long discussion, the staff noted that it had one additional proposal in the staff paper. Citing confusion to use of the term ‘comprehensive income’ given that financial reporting is far from comprehensive, the staff recommended that the term ‘comprehensive income’ should be changed. Suggested replacement names included ‘Statement of income and expenses’ rather than ‘Statement of comprehensive income’, ‘Total income and expenses’ rather than ‘Total comprehensive income’ and ‘Remeasurements outside profit or loss’ rather than ‘Other comprehensive income’. The staff noted that it had received a number of offline comments from Board members at this recommendation, and thus, requested that any other Board comments be forwarded offline so as to determine the most appropriate path forward.

No formal votes were taken following any of the above discussions. Instead, the staff was directed to consider Board discussions in further developing the draft DP.

Elements of financial statements

Distinction between liabilities and equity instruments

At its February 2013 meeting, the Board began discussions of the boundary between liabilities and equity. At that meeting, it was noted that the existing Conceptual Framework defines equity as the residual interest in the assets of the entity after deducting all its liabilities. The existing definition of a liability focuses on whether the entity has an obligation to transfer economic benefits. However, some standards, such as IAS 32, use complex exceptions to these basic definitions when distinguishing between liabilities and equity instruments which many view as difficult to understand and apply.

Therefore, the IASB discussed a possible approach that retained the existing definition of a liability and remeasured equity claims through a statement of changes in equity to show wealth transfers between different classes of equity holders.

At this meeting, the staff presented illustrative examples of the approach discussed at the February 2013 meeting, including discussion of implications and corollary issues which would need to be considered in standards level decisions (e.g., how should an issuer measure written put options on its own shares, how should changes in the carrying amount of obligations arising under written put options on an entity’s own shares be treated, etc.).

In response to the staff analysis, many Board members were supportive of the outcome derived by the approach. Board members did seek clarification of certain aspects of the model (primarily in an attempt to understand how different transaction types, such as redeemable shares, would be treated) and communicated a number of recommendations and observations. Examples of some of the comments shared during the meeting include:

• Concern with including the examples included in the staff paper within the DP out of fear that it may be perceived as an amendment to IAS 32. However, others were concerned with the absence of examples as they feared the approach/concepts were too abstract otherwise. It was suggested that the staff could include certain examples with a caveat to say that the examples indicate the possible consequences if this approach is taken as a standards level project.
• Concern with the complexity of the approach. Board members noted many complexities in the model, including how to address binary situations and how to report/analyse wealth transfer (particularly from a dilution perspective).
• Concern with the uncertainty introduced in the statement of financial position when applying the possible approach.

No vote was taken in support of the staff’s analysis or its inclusion in the DP, nor was it agreed whether certain issues underlying the possible approach would be considered in standards level decisions. Instead, the staff was left to consider Board discussions in further developing the draft DP.

Elements: income and expense

The Board discussed the elements of the statement of comprehensive income; namely, income and expense. The staff noted that very few problems have been identified with the existing definitions of income and expense. However, there have been requests for the revised Conceptual Framework to define different types of income and expense. In particular, definitions to differentiate revenue from gains and expenses from losses, and income and expense items that should be reported in profit or loss from items that should be reported in OCI, have been suggested. However, in analysing the issue, the staff ultimately suggested that the existing definitions of income and expense remain largely unchanged (although the staff did suggest that the revised Conceptual Framework should clarify whether an expense arises when an entity issues an equity instrument in exchange for services), with no definition differentiating types of income or expense.

Board members expressed very little feedback to the staff proposal. While no formal vote was taken on the proposals, Board members appeared generally agreeable to the staff recommendations.

Capital maintenance

The existing Conceptual Framework describes the concepts of financial and physical capital maintenance. However, the existing Conceptual Framework does not prescribe a particular model of capital maintenance – requiring the use of judgement in selecting the concept of financial maintenance that provides the most useful information to the users of financial statements.

As the concepts of capital maintenance are most relevant for entities operating in high inflation economies (with the concepts used in IAS 29 Financial Reporting in Hyperinflationary Economies), the staff recommended that the issues associated with capital maintenance are best dealt with at the same time as a possible standards level project on accounting for high inflation rather than as part of the Conceptual Framework project.

The staff also evaluated the current revaluation model in IAS 16 and IAS 38 Intangible Assets; noting that the current model is inconsistent with both the bridging concept described earlier today and a form of capital maintenance adjustment. Therefore, the staff suggested the IASB may wish to consider whether the revaluation model in IAS 16 and IAS 38 should be amended for consistency with either of those concepts, although the staff proposed not doing so as part of the Conceptual Framework DP.

Several Board members expressed support for not exploring further the capital maintenance concept at this stage. They noted that hyperinflation, in particular, is on the IASB’s research agenda, and therefore, further consideration of capital maintenance in relation to hyperinflation may be considered at a later date. With this view, however, there was a general discussion as to what information should be included in the revised Conceptual Framework about this concept. In particular, should existing content in the Conceptual Framework be carried forward (as some felt the existing discussion did little to help standard setting development) or eliminated, and if the latter, is it too integral to eliminate entirely? Very little feedback was provided on the revaluation model proposals, but Board members generally supported not evaluating further at this stage.

No formal vote was taken to confirm agreement with the staff discussion, but the Board generally appeared supportive with the staff’s direction.

In February 2013, the IASB tentatively decided to publish an exposure draft proposing amendments to IAS 19 Employee Benefits. The amendments are intended to specify the accounting for contributions from employees or third parties set out in the formal terms of a defined benefit plan.

At this meeting, the staff provided the Board with a brief summary of the proposed amendments and explained the due process steps undertaken before publication of the exposure draft. The staff asked the Board whether it was satisfied that all applicable due process steps (to date) have been complied with.

Without debate, the Board was satisfied that all required due process steps have been complied with.

The IASB discussed two of the eleven proposed amendments included in the May 2012 exposure draft ED/2012/1 Annual Improvements to IFRSs 2010-2012 Cycle, on the basis of constituent feedback to the proposals and the recommendations of the IFRS Interpretations Committee (the “Committee”).

IAS 24 Related Party Disclosures: Key management personnel

The exposure draft proposed to clarify the requirements for related party transactions that take place when key management personnel (KMP) services are provided by a management entity that is not otherwise a related party of the reporting entity by extending the definition of a ‘related party’ to include management entities, extending the disclosure requirements of IAS 24 to require the separate disclosure of transactions for the provisions of KMP services and excluding from the disclosure requirements of IAS 24 KMP compensation that is provided by a management entity to its own employees.

Having considered the constituent comments received to the exposure draft, the Committee recommended that the IASB should finalise the proposed amendment, but further recommended that the IASB should:

1. require the disclosure of additional information about the nature of the KMP services provided;
2. extend the proposed Basis for Conclusions to explain why the reporting entity is not a related party of the management entity; and
3. apply additional sundry drafting suggestions.

At this meeting, the staff asked the Board whether it agreed with the recommendations of the Committee.

One Board member noted that the proposals indicated that a reporting entity is not necessarily a related party of a management entity solely because of the provision of KMP services. On this basis, he asked whether disclosure would be required if a management entity is controlled by the same person as the reporting entity. The staff noted that in such an environment, the management entity and reporting entity are related parties and existing related party disclosure requirements would apply. The Board member requested that the staff consider amending the proposals to clarify the relationship to existing related party disclosure requirements.

Another Board member, focused on the proposed requirement to disclose information about the nature of the KMP services provided, expressed strong reservations about the need for this disclosure. His reservations were primarily practical ones. For example, he noted that only a few respondents to the exposure draft suggested the need for such a disclosure and he believed the disclosure would unnecessarily increase the burden on preparers. He also noted that the proposal would result in asymmetry between the disclosure requirements for transactions that take place when KMP services are provided by a management entity and transactions that take place when KMP services are provided by an individual. The staff expressed a belief that the proposed disclosure would provide useful information to investors and others in assessing the effect of the management entity on the reporting entity (in particular, the degree of influence that is exerted by the management entity). However, when put to a vote, the Board tentatively decided to remove the proposal to require disclosure about the nature and extent of KMP services provided.

Absent the above, the Board tentatively supported the Committee’s recommendations.

The staff then asked the Board to reaffirm the transition provisions and effective date included in the 2012 exposure draft (i.e., apply the amendment for annual periods beginning on or after 1 January 2014). Without debate, the Board reaffirmed its previous tentative decisions.

IAS 1 Presentation of Financial Statements: Current/non-current classification of liabilities

The exposure draft proposed to amend IAS 1 to clarify that a liability is classified as non-current if an entity expects, and has the discretion, to refinance or roll over the obligation for at least 12 months after the reporting period under an existing loan facility with the same lender and on the same or similar terms.

Having considered the constituent comments received to the exposure draft, the Committee recommended to the IASB that it should not confirm the proposed amendment to IAS 1 in its current form. The Committee noted that the proposed amendment proposes to tie the classification requirements of financial liabilities in IAS 1 to the derecognition requirements of financial liabilities in IAS 39 and IFRS 9. In that case, the assessment of whether the terms are the same or similar would include a quantitative analysis based on the so-called ‘10 per cent test’. The Committee thinks that this test is not appropriate for classification purposes and would raise practical issues. The Committee decided to recommend to the IASB that this issue should be addressed through a narrow-scope project to amend IAS 1 rather than to finalise the proposed annual improvement.

At this meeting, the staff asked the Board whether it agreed with the recommendations of the Committee.

One Committee member questioned what element of the original proposals was causing a lack of clarity: the proposed amendments to the core standard or the Basis for Conclusions. Specifically, he noted the Committee and the Board agreed to propose to link the classification requirements of financial liabilities in IAS 1 with the derecognition requirements of financial liabilities in IAS 39/IFRS 9 such that the classification basis focused on whether the discretionary refinance facility had the same or similar terms. He believed the proposals clearly captured this tentative decision. However, he acknowledged constituent feedback to the Basis for Conclusions which suggested the proposed amendment may be seen to indicate that the classification of a financial liability should depend on whether the financial liability will be derecognised less than 12 months after the reporting date. He therefore proposed amending the Basis for Conclusions. However, the staff noted more broad concerns to the proposals than that which is captured in the Basis, including the general linkage to derecognition requirements for financial liabilities in IAS 39/IFRS 9 (which was designed for a purpose other than classification and would result in practical application issues) and a lack of clarity over the use of certain terms in the proposals such as ‘discretion’ or ‘unconditional’ as used in paragraphs 73 and 69(d) of IAS 1, respectively. As a result, the Committee had recommended that the narrow-scope project should address the issues that are linked to paragraphs 69(d) and 73 of IAS 1; in particular, what is the meaning of the words ‘unconditional right’ and ‘settlement of the liability’ in paragraph 69(d) and ‘discretion’ and ‘refinance or roll over an obligation’ in paragraph 73. Many Board members questioned the lack of clarity regarding the use of such terms and feared that the Committee’s efforts to address these issues would be fruitless. However, the Board supported kicking the issue back to the Committee to consider whether further clarification could be achieved.

A couple of Board members did question whether this project should be addressed through an interpretation or annual improvement rather than a narrow-scope amendment. The primary reason for raising this issue was a fear that the growing number of narrow-scope amendments may frustrate constituents. The staff noted a belief that the proposed project would not meet the criteria for an annual improvement. However, the staff noted that it would raise this concern with the Committee and allow the Committee to consider how best to address this project.

The Committee previously considered a request for clarification on the disclosure requirements about the assessment of going concern in IAS 1. This standard requires that when management is aware of material uncertainties about an entity’s ability to continue as a going concern, those uncertainties shall be disclosed. The scope of the Committee’s discussions were limited to two specific elements – when an entity should be required to disclose information about material uncertainties and what to disclose about the uncertainties.

The Committee tentatively decided that these two questions should be addressed through a narrow-scope amendment to IAS 1.

At the Committee’s direction, the staff prepared proposed amendments to IAS 1 which:

1. retained, substantially unchanged, the guidance relating to going concern as a basis for the preparation of the financial statements;
2. provided guidance on how to identify material uncertainties, and
3. contained requirements about what to disclose about material uncertainties (including objectives for the disclosure and defining more clearly the threshold for disclosure).

The Committee also decided to propose that a question be included in the exposure draft about whether the proposed amendments should include the alignment of the going concern assessment time frame in IAS 1 with the time frame set out in many local auditing requirements (e.g., whether to align the quoted going concern assessment timeframe in IAS 1 (at least twelve months from the end of the reporting period) with that of International Standard on Auditing (ISA) 570 Going Concern (at least twelve months from the date of the financial statements).

The Committee, at its meeting, recommended that the proposed amendments be presented to the IASB for its consideration.

Disclosure requirements for an assessment of going concern

The staff asked the Board whether it agreed with the Committee’s recommendation to propose an amendment to IAS 1 related to disclosure about material uncertainties related to an entity’s ability to continue as a going concern and the current wording of the proposals (as outlined in the staff paper).

Board members expressed a number of concerns with the proposals.

Some of those concerns were fundamental disagreements with the need for an amendment. Specifically, one Board member believed current requirements were clear. He saw the proposed requirements as introducing disclosure overload and encroaching auditor and regulator responsibility.

Other Board members expressed significant drafting concerns. In particular:

• Several Board members believed the amendments resulted in a lack of clarity as to when disclosures about material uncertainties are required. They saw the proposals (particularly those included in paragraph 25C of the draft proposals) as introducing a disclosure requirement associated with general business risk as opposed to going concern risk.
• Multiple Board members suggested that disclosure requirements in paragraphs 122 and 123 of IAS 1 should be closely linked to the proposals so as to provide indicative guidance as to the judgements to consider when determining if material uncertainties about an entity’s ability to continue as a going concern should be disclosed.
• One Board member questioned the practicality of the disclosures, particularly as it relates to forward looking information. He noted the requirement to disclosure information that enables users of financial statements to understand the effect of any significant future transactions that may be taken by management to ensure the entity continues as a going concern was too broad (as the scope of all possible actions management could take would be endless).

Hearing the broad concerns over drafting, the Committee Chair, who attended the meeting, suggested that volunteering Board members could act as advisers to assist the staff/Committee in further developing the wording of the proposals. A few Board members agreed to act as advisers. The staff intend to bring back revised proposals to a future meeting.

Time frame for an assessment of going concern

The staff had prepared a staff paper to outline discussions by the Committee regarding the time period that should be covered by the going concern assessment required by IAS 1.

Given Board deliberations and next steps following the Board’s discussion of disclosure requirements for an assessment of going concern, the Board decided not to discuss this paper. The Board may revisit this topic at a future meeting.

At its February 2013 meeting, the IASB tentatively decided to require an entity to apply the revenue standard for annual reporting periods beginning on or after 1 January 2017 and change its proposal in the 2011 exposure draft to prohibit early application of the standard. The primary reason for prohibiting early application of the standard was to avoid creating a lack of comparability between entities for an extended period of time.

However, following the February meeting, the staff received feedback highlighting concerns with the Board’s tentative decision to prohibit early application. In particular, the tentative decision was seen to create difficulties in some jurisdictions that were intending to apply the revenue standard early in order to resolve some practical issues arising from existing IFRS requirements (specifically in relation to different views in the interpretation and application of IFRIC 15 Agreements for the Construction of Real Estate related to the appropriate pattern of revenue recognition for multi-unit residential real estate).

As a result, the staff asked that the Board reconsider its tentative decision to prohibit early application of the new revenue standard. Note that this discussion did not address transition for first-time adopters of IFRSs.

Mixed views were expressed by Board members.

Some, noting the long transition period for the new standard and the importance of the revenue line item in the financial statements, preferred to retain the previous Board tentative decision to prohibit early application in order to avoid comparability issues.

Others expressed concerns with prohibiting early application. Reasons for this view included (1) a belief that the standard would improve accounting for revenue, and thus, entities should not be precluded from adopting the standard before its effective date, as well as (2) acknowledging, as outlined in the staff paper, that the standard should resolve some pressing issues in practice arising from existing requirements.

Hearing the latter point, one Board member suggested permitting early application of portions of the standard that would resolve the practical issues related to IFRIC 15, but not permitting early application of the remainder of the revenue standard. However, the staff expressed concerns regarding whether the IFRIC 15-component was discrete enough to amend the scope of permitted early application and also noted that this issue is not limited to IFRIC 15.

In an attempt to be amenable to the differing views of Board members on the topic of early application, several alternative ideas were suggested, including: (1) reducing the transition time by requiring application for annual reporting periods beginning on or after 1 January 2016 (and then permitting early application), or (2) restricting the ability to early adopt until a period closer to the mandatory effective date (e.g., early application is permitted but not before 1 January 2015). Both of these alternatives attempted to reduce the length of time comparability issues would be present.

When put to a vote, the Board tentatively supported the staff recommendation that the Board revise its previous tentative decision and permit early application of the revenue standard (as was proposed in the 2011 exposure draft).

In May 2012, the Committee published a draft Interpretation on the accounting for put options written by a parent on the shares of its subsidiary that are held by non-controlling interest shareholders (NCI puts). The comment period ended on 1 October 2012.

At this meeting, the Board was presented with a summary and an analysis of the comments received on the draft Interpretation, as well as details of the Committee’s subsequent deliberations of the draft Interpretation following the comment period.

The staff noted that many respondents to the draft Interpretation believed that either the Committee or the IASB should address the accounting for NCI puts (or other aspects of the accounting for all put options and forward contracts on an entity’s own equity) more comprehensively. Those respondents said that aspects of the accounting for those contracts have resulted in diversity in practice. Moreover, some of the respondents believed that the requirements, which are to measure particular derivatives written on an entity’s own equity instruments on a gross basis at the present value of the redemption amount, do not result in useful information

Considering this feedback, as part of its January 2013 meeting, the Committee decided to ask the IASB to reconsider the requirements in paragraph 23 of IAS 32 for put options and forward contracts written on an entity’s own equity. In particular, the Committee believed the Board should consider whether NCI puts and NCI forwards should be accounted for differently from other derivatives written on an entity’s own equity.

Therefore, at this meeting, the staff asked the Board whether it wanted the Committee to finalise the draft interpretation (subject to tentative decisions reached by the Committee during its January 2013 meeting), delay finalisation of the draft interpretation until the Board reconsiders the requirements in paragraph 23 of IAS 32 or some other alternative.

Several Board members, referencing recent discussions by the Board on the Conceptual Framework as as it relates to debt versus equity classification when applying IAS 32, noted that this was an evolving area, and therefore, preferred that the Committee delay finalising the draft Interpretation. However, a few Board members disagreed with this view – noting that a practice issue exists and delaying as a result of what may theoretically occur as part of the Conceptual Framework and/or subsequent standards-level project is unhelpful to constituents. Therefore, these Board members supported finalisation of the draft Interpretation.

This led to a more theoretical debate by many Board members over whether the draft Interpretation provided an appropriate result. While some supported the results communicated in the draft Interpretation, others expressed support for alternative views, including:

• Recognising changes in the measurement of NCI puts directly in equity.
• Applying an approach more consistent with an approach proposed by the Committee in 2011 (amending the scope of IAS 32 such that the measurement basis of certain NCI puts would be consistent with other derivative contracts - NCI puts would be initially and subsequently measured on a ‘net’ basis at fair value with all changes in fair value recognised in profit or loss in accordance with IAS 39 or IFRS 9 rather than being measured on a ‘gross’ basis), but limiting the scope of the proposals to fair value puts.

The Committee Chair, who attended the meeting, suggested that the Board should not seek to define an alternative model at this meeting. Instead, the focus should be on whether the draft Interpretation should be finalised or delayed.

When put to a vote, the Board narrowly decided to request that the Committee delay finalising the draft Interpretation. In order to avoid requesting that the Committee again consider this issue, as this project has been on-going for an extended period of time, the IASB Chair suggested that this project should be a Board exercise going forward. The IASB Chair directed the staff to consider the results of today’s discussion and bring back a paper to a future meeting on how best to move forward.