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The research programme

Date recorded:

The Senior Director for Technical Activities introduced the subject by providing Board Members with the presentation contained in agenda paper 13A. He explained that the first part of the presentation showed how the research activities had changed over the years. Also, it would explain which basic projects were taken on and off the research programme as the Due Process Handbook alone did not provide enough guidance in this regard. The second part of the presentation contained an overview over the projects currently on the research programme as well as their status, whilst the last part showed how the research programme supported the standard-setting process. He suggested having a discussion with the Board after each part.

The Senior Director began with part one of the presentation and explained that during 2001 to 2006 the process had been rather simple, leading from a proposal to a discussion paper (DP) to an exposure draft (ED) to a final standard, which then led to the implementation phase. The first change to this process had happened in 2007 when a post-implementation process was embedded in the Due Process Handbook with a look to the pending publication of IFRS 8. Then, in 2011, the Agenda Consultation was introduced. The Trustees had suggested having this consultation every three years. The Senior Director said that the idea was to address issues suggested by constituents since the agenda was relatively cleared in 2011, as all joint projects were believed to be in the final phase. Despite suggestions being requested, the Senior Director pointed out that the agenda would still be owned by the Board.

He continued by giving an overview of the problems the IASB was facing at present. He cited projects not being completed on time or not at all as well as re-exposure of documents with significant changes as some of the major problems. Other problems included endorsement problems, particularly in Europe, and constituents fearing that each project would lead to a new standard. The latter problem was hoped to be solved by a clearer allocation of projects to a research or a standard programme. Another problem the Board was facing was the limitation of resources, which might be alleviated in part by asking national standard-setters to help with the research.

He explained that the research programme would put the emphasis on defining the problem as a first step of each project. He said that, at the end of any research phase, the staff would also propose whether the Board should progress and develop an ED or whether the project should be stopped.

The Senior Director pointed out that there was a relatively low hurdle for issues to get onto the research agenda; however, there was no certain threshold. He said that this was intentional as issues needed to be explored. However, he said, that the IASB needed to be sensitive not to allocate too many resources to one project. First, the issue should be explored and only then it would be decided whether to bring it to the Board.

He then mentioned the possibility to have position papers or research papers instead of the traditional discussion papers. Also, national standard-setters could explore issues and publish any resulting documents under their own name. The IASB could then refer to those documents.

One Board member asked whether there was a plan to give better insights into the phases of the projects. The Senior Director replied that everything would come to the Board first. When the Board member asked whether there would be a protocol for this, the Senior Director replied that he did not envisage anything.

Another Board member asked whether there was any prioritisation of the projects on the research programme. She was also concerned whether the newly proposed research or position papers could be mistaken for additional application guidance or implementation guidance. Her last question was whether there would be a presentation of potential solutions at the "problem definition phase" or only at the "discussion paper phase" or even later. The Senior Director replied that they had not had an opportunity to prioritise the projects at this point. However, he said they were working on that at the moment, considering different factors like difficulty of the project or consequential change management. Regarding the phase of the project at which solutions were presented he said that this would depend on the complexity of the problem.

One Board member said that the objective of the programme was to create a solid basis for the standard-setting process. However, he said the Board needed to carefully consider each time whether they were at a stage where they could publish documents. He was concerned that in some cases supplementary or a second discussion paper would be necessary.

The Senior Director continued his presentation by explaining the staffing for the research programme. He said that it had started slowly, but they would be looking into having a better base soon, taking into account that some more were due to start in the next weeks.

One Board member was concerned that the staffing looked rather stretched. The Senior Director replied that it was indeed ambitious. He said that they were looking to further increase the staffing. The Board member said that she was worried that timelines might have to be revised after a while. Another Board member thought the Board should determine the priorities first before going into staffing. The Senior Director replied that some regulators were pressuring for certain issues and they were reprioritising due to the imposed urgency.

One Board member said he was missing a project on financial statement presentation when looking at the list of projects on the research agenda. The Senior Director replied that they would still have to look at the scope of the project. He then passed the baton on to the project manager allocated to the research project on financial instruments with characteristics of equity.

The project manager introduced the agenda paper by saying that it was for information only to inform the Board of the research project. He continued by saying that the project was very much dependent on the outcome of the Conceptual Framework project, especially the definitions of the elements of financial statements. Medium-term, he said, the project would be shifted to the standard-setting level. He also said that, at the moment, there were many items raised with the IFRS Interpretations Committee, in addition to those dealt with by the IASB, that might be relevant to the project (e.g. NCI puts). The staff would provide the Board with a paper in due course as a basis for deciding whether issues should be addressed in this project or in separate projects. He asked whether the Board had any comments.

One Board member found it desirable to have a list of instruments that would be affected by the project and an analysis how they were classified under current IFRSs. He said that an academic literature review could be helpful in this project, especially with a view to different debt and equity definitions in different jurisdictions. As an example, he cited an article that said that one trillion contingent convertible bonds would likely be issued by European financial institutions over the next several years. He said it would be interesting to see how they were classified across jurisdictions and how investors look at the instruments from a buyer’s perspective. From that, it could be derived how they should be looked at from the issuer’s perspective. The project manager agreed and said that one of the challenges of the project was that the instruments were quite complex and it would make sense to simplify them. He also said that they were planning to make a list of selected instruments and analyse them with regard to the characteristics that complicated the classification.

Another Board member said that it would be difficult to define the scope of the project. She said that in an ideal world the clear-cut definitions of debt and equity could be applied consistently to all instruments. She said it would be helpful if the definitions in the Conceptual Framework project would serve as a starting point for this project. For her, it would be important to understand which information users desired about equity instruments (e.g., solvency, liquidity, dilution, value transfers, etc.).

One Board member said that there had been lots of discussions around this topic over the past five years. He suggested looking into papers issued during that time and update them for the latest developments. The project manager agreed and said that they would look into instruments that had been analysed in the past, for example, instruments that were submitted to the IFRS Interpretations Committee for clarifying their classification, or to instruments looked at by national standard setters such as the FASB.

Another Board member asked if the presumption of a binary distinction would prevail regardless of any outcome of the Conceptual Framework project. The project manager replied that this presumption was based on current concepts but would be adjusted if the Conceptual Framework project suggested another distinction.

One Board member said that the project was very difficult as previous discussions had shown that there was no clear-cut definition of equity and liabilities. He said it was more important to understand how investors made decisions with regard to such instruments than having an academic definition.

The Chairman asked whether the problems occurred only in the financial industry. The project manager said that they occurred also outside of the financial industry but said that all problems involved financial instruments. One Board member said that this fact should be stressed in the project.

The Senior Director Technical Activities continued with his presentation. He said that the presentation showed the next milestones and also indicated which national standard-setters had offered to assist with which projects. He also said that in the future, the projects would rely more on evidence rather than on assertions. He gave some examples on how current projects would already rely on evidence and said that this would make it easier for Board members when making decisions.

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