The Board held an Education Session on Leases. The objective of the session was to allow the Board to ask the staff questions on Agenda Paper 3B – Disclosure: Lessee Disclosure requirements which would be discussed in the Joint session to be held on 21 January 2015. No decisions were made.

The IASB Project Manager introduced the session by explaining that the objective was to prepare for the joint session to be held on 21 January 2015 so that the Board could ask any particular questions on the paper. She indicated that there were two agenda papers for the disclosure requirements for lessees; agenda paper 3A based on the FASB lessee model, and agenda paper 3B based on the IASB lessee model. She said that the education session would be focused on paper 3B. She also reminded the Board that they would not be required to make any decision.

The staff analyst then introduced agenda paper 3B. She said that the staff recommended retaining the overall disclosure objective in the 2013 ED with further changes on detailed disclosure requirements based on feedback received from preparers and users of financial statements. She said that the changes recommended were intended: (i) to respond to concerns from preparers; (ii) to avoid excessive disclosure; and (iii) to focus on information that would be most useful. She said that their recommendations included eliminating some proposals from the 2013 ED which would be replaced with less costly proposals. She said that the final lease standard would include specific mandatory quantitative disclosure requirements summarised in paragraph 52 of the paper. She said that the information would include lease expense and lease cash flows which would be presented in one note in the financial statements. She said that the information would be presented in a concise and comparable way. Then she said that the final lease standard would require a maturity analysis for lease liabilities in accordance with IFRS 7 for all financial liabilities. She said that they were also recommending the final lease standard to include an additional requirement for a lessee to disclose any further information that would enable users to understand the amount, timing and uncertainty of cash flows arising from leases. The staff was also recommending to supplement the list of the requirements with a specific list of disclosure objectives. She said that this would cover for example sale and leaseback transactions, variable lease payments, and termination options. She said it was expected that the disclosures would be different based on the lease portfolio of each entity. She also said that they were proposing to include illustrative examples in the final lease standards; although, she said that the examples would not be comprehensive and preparers would still be required to apply judgement based on their individual circumstances. She then turned the discussion to the Board. 

One Board member asked in relation to the table included in paragraph 51 about the interaction for short term lease expense and small lease expense, whether one would be a subset of the other, and accordingly; what the governing principle would be. He also asked about paragraph 39 which indicated that a reconciliation of lease liabilities would not be required. He said that in order to comply with the standard an entity would need to create or adjust their systems so the information would be expected to be available (although he pointed out that he was not objecting to the proposal). He also asked where the information would appear related to liabilities created due to leases commencing or being extended as mentioned in paragraph 39a). The staff responded on the first question that the order of events would be first short term lease and then small lease asset. On the second question about the reconciliation she said that they tried to balance cost and useful information and found out that preparing the reconciliation would be costly to preparers and users highlighted that they were only interested in particular things instead of a full reconciliation. The Board member pointed out that even though it would not be required, it would not be prohibited to present the information; the staff confirmed his assessment. She also said on his final comment that the disclosures related to new liabilities would be shown in the disclosure of additions of right-of-use assets. 

Another Board member said that he supported the staff recommendation. He said in relation to the table that there could be cases where an entity would have to supplement the information with footnotes, but in other cases the table itself could be useful so he found it difficult to understand the requirement as mandatory. He also mentioned that in cases of entities with significant sublease income that the sublease income would be included within the total lease expense and also that the cash information was only cash outflows. The staff responded on his first concern that they were trying to identify the disclosures that investors wanted to see irrespective of the nature of the lease portfolio, but materiality would also apply. On his second concern on sublease income, she said that she would get back to him, and on his last concern on cash flows she said that they would clarify in the final standard that their intention was to capture cash flows rather than cash outflows only. The Project manager clarified that it would capture cash outflows net of any cash inflows derived from subleases in order to be consistent with the lease expense disclosure. Also, she said that the table was not particularly focused on entities for which the main income was sublease income. The Board member said that he did not find it useful to disclose the weighted average lease term. The staff responded that they found that investors were looking for that information in order to assess how long the business could operate in its current capacity without renewing any of the current leases but she acknowledged that this information would be captured in the maturity analysis. 

Another Board member also expressed concern that offsetting sublease income with lease expense would not be appropriate for certain business models and he said that he had the same concern about duplication of information between the maturity analysis and lease term disclosure. He then asked if the effect of discounting a liability was significant, where that information would be disclosed, particularly information about the discount rate used in material leases and how it was calculated. He said that the requirements should be more specific rather than just relying on IAS 1. The project manager acknowledged that it would be difficult to introduce a specific requirement to capture what exactly should be disclosed.

One Board member said that he agreed with the staff recommendations. He said that the disclosure initiative would indicate that entities needed to focus on material items. He said that that recommendation should also be included in the final standard, for example in the basis for conclusions. He then asked whether the information on the weighted average lease term by class of asset should be divided further. The staff confirmed that if the information was useful, it still could be disclosed. She also pointed out that the forthcoming amendments of IAS 7 would require a reconciliation of debt and lease liabilities would fall into that requirement.

One Board member asked about the requirement to disclose lease expense by class of asset as detailed in paragraph 58. He said that he did not find this information useful and believed that the information would be difficult to prepare. The staff responded that by disclosing expense by class of asset, investors  could estimate “whole asset information”; they noted that, in particular, equity analysts often calculated an estimate of this information when determining the capital employed in an entity, to obtain comparability between entities that lease and own assets. In cases for which a ROU asset did not comprise substantially all of the economic benefits embedded in the underlying asset, investors would not obtain this whole asset information from the amounts recognised on the balance sheet. The Board member still pointed out that he was not convinced of the usefulness of that disclosure requirement.

Another Board member said that he agreed with the staff recommendation. He asked what the interaction would be between small asset lease expenses with materiality. He asked whether only a material number in aggregate should be disclosed or everything about small asset lease expense. He then asked about the requirement on the weighted average lease term, and said that if that information was necessary, why it was not being required for PPE. The staff responded that materiality would apply for small asset lease expense. [Note: the staff did not respond the second concern.]

The Vice Chairman pointed out that he did not find it useful to disclose income from sale and leaseback because he expected that there would only be few sale and leaseback transactions.

Another Board member said that he agreed with the staff recommendations because it was responsive to investor needs. She then asked whether the disaggregation guidance from the 2013 ED included in paragraph 25 would be included in the final standard. The staff confirmed that it would be included. The Board member then asked if the maturity analysis could serve both for information on liquidity and renewal risk. The staff agreed that that information could be obtained from the maturity analysis.

One Board member asked about total cash flows for leases and whether there were problems in collecting this information for leases because there were different cash flow requirements between FASB and IASB. The staff responded that the decision was based on the discussion held in the June meeting and because investors were interested in a single cash flow for leases.

One Board member also asked about the total cash flow for leases and particularly what cash flows would be captured. The staff responded that it would capture cash flows that were not lease liabilities, for example variable lease payments.

Another Board member asked about the table for total lease expense and said that given that under the new standard there would not be a lease expense for leases but right-of-use assets, he found it odd to add together expenses, interests and amortisation. The staff responded that the total information was prescribed in order to get one disclosure comparable between entities. She explained that entities could still disclose this information in other sections. The Board member pointed out that total lease expense would not appear on the P&L. Another Board member pointed out that it should be clarified that the table should say total lease expenses related to lease contracts so that users would not try to tie this information to the P&L.

No additional comments were made.

The Technical Principal introduced the agenda paper that comprised four sweep issues that had arisen when staff had started drafting the Exposure Draft on the Conceptual Framework.

The first issue concerned the approach to the recognition chapter. The Technical Principal reminded the Board that they had decided not to describe specific recognition criteria for assets and liabilities. Instead several factors should be described that governed the recognition of assets and liabilities. Those factors should be linked to the qualitative characteristics of financial statements and cost benefit considerations. The Technical Principal conceded that the staff had struggled drafting those factors. She suggested instead describing relevance, faithful representation and cost benefit as criteria for recognition.

The Chairman agreed with the approach as it was firmer than before. One Board member said that cost benefit was a pervasive factor in financial statements. She was therefore concerned about explicitly stating cost benefit in the recognition criteria. The Technical Principal replied that cost benefit was a particular aspect of recognition and had therefore been reiterated in the recognition section. The Board member agreed that cost benefit should be discussed in that section but disagreed with stating it as a criterion. She also said that the reference to non-recognition of internally-generated goodwill in the current draft was out of place in her view. To her it was a standards-level decision. The Technical Principal said that it was meant as an introduction to the section about intangibles that were not separable from goodwill.

One Board member disagreed with the reference in the staff draft that only in exceptional cases there was a range of possible estimates. The Technical Principal agreed that those situations occurred more often, however what was meant was that only in exceptional circumstances the availability of a wide range of possible estimates would lead to non-recognition of an asset or liability. The Research Director confirmed that. The Board member also had difficulties understanding the part of the staff draft where it was stated that a low probability of an inflow or outflow of economic benefits did not mean that the measure would not provide useful information, especially if there was an exchange transaction with an observable price. In reply to that, another Board member referred to a lottery ticket as an example. With a lottery ticket, there was a low probability of an inflow of economic benefits but the lottery ticket was purchased at an observable price. The former Board member agreed that this was a good example and asked the staff to redraft this section to better understand what was meant.

One Board member disagreed with the fact that this was labelled as a sweep issue. He also disagreed with the newly introduced criteria for recognition as in his view they were objectives of recognition and not criteria that needed to be met in advance. Another Board member agreed. The Technical Principal replied that under the current Framework there had also been recognition criteria. The Board member said that in his view the discussions had shown that ‘criteria’ was an undesired term.

The Vice-Chairman was in favour of the proposals, however, he struggled with the reference in the staff draft that the lack of a past event could prohibit recognition. He said that the Board had decided before that the past event did not play a role in recognition.

The Chairman asked who supported the staff recommendation. 12 of the 14 Board members were in favour.

The next issue concerned the definition of an economic resource. The Technical Principal said that both the asset and the liability definitions in the Exposure Draft included the term ‘economic resource’. Economic resource was in turned defined as a right that was capable of producing economic benefits. The term ‘capable’ did not mean a minimum probability threshold but meant that at least in some circumstances the economic resource would generate economic benefits. When drafting this section the staff realised that the term ‘capable’ was already used in the discussion of relevance in the existing Conceptual Framework. As the ambiguous use of ‘capable’ could potentially raise confusion, the staff suggested replacing ‘is capable of’ in the discussion of economic resources with ‘has the potential to’.

A Board member agreed with the change. He said that ‘capable’ implied a probability threshold, especially when translated to Portuguese. The Chairman agreed and said that translation to other languages also might be problematic. He concluded that everyone agreed to change the draft.

The Technical Principal introduced the next issue which was the objective of profit or loss. She reminded the Board that they voted in favour of bringing forward the dual objective of profit or loss from the Discussion Paper. The staff, however, realised in the drafting process that the objective of profit or loss was redundant as it had already been covered by the overall objective of financial reporting. In addition to that, other components of financial statements did not have a separate objective either. The Technical Principal therefore suggested deleting the objective.

One Board member agreed but said that the Board had missed an opportunity to define objectives for all components of financial statements. A fellow Board member agreed as well but also saw the objective as an additional signpost in the difficult question of what went into profit or loss and what went into OCI.

A fellow Board member did not see a redundancy as the general objective of financial statements stated ‘depicting the return an entity had made on its economic resources’ whilst the objective for profit or loss added ‘during the period’ to this objective. In his view this expressed a key element in the distinction between profit or loss and OCI. The Chairman and Vice-Chairman agreed with that. One Board member said that the Board was struggling with defining objectives for other components and he welcomed the fact that this objective would be deleted as well. He also asked why OCI would not be part of the objective if it were to be left in the draft. The Technical Principal shared this concern as the objective as drafted might indicate that nothing would ever be recognised outside of profit or loss. One Board member said that this would be consistent with the decision the Board had made. The Chairman qualified that by saying that at least there was a high hurdle for recognising items outside of profit or loss.

A Board member reminded the Board that this was only the Exposure Draft stage so she suggested leaving the objective in the draft and wait for comments from constituents on this. A fellow Board member agreed but said that the objective should be made consistent with the OCI discussions of the Board.

One Board member asked the Technical Principal as to how the distinction between profit or loss and OCI would be portrayed in the Conceptual Framework if the objective were to be deleted. The Technical Principal replied that the Exposure Draft would state that there was a rebuttable presumption that all items of income and expense were recognised in profit or loss but that sometimes it would be more relevant if certain items were excluded.

One Board member expressed disappointment over the fact that the IASB was unable to define an objective for a balance sheet. The Technical Manager reminded him that the Board did not want to define objectives for financial components because it would have meant to decide what the primary components of financial statements were. The Chairman confirmed that.

The Research Director suggested not labelling the paragraph as an objective but rather include them as a description. 13 of the 14 Board member voted in favour of this.

The final issue was in relation to the reference to the entity perspective. The Technical Principal said that the Board had discussed the perspective from which financial statements should be prepared and had decided that the financial statements should be prepared from the perspective of the reporting entity as a whole. Although this was consistent with the rest of the Exposure Draft, staff had struggled linking this statement to other aspects in the Conceptual Framework. Staff therefore suggested deleting this statement.

A Board member asked whether that point would then be mentioned somewhere else in the Conceptual Framework. The Technical Principal replied it would be included in the Basis for Conclusions.

Another Board member disagreed with the staff recommendation because a statement on the perspective had been demanded repeatedly by constituents and would facilitate the standard-setting process, for example, with respect to consolidation. That was supported by another Board member.

When called to vote, only two of the 14 Board members agreed with the staff recommendation.

The staff recommendation set out in the agenda paper was that the IASB should amend the transition provisions to permit prospective application of the revaluation model for PPE if an entity changed its accounting policy for any classes of PPE under the amendments to the IFRS for SMEs. 

The Senior Technical Manager introduced the session and highlighted the fact that subsequent to the agenda paper being prepared, the staff had spoken with several IASB members about whether requiring prospective application from the beginning of the period in which the amendments were applied would be a better option.  She noted that the staff were now leaning towards this position, and invited the IASB members to comment. 

One IASB member noted that she agreed with amending the recommendation to require prospective application, and observed that historically the IASB had always been very careful when there was a change to fair value measurement to require prospective application because of the risk of hindsight.

Another IASB member also agreed with amending the recommendation, and noted that in permitting prospective application, the IASB would be introducing an option into the IFRS for SMEs, and that having an option on an option would create the kind of complexity the IASB was trying to avoid in the SME standards.

All fourteen IASB members voted in favour of the revised staff recommendation to require prospective application of the option to use the revaluation model from the beginning of the period in which the entity first adopts the amendments.

The Boards held a joint session to discuss agenda papers 3A and 3B Lessee Disclosure requirements, FASB and IASB respectively. Although it was a joint session, the discussions were held separately since both FASB and IASB had previously tentatively decided to have different lessee accounting models. The IASB tentatively decided to: (i) retain the lessee disclosure objectives in the 2013 ED; (ii) require the disclosure of certain quantitative amounts; (iii) require the disclosure of a maturity analysis for lease liabilities in accordance with IFRS 7 and (iv) require qualitative disclosure requirements based on a list of particular objectives. 

The summary below includes the IASB discussion only.

Overall disclosure objectives

The discussion started with the overall disclosure objective topic. The Project manager indicated that this topic was presented in the education session held on 20 January 2015 and since there were no further comments from the staff she opened the discussion to the Board.

No significant comments were raised by the Board members and the Chairman called to vote. All members approved the overall disclosure objectives.

Quantitative disclosure table

The staff introduced the topic and reminded the Board that this section was presented in the education session held on 20 January 2015. However, the staff had decided to introduce some changes given the concerns discussed by the Board. She said that (i) the staff was recommending to eliminate the subtotals in the table in order to avoid confusion and because the subtotals did not represent meaningful items. She said that there were also concerns that those subtotals could be misinterpreted as they would not tie in with any P&L line item.  However, the subtotals would not be prohibited; (ii) the staff would clarify in the drafting that sublease income would not be included in the table for entities for which subleasing was its main source of revenue and (iii) the split of lease expense by class of asset would be amended so that it would only be required for amortisation expense. She reminded the Board that the amortisation expense was required by equity analysts who used this information to estimate whole asset amounts by multiplying the lease expense by an estimated number that represented the average life of that class of asset.

There was general support for the changes introduced by staff although many Board members expressed concern about mandating a particular format for presenting the information.

One Board member said that he agreed with the changes introduced by the staff; however, he disagreed with the concept of having an explicit table, he said that leases were not special. He said that leases were only a particular mechanism through which an entity acquired an asset.  If an entity’s lease activity was incidental he said that it would make sense to have the lease in a table, or if an entity considered that it was relevant to explain their business.  He believed that it would make more sense to disclose leased assets with other acquired assets. In relation to the table he also said that adding a table would force preparers to move in a particular direction. He also said that lease liabilities should be considered like any other liability. The staff responded that the table was considered by the staff based on the feedback obtained from users; preparers indicated that the preparation of an entire reconciliation was costly to produce and staff also she said that investor were only interested in specific items in the reconciliation instead of a full reconciliation. She acknowledged that this would appear inconsistent with the fact that other standards required reconciliations, for example for PPE.

One Board member said that he agreed with the table presented and the changes introduced by the staff.

The Vice-Chairman said that he believed that users were asking for a table because in the old lease model it was more difficult to obtain all the information; however, he said that with the new lessee model, ROU assets would be capitalised and investors would not need to make adjustments.

One Board member said that the tabular format would be useful but he did not think that all the information should be mandated to be in one place. Another Board member said that the table was comprehensive and has everything in one place. He also said that they should consider for short-term leases only those leases over one month; otherwise, an entity would need to consider even one day hotel room leases.  

Another Board member said that he agreed on having similar disclosures for leases as IAS 16 or IFRS 7; however, it would be necessary to take into account what was special about leases. He also said that he disagreed with mandating a table and he would prefer to see ROU assets additions to be disclosed with fixed asset additions. He indicated that he agreed with the content of the table but not with mandating the format of it.

One Board member said that he disagreed with mandating a specific table; he said that it would be contradictory with the objectives of the disclosure initiative objectives. He also said that in many cases, an entity would need to supplement the table with footnotes; it was not clear where the notes should be presented, i.e. in the same table or in other sections.

Another Board member said that leases were special and disagreed with other comments that the table was too prescriptive, he agreed with the content but he would not like to prescribe a particular format. He also said that the requirement to present the weighted average remaining lease term was not meaningful if the information was not presented split by class of asset. The staff responded that the weighted average remaining lease term was requested by investors because they used this information to assess the entity’s renewal risk; she indicated that there would also be a maturity analysis.  

One Board member said that he believed that leases were not normal; particularly, with a new standard it would be important to give leases more prominence, he also agreed that the table should not be mandated.

Another Board member said that the standards usually recommended a tabular format, for example IFRS 7 said that an entity should use a tabular format unless another format is appropriate.

One Board member repeated his concerns presented in the education session about the need to add a requirement to disclose the discount rate for material leases and judgements made to estimate the discount rate.

Another Board member said that small lease asset expense should only be disclosed if it was material, that concept should be clarified in the drafting. The staff indicated that the materiality concept was always applicable and that the disclosure of short term lease expense was expected to pick up absolutely everything.

One Board member said that it would be necessary to add generic discussion on disaggregation. The Project manager said that the recent amendments in IAS 1 would be helpful because they discussed this matter.

There were concerns expressed by Board members regarding the current proposed amendments to IAS 7 which would require a reconciliation of debt while the lease standard would not require lease liability reconciliation. The Project manager said that she would prefer not to add duplications (in IAS 7 and in the lease standard) and also if necessary, consequential amendments could be issued after the IAS 7 amendments were approved.

The Vice-Chairman asked whether the information on short-term leases would be useful. On the other hand, he agreed with the disclosure of small lease assets because he said that those would only be triggered when material and they would be able to analyse over a period of time whether the exemption was useful.

The Chairman called to vote and it was agreed to take a vote on each particular item of the table and then on whether or not the table should be mandated.

The Board then approved the staff recommendation to eliminate the requirements in the 2013 ED to disclose a reconciliation of lease liabilities and ROU assets.

Maturity analysis for lease liabilities

The staff introduced the topic of the maturity analysis for lease liabilities. She said that the 2013 ED included a more granular maturity analysis requirement than the requirements of IAS 17 and IFRS 7. She said that under the requirements of the 2013 ED all entities would have disclosed the same type of information; however, she said that investors had identified understanding liquidity and cash flow risks as key in the maturity analysis and the staff concluded that those objectives were better achieved under the requirements of IFRS 7. Accordingly, the staff was proposing to eliminate the 2013 ED requirement and instead requiring a maturity analysis in accordance with IFRS 7. 

The Board members expressed support for the staff recommendation

One Board member asked the staff that it would be necessary to add in the basis for conclusions of the lease standard the reasons for not including prescriptive guidance (as explained in paragraph 109 of the agenda paper).

One Board member asked whether IFRS 7 was being well applied in practice. He said that the examples in IFRS 7 were focused on liquidity risks which would imply a short-term outlook only.  However, he said that leases also involved financing risk, and information about capital structure. He did not object to applying the concept of IFRS 7, but he said that there should be more clear definitions for leases.  The Project manager responded that the example in IFRS 7 was more focused on short-term liabilities; she said that they could add in the standard another example in the context of lease liabilities. The Board members expressed agreement with this suggestion.

The Chairman called to vote and all members agreed with the staff recommendations.

Additional qualitative disclosure requirements

The staff introduced the topic. She said that the 2013 ED contained a set of prescriptive requirements which constituents have expressed concerns about, including difficulty in applying the proposal for cases of very large and diverse lease portfolios, and the risk of generic or boiler plate disclosures. She said that the staff recommended eliminating the detailed requirement and instead adding disclosure objectives which were included in appendix B of the agenda paper and they were also proposing including illustrative examples.

One Board member said that it would be necessary to add in the examples in appendix B something on the discount rate and judgements made to determine the discount rate. He said that for most leases there would not be significant judgements; however, for others there could be. He also asked about the meaning of “any other operational effect” required in the example in appendix B. He said that it was too vague and too far reaching.  He also said that the example in appendix B.3 should require more information about residual value guarantees which was a very risky area for leases and it needed to require more information about how the amount was determined. The staff said that it would be difficult to require disclose for each residual value guarantee.

One Board member said that for many decentralised entities it would be very difficult to collect this information. An entity would need to gather all the information from their subsidiaries and then determine what was material or relevant for disclosure. The staff responded that the reason for making this recommendation was that an entity would not disclose all of those items. She said that management had an understanding of what was important and in the context of running a business it was expected that management would know the most relevant items related to their leases.

One Board member said that in order to meet the objectives it would also be necessary to have quantitative parameters. The staff responded that in the 2013 ED it was described as qualitative; however, she said that the staff was suggesting objectives with no indication as to whether they were qualitative or quantitative, she said that the title was confusing in the agenda paper and it would be amended in the standard.

The Chairman called to vote with considerations for the staff for drafting based on the comments raised by the Board.

The Board approved the staff recommendations on the topic and did not approve the Board member suggestion to add a disclosure requirement regarding judgement related to the discount rate.

Agenda Paper 11A: Project Update

The Technical Principal introduced the agenda paper that included a presentation on the current and future activities in the Disclosure Initiative (DI). The Senior Director for Technical Activities reminded the Board that the session was educational in nature.

Slide 4 of the presentation illustrated the different sub-projects within the DI. These were split up into implementation projects, research projects and ongoing activities. Regarding the implementation projects, the amendments to IAS 1 had been finalised in December 2014 at the same time when the Exposure Draft on IAS 7 had been published. The main research projects were ‘Materiality’ and ‘Principles of Disclosure (POD)’. The ongoing activities comprised mainly the IFRS Taxonomy as well as filing and access requirements.

Slide 5 included a timeline of the project. The project had been initiated through the 2011 Agenda Consultation. In response to that a Discussion Forum had been held in 2013 that had led to a Feedback Statement. The Technical Principal said that with the progress of the DI they saw a behavioural change in standard-setters around the world who were now also looking into disclosure-related projects. She also said that the amendments to IAS 1 could be applied at any time as they were of clarifying nature.

Slide 6 pointed out that the DI aimed to improve the effectiveness of disclosures. The issue was not only disclosure overload but disclosing irrelevant information or bad communication of relevant information.

Slide 7 took another perspective on the DI. The Senior Director for Technical Activities said that some aspects of the project were about standard-setting whilst others were about standard-setting guidance. The core of the DI was the POD sub-project which would result in a standard that would, for example, describe the composition of the financial statements and mandate which information went into the notes.

One Board member asked about the relationship between the DI and the Conceptual Framework (CF) project as the results of the DI could potentially influence the CF project, where an Exposure Draft was expected soon. The Senior Director for Technical Activities replied that the DI would be more on a standards-level but it would be too early to make an assessment of how the DI would influence the CF. The Technical Principal added that much attention would be given to consistency between the two projects.

One Board member referred to a survey performed by the CFA Institute that showed that there was no evidence of excessive amounts of immaterial information in financial statements. He asked the Senior Director for Technical Activities whether the staff had evidence to the contrary. The Senior Director for Technical Activities replied that he had seen some evidence that excessive risk disclosures distracted the users of financial statements from the actual main risks. The Technical Principal added that the CFA had said that information on accounting policies were mostly ‘boilerplate’ and therefore irrelevant. The Board member replied that this information would be useful to some users, for example, users that were new to an industry and wanted to know about the accounting policies in that industry.

One Board member said that in Brazil the highest hurdle for entities to adopt IFRS was the high amount of disclosures. He said that the Brazilian standard-setter had issued new guidance that consolidated requirements and by that would reduce the volume of financial statements by an estimated 30%. This had been very well received by Brazilian constituents.

A Board member said that the investors’ expectations of the DI should be understood as they were focused on comparability and might not agree with some of the decisions made. Also, she said that there was no evidence that objective-based disclosures had worked in the past. She said that IFRS 7, for example was objective-based and had thus been difficult to enforce.

The Senior Director for Technical Activities continued with Slide 8 which concerned materiality. He said that the staff planned to bring an agenda paper to the March 2015 meeting which would be accompanied by an early draft of the Practice Statement. The Exposure Draft for the Practice Statement was planned to be published in the second quarter of 2015.

Slide 9 outlined the POD sub-project. The Technical Principal said that the output from this sub-project would be a Discussion Paper and some educational guidance.

One Board member asked as to how the cooperation with IOSCO would look like. The Technical Principal said that the cooperation with IOSCO was mostly on materiality.

Another Board member said that the project on the cash flow statement was very comprehensive and therefore suggested uncoupling from the performance reporting project. The Senior Director for Technical Activities agreed but said the projects would be interlinked. The Board member suggested defining the scope of both projects as there was uncertainty amongst constituents.

For slide 16, the Senior Director for Technical Activities pointed out that there was good progress on the ten point plan that had been introduced by the Chairman in 2013. The first five points had been addressed by the IAS 1 amendments, the sixth point would be addressed if the IAS 7 Exposure Draft were to be finalised and further work to address the last four points had already begun.

One Board member suggested inserting disclosure objectives in standards that did not have any disclosure objectives as of yet. The Chairman asked the staff whether this would be part of the tenth point in the ten point plan. The Technical Principal replied that this would be after step 10. The Chairman suggested merging points nine and ten and then adding as a tenth point the actual changing of the standards. A Board member said that the Discussion Paper on POD should illustrate how the principles would change the standards on an exemplary standard.

The practice fellow explained that slide 22 gave an overview over the filing requirements in different jurisdictions. Slide 23 described the methodology of the project. The staff had asked standard-setters to provide information on the filing requirements in their jurisdictions. About half of the responses which the staff had received back had indicated that XBRL was used in their jurisdiction with most of them using the IFRS Taxonomy. However, ten of the G20 countries had not yet replied. The practice fellow asked Board members to utilise their contacts to facilitate replies from those countries. On slide 24 it was explained that detailed surveys had been sent to those organisations where the standard-setters had indicated that they used IFRS Taxonomy. Slide 25 revealed that the project was slightly behind schedule.

The Chairman suggested integrating the received profiles into the country profiles.

Transition relief proposals in the 2013 Exposure Draft (‘ED’)

All IASB members confirmed the transition relief proposals in the 2013 ED that, on the initial application of the new insurance contracts Standard:

1. an entity is permitted to newly designate financial assets under the fair value option as measured at fair value through profit or loss to eliminate (or significantly reduce) an accounting mismatch in accordance with IFRS 9.4.1.5;
2. an entity is required to revoke previous fair value option designations for financial assets if the accounting mismatch that led to the previous designation in accordance with IFRS 9.4.1.5 no longer exists; and
3. an entity is permitted to newly designate an investment in an equity instrument as measured at fair value through other comprehensive income in accordance with IFRS 9.5.7.5 and is permitted to revoke previous designations.

Additional transition relief to reassess the business model for financial assets

The IASB’s previously stated intention to allow a period of approximately three years between publishing the final insurance contracts Standard and its effective date means that the earliest possible mandatory effective date of the new insurance contracts Standard will be after the mandatory effective date of IFRS 9. As such, many preparers are concerned that they will be required to apply the classification and measurement requirements of IFRS 9 without the opportunity to fully evaluate the implications of the new insurance contracts Standard.

Accordingly, the Staff asked if the IASB would consider providing further transition relief to permit or require an entity to reassess the business model for financial assets at the date of initial application of the new insurance contracts Standard.

Various IASB members agreed with the Staff’s proposal.

A few IASB members questioned the conceptual basis for a reassessment of the business model, as they believed that if the business model has changed then the entity should apply the reclassification criteria in IFRS 9. They believe that as the business model requires an objective assessment of the facts and circumstances, a proposal to reassess the business model upon adoption of a new standard would defeat the very notion of a business model as contemplated in IFRS 9. In response to this, other IASB members noted the importance to differentiate between the ‘reassessment’ approach recommended in the proposal and the ‘reclassification’ criteria set out in IFRS 9 – the latter sets a high hurdle for entities to reclassify financial assets, not least requiring the existence of externally observable evidence to justify this change, which may be lacking for entities transitioning onto the new insurance contracts Standard. These IASB members believe that entities could have reasonable arguments for changing their business model for their financial assets when they apply new insurance contracts Standard and that the IASB should simplify the mechanics to facilitate the accounting to reflect such changes in the business model, to avoid the situation of these entities being ‘locked-in’ to an IFRS 9 classification based on the existing IFRS 4 guidance.

Some IASB members noted that they would be supportive for the Board to consider deferring the effective date of IFRS 9 for entities that issue insurance contracts due to the costs involved and the disruption caused in investors’ communication when they would have to adopt two major standards within a short period of time. Effectively they will have to apply IFRS 9 twice by having to revisit the classification and measurement, as well as impairment judgements made previously. Nevertheless, many IASB members, while noting that it is sub-optimal to have different effective dates for IFRS 9 and the new insurance contracts Standard, objected to deferring the application of IFRS 9 as they have major concerns regarding the identification of the population of entities, and the assets and liabilities of such entities, that will qualify for this exemption. They expressed the opinion that even if such an identification of assets and liabilities could be made, this would lead to an even bigger concern of having similar items being accounted for under two different standards and across entities. Moreover, these IASB members believe that IFRS 9 is a significant improvement to IAS 39, not least in the model for the impairment of asset, and given the inextricably linked nature of the classification and measurement requirements with the impairment requirements, they do not believe that it would be appropriate to permit the deferral of application of IFRS 9 for certain entities. Finally, one IASB member noted that as the new insurance contracts Standard is not yet finalised, deferring the adoption of IFRS 9 for insurance entities would potentially mean exempting entities from applying IFRS 9 for an unknown period of time.

An IASB member observed that in his opinion the final insurance contracts Standard will likely be published before the mandatory effective date of IFRS 9 and this would give to all affected entities the possibility to consider the interaction of the new Standard with IFRS 9 when implementing the latter. Another IASB member noted that the intervening time between the effective date of IFRS 9 and that of the new insurance contracts Standard is expected to be short and so changes in the business model are expected to be insignificant.

When called to vote by the Chairman, 13 out of the 14 IASB members agreed to consider providing further transition relief to permit or require an entity to reassess the business model for financial assets at the date of initial application of the new insurance contracts Standard, based on the conditions for assessing the business model in IFRS 9.4.1.2(a) or 4.1.2A(a) and the facts and circumstances that exist at the date of the first application of the new insurance contracts Standard. They also decided not to consider deferring the mandatory effective date of IFRS 9 for entities that issue insurance contracts. The conditions in IFRS 9.4.1.2(a) or 4.1.2A(a) are respectively those leading to the classification of an asset at amortised cost and fair value through OCI.

Next steps

The IASB will discuss at a future meeting the consequential issues arising from the Board’s decisions, for example, whether the Board should ‘permit’ or ‘require’ the transition relief, and whether a change in the assets’ classification should be applied prospectively or retrospectively. The IASB expects to complete its deliberations in the summer of 2015 and publish the final insurance contracts Standard in 2015.

Agenda Paper 6: Project Plan

The Senior Technical Manager informed the Board that the agenda paper comprised several staff recommendations. The first recommendation was about broadening the scope of the project so that other types of schemes and mechanisms to manage emissions would be included.

One Board member suggested changing the project name to ‘Pollutants Emissions Management Schemes’ in order to reflect the scope limitations of the project. Another Board member said that he understood the reasons for broadening the scope, however, he reminded the Board that there had been reasons for the previously limited scope, i.e. trading schemes were based on fair value and therefore accounting guidance could be easily developed. The Senior Technical Manager replied that governments used a mixture of different tools to manage emissions and staff had wanted to reflect this reality. One Board member expressed concerns that the scope might be too broad and could include schemes that mandate changes to property, plant and equipment to reduce emissions. The Senior Technical Manager said that property, plant and equipment would not be in the scope of the project. One Board member said that the investor perspective should be considered when scoping the project.

All Board members supported the staff recommendation.

The Senior Technical Manager then continued by suggesting that the Board took a ‘fresh start approach’ to the project, i.e. discard all tentative decisions that the Board had taken in previous versions of the project. She said that the tentative decisions had caused issues in the past and had led to the project being postponed. Staff also recommended identifying all the components of the project as a first step before considering the accounting for individual components.

One Board member expressed concerns about the agenda paper implying that only the net effects of the schemes would be considered and that this would not be consistent with the ‘fresh start approach’. A fellow Board member replied that to him the agenda paper did not decide on net or gross recognition. The Senior Technical Manager added that any perception of proposing net recognition was unintentional in the agenda paper.

All Board members supported the staff recommendation.