October

Agenda project pages updated to reflect September IASB meeting

04 Oct 2003

We have updated the following IASB agenda project pages to reflect discussions and decisions at the September 2003 Board meeting: Amendments to IAS 32 and IAS 39 Business Combinations – Phase I Business Combinations – Phase II Consolidation Convergence Issues – IFRS and US GAAP Extractive Industries Improvements to IFRS Reporting by Small and Medium-Sized Entities Revenue Recognition, Liabilities, and Equity Share-Based Payment .

IASB adds half day to October meeting

03 Oct 2003

The IASB has added a session on the afternoon of Monday, 20 October 2003 to its October meeting agenda.

The programme for the week of 20-24 October, to be held in Toronto, Canada, is as follows:

  • Monday, 20 October 2003 - IASB meeting
  • Tuesday, 21 October 2003 - Canadian Accounting Standards Board (AcSB) conference on international financial reporting
  • Wednesday, 22 October 2003 - Tripartite IASB/FASB/AcSB Meeting
  • Thursday, 23 October 2003 - Joint IASB/FASB Meeting
  • Friday, 24 October 2003 - IASB meeting

Notes from the second day of the IFRIC meeting

02 Oct 2003

The International Financial Reporting Interpretations Committee met in London on 30 September and 1 October.

Here are our preliminary and unofficial notes from the second day of the meeting.

Notes from the IFRIC Meeting1 October 2003

Rights of Use

The IFRIC considered a draft Interpretation, Determining whether an Arrangement Contains a Lease. The staff provided details of editorial changes made as a result of comments from IFRIC members. The IFRIC approved the draft proposal for exposure (9-2).

Emission Rights

The IFRIC considered the comments received on the exposure draft D1, Emission Rights. The main categories of comments were:

1. Should the IFRIC proceed with the Interpretation at this time

Some respondents questioned whether it was appropriate for the IFRIC to issue an Interpretation at this time given that projects on the Board's active agenda (amendments to IASs 20 and 38 and Performance Reporting) affect the proposals. Other respondents considered the scope of the Interpretation to be very narrow and thought that the IFRIC should cover a wider range of emission rights schemes.

It was noted that the projects named were unlikely to be completed in the short-term. Some IFRIC members supported the comments that the scope was narrow. The majority however believed that sufficient schemes exist to warrant the interpretation and that it contained sufficient principles to provide guidance in other circumstances. Other specific schemes could however be dealt with separately if necessary.

2. Principal concerns of respondents

Many respondents commented on the lack of symmetry in measuring and reporting the changes in the three elements in the scheme (the allowances, the liability for emissions to date, and the government grant). These respondents were concerned that the lack of symmetry resulted in an entity reporting artificial volatility in its income statement.

Many respondents commented that reporting under D1's proposals failed to reflect the substance of an emission rights scheme. Some respondents therefore proposed alternative accounting solutions. These included:

  • A net model, under which an entity does not recognise allocated allowances, and accounts for actual emissions only when it holds insufficient allowances to cover those emissions.
  • An amortising model, under which an entity recognises allocated allowances as an asset, but then amortise the allowances as it pollutes. The entity therefore recognises a liability for actual emissions only when it holds insufficient allowances to cover those emissions.

Other respondents suggested amendments to the IFRIC's proposals. These included:

  • Measuring the liability that the entity incurs as it emits at the cost of the allowances held by the entity.
  • Accounting for the allowances as financial assets and measuring them at fair value with gains and losses recognised in income.
  • Classifying the allowances as a derivative and accounting for them as a cash flow hedge.
  • Amending IAS 38 so that gains and losses on allowances are recognised in income rather than equity.
  • Measuring the government grant by reference to the market value of the number of allowances it represents.

The IFRIC confirmed its belief in the gross approach and rejected the netting of the asset and liability. In addition the IFRIC did not support the amortisation approach. The wording will be clarified regarding the non-amortisation of the intangible asset.

The amendments to the proposals suggested by commentators were considered. The IFRIC agreed to continue with the proposals as exposed in these regards but that the Board should be informed that IFRIC believes a better approach would be to require revaluation of the intangible asset through the profit and loss statement and that this would require an amendment to IAS 38.

It was agreed to proceed with the interpretation, to draft a proposed amendment to IAS 38 to require fair value for these intangible assets and request the Board to either approve the interpretation as exposed, or expose the proposed amendment and delay the interpretation.

3. Other issues

The IFRIC discussed some of the other issues raised by respondents:

  • Is it appropriate for the IFRIC to eliminate an option in a Standard? The IFRIC believed that the Board would only allow the interpretation to be issued if they are comfortable with the restriction and consequently did not need to address this issue further.
  • Are allowances and/or Renewable Energy Certificates inventory? The IFRIC concluded that the emission rights are not inventory.
  • Should the government grant be recognised in income immediately rather than recognised as a deferred credit? The IFRIC did not support the suggestion that the government grant should be treated as immediate income.
  • Should the Interpretation specify disclosure requirements? The IFRIC did not believe disclosure requirements should be specified.
  • Should the Interpretation include guidance for those cases where allowances are not traded in an active market?

The IFRIC did not support providing additional guidance in this area.

Decommissioning and Environmental Rehabilitation Funds

The IFRIC will consider a draft of an interpretation, which incorporates the Board's decision to amend the scope of IAS 39 to exclude rights to reimbursement. This decision would result in all rights to reimbursement falling under the scope of IAS 37 and enable the IFRIC to provide guidance on the measurement of such asset arising from these funds.

The IFRIC discussed the requirement to fair value the right to access the assets in the fund. It was noted that this fair value would include the risk of default of other participants in the fund. Additional contributions as a result of there being insufficient funds as a result of default of another party would still be treated as a contingent liability.

The IFRIC agreed with this approach. It was noted that this would give rise to an immediate loss on making a contribution to the fund.

The IFRIC approved the document for exposure subject to the changes detailed above and a review of those changes.

Accounting for Service Concession Arrangements

The IFRIC considered the recommendations from standard setters' research group into accounting for service concession arrangements.

They requested that IFRIC should clarify how the IASB's existing literature applies to service concessions. The IFRIC commenced discussing the issues identified in the research paper. The initial objective will be to consider the issues to be addressed, the order in which they might be addressed, and the form any output should take.

The IFRIC had a discussion on the scope of the project or projects and what approaches could be discussed. The IFRIC decided to include the following issues in the project scope:

  • Is lease accounting the appropriate model to apply in accounting for service concession arrangements and similar arrangements?
  • When considering whether an arrangement involves a lease and when classifying the lease, should:
  • The arrangement be considered as a whole or should each potential transfer of property, and each major component transferred, be accounted for separately, and
  • Is a components approach practical?
  • Do any obligations arise under arrangements like service concession arrangements that are not lease obligations or other obligations that relate to equally unperformed executory contracts?
  • Is guidance needed on how to apply IAS 17's "substantially all the risks and rewards incident to ownership" test to arrangements, such as service concession arrangements, that involve several potential linked transfers.
  • When in practice would it be appropriate to apply percentage of completion accounting for service concession arrangements and which model should be applied?

Onerous Contracts

This issue was not discussed.

This summary is based on notes taken by several observers at the IFRIC meeting and should not be regarded as an official or final summary.

Philippines proposes to adopt IFRS starting in 2005

02 Oct 2003

The Senate of the Philippines is considering a bill, known as the Philippine Accountancy Act of 2003, that would require that "the Board [Professional Regulatory Board of Accountancy] and the [Professional Regulation] Commission adopt the International Accounting Standards (IAS) and the International Standards on Auditing (ISA) issued or adopted by the International Federation of Accountants (IFAC) as the Philippine accounting and auditing standards with full implementation effective January, 2005. For this purpose, an accounting standard council and auditing standard practices council shall be organized by the Board with the approval of the Commission to determine implementing guidelines and interpretations on the applications of the IAS and ISA subject to the approval of the Board and the Commission." Click to Download (PDF 58k) the proposed law. .

The Senate of the Philippines is considering a bill, known as the Philippine Accountancy Act of 2003, that would require that "the Board [Professional Regulatory Board of Accountancy] and the [Professional Regulation] Commission adopt the International Accounting Standards (IAS) and the International Standards on Auditing (ISA) issued or adopted by the International Federation of Accountants (IFAC) as the Philippine accounting and auditing standards with full implementation effective January, 2005. For this purpose, an accounting standard council and auditing standard practices council shall be organized by the Board with the approval of the Commission to determine implementing guidelines and interpretations on the applications of the IAS and ISA subject to the approval of the Board and the Commission." Click to Download (PDF 58k) the proposed law.

Notes from first day of the IFRIC meeting

01 Oct 2003

The International Financial Reporting Interpretations Committee is meeting in London on 30 September and 1 October.

Here are our preliminary and unofficial notes from the first day of the meeting.

Notes from the IFRIC Meeting30 September 2003

Administrative Matters

The role of IFRIC was discussed at the 22 September 2003 meeting of World Standard Setters. The IFRIC Chairman told the group that the IFRIC is the only body that can issue binding interpretations of IFRS. If national regulators or standard-setters issue local interpretations of IFRS, those decisions can be changed by IFRIC at any time. The Board recognises that IFRIC must take on a greater role as Europe adopts IFRS in 2005. IFRIC staff levels will be increased and possibly two more meetings will be added in 2004.

Two draft interpretations will be exposed for comment in October: Rights of Use and Decommissioning Funds.

IAS 11, Construction Contracts: Combining and Segmenting Contracts

The IFRIC discussed a proposed draft interpretation that provides additional guidance on applying the requirements of IAS 11 to combining and segmenting contracts with the intention to converge IAS 11 with US GAAP.

IFRIC noted that IAS 18 has a requirement to look to IAS 11 for multi-element contracts. Therefore, any changes to IAS 11 in segmenting or combining contracts would have an effect on the recognition of revenue for multi-element contracts (an issue addressed in EITF 00-21 in the US). The staff will prepare a paper detailing how the proposed changes in this draft interpretation relate to revenue recognition of multi-element contracts.

Because this project will require significant changes to IAS 11 but will not likely be finalised until after the first quarter of 2004, IFRIC members suggested a delayed implementation date to ensure a stable platform for adoption of IFRS in Europe. This issue will be discussed at a future meeting.

IAS 19, Employee Benefits: Plans that would be defined contribution plans but for existence of a minimum return guarantee

The IFRIC concluded that multi-employer plans should be accounted for as defined benefit plans regardless of whether the plan assets exceed the minimum guarantee. The IFRIC concluded that the liability should be the higher of the fair value of the assets in the plan or the minimum guaranteed return on those assets at the balance sheet date. Therefore, the expected return on assets should not be projected forward and then discounted back. In some cases the fair value of plan assets will be nil; however, a liability equal to the guaranteed amount should be recorded.

When the liability is measured at the fair value of the plan assets, an extra line item should be presented on the income statement to reflect defined contribution accounting. The balance sheet should be the same regardless of how the liability is measured. The entity should continue to provide disclosures for a defined benefit plan throughout the life of the plan.

The IFRIC also clarified that the scope includes only plans with fixed guarantees, including cash balance plans. Therefore a plan that guarantees a return equal to the S&P 500, for example, would not be included in the scope of this interpretation. The IFRIC was aware that the EITF in the US is currently addressing this issue and will follow their deliberations.

The staff will prepare a pre-ballot draft for the next meeting.

Initial Application of IAS 29, Financial Reporting in Hyperinflationary Economies

The IFRIC agreed that a two step approach should be applied for recognising deferred taxes when an economy becomes hyperinflationary for the first time and, therefore, IAS 29 is applied. This method does not differentiate whether the deferred taxed is a non-monetary or monetary item under IAS 29.

Under this approach, the entity first recalculates its opening balance for the corresponding period as if the Standard was already applied in the previous year. This amount is recorded in equity. The entity then applies the current year inflation rate to the deferred tax item (with change recognised in income) to arrive at the ending balance.

The IFRIC discussed whether there are other issues to which this approach may be applied, for example, asset impairments, revaluations through equity, provisions where repricing is involved, and pension obligations.

The staff will prepare a draft interpretation to be discussed at the next meeting.

IAS 19: Multi-employer plans

The IFRIC discussed a draft interpretation. Several IFRIC members expressed concern over whether defined benefit accounting would be operational for multi-employer plans since IAS 19 requires balance sheet date measurement of the plan assets and liabilities. The final draft interpretation will provide guidance that the 'corridor' should be applied to these plans at the company level, not the group level, because of IAS 19's requirement for consistent policies. The draft interpretation will note that if the information to apply the corridor approach is not available, then all changes should be recorded immediately.

Because of the difficulties in predicting future estimated returns reliably. several members expressed doubt about whether an interpretation should be issued – because defined benefit accounting may only be possible in rare situations.

The IFRIC members noted that US GAAP requires multi-employer plans be accounted for as defined contribution plans. Current practice in applying IAS 19 is to default to defined contribution accounting and therefore this interpretation, by tightening the rules of IAS 19, would diverge from US GAAP even further. Some members expressed the view that this interpretation merely explains existing IAS 19 requires and does not 'tighten' (change) them. In their view, if this interpretation caused a change in accounting for a multi-employer plan, that change should be accounted for as a correction of an error.

The IFRIC asked the staff clarify that the scope of the interpretation will exclude state plans, such as national social security plans. The staff will continue working on the draft interpretation as originally drafted – defined contribution accounting only in rare cases. Three IFRIC members stated that they would object to the draft. Four other IFRIC members abstained from the vote until a final document is presented to them.

IAS 41: Measurement Issues

IAS 41 requires biological assets and agricultural produce be recognised and measured at their fair value. In some cases, a present value technique is used to estimate fair value because markets do not exist. IAS 41 requires that the cash flows exclude "any increases in value from additional biological transformation". The IFRIC discussed whether a fair value measurement objective can be achieved if these future increases are excluded.

The IFRIC noted that the harvest value at the balance sheet date (which could be zero) will generally be less than fair value, which is the objective of IAS 41. On the other hand, the present value of cash flows expected from the harvest will not include the risks associated with the growth over the harvest period, and therefore will generally be greater than fair value. The IFRIC noted (considering these upper and lower barriers) that fair value will generally be a risk adjusted cash flow. These cash flows may or may not reflect the expected growth over the harvest period.

The IFRIC also discussed whether an entity that has the legal obligation to replant (for instance, trees) after harvest should recognise a provision when the trees are planted for the first time. The IFRIC concluded that a provision should be raised for the obligation to replant when the tree is cut down for the last time. The IFRIC also noted other areas of concern in IAS 41 that seem to prevent a fair value measurement when estimating cash flows, such as the requirement in IAS 44.22 to exclude taxation issues and costs to replant assets from the estimated cash flows.

The staff will prepare a draft interpretation for IFRIC consideration at a future meeting.

This summary is based on notes taken by several observers at the IFRIC meeting and should not be regarded as an official or final summary.

Our new global brand! One word says it all.

01 Oct 2003

Beginning today, our organisation will be recognised in the marketplace by the single brand name "Deloitte".

The legal name of our global organisation will continue to be Deloitte Touche Tohmatsu, and the legal names of our local organisations will largely remain the same. It is the name by which we are most widely known around the world and the name to which we are most often abbreviated. It illustrates the completeness of the Deloitte proposition and our integrated approach to solving clients' problems.

IFAC will establish a public interest oversight board

01 Oct 2003

The International Federation of Accountants will propose significant reform initiatives at the annual meeting of its governing Council in Singapore in November.

The reforms would strengthen IFAC's role in protecting the public interest and enhance its standard-setting processes. IFAC, the global organisation for the accountancy profession, has 155 member organizations in 113 countries. The Council comprises one representative per member body. IFAC promulgates international standards and related guidance in the areas of auditing, assurance, related services and quality control; education; ethics; information technology; professional accountants in business; and public sector accounting. Key among the planned reform initiatives is the establishment of a public interest oversight board to oversee IFAC's public interest activities.

Preliminary revised version of IAS 33 is available to subscribers

01 Oct 2003

The IASB is making available on-line to subscribers the preliminary final texts of Standards being revised under the Improvements Project (IAS 1, 2, 8, 10, 16, 17, 21, 24, 27, 28, 32, 33, 39, and 40).

The Preliminary Final version of IAS 33, Earnings per Share, is now available at IASB's Website. You can purchase subscriptions on line (click here for information about the Annual Comprehensive Subscription).

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