IASB announces new meeting week schedule

31 Jul 2004

The IASB has announced that beginning in September it will generally hold its meetings in four half-day sessions during Board meeting weeks – Tuesday, Wednesday, and Thursday afternoons and Friday mornings, plus a non-decision-making educational session on Wednesday mornings, as follows: .

The IASB has announced that beginning in September it will generally hold its meetings in four half-day sessions during Board meeting weeks – Tuesday, Wednesday, and Thursday afternoons and Friday mornings, plus a non-decision-making educational session on Wednesday mornings, as follows:

IASB'S Announcement of Its New Meeting Week Schedule

In September 2004 the Board will adopt a new schedule for its meetings designed to make better use of Board time. The revised schedule provides for greater interaction between Board members and the IASB staff as well as time for small group meetings with constituents. This new schedule will not be in effect for the October and November meetings (owing to the joint meeting with the FASB in October and the Standards Advisory Council meeting in November) but will be resumed in December.

There will be four half-day meetings: Tuesday 13:00-16:00; Wednesday and Thursday 13:00-18:00; and Friday 08:00-12:00. Holding meetings in the afternoons will enable FASB staff to participate in the Board's discussions on joint projects. Meeting early on Friday accommodates project teams in Japan, Australia and New Zealand.

In addition, a public 'educational session' with the Board will be held on Wednesday morning 0800-1200. This session will be used to provide background and education on difficult issues, to help the staff identify potential points of confusion or ideas for solutions. These sessions will consider issues to be discussed in subsequent months' meetings. No decisions will be made.

Tuesday and Thursday mornings are available for public meetings between the Board and outside groups. Should such meetings be scheduled, the details will be announced on the IASB's Website in the usual way.

Summary of 9 July 2004 ARC meeting

30 Jul 2004

The Accounting Regulatory Committee of the European Commission met on 9 July 2004 to discuss the possible endorsement of IAS 32 and IAS 39 for use in Europe.

We have previously posted reports from the meeting, including the possibility of "carving out" some paragraphs of IAS 39 dealing with hedge accounting and the fair value option. The official (PDF 197k) of the meeting has now been released by the European Commission. Notes relating to the "carve-out" include the following:

The Chairman asked the Member States for their initial reactions in particular on a possible Commission proposal on a partial endorsement of IAS 39:

  • Many Member States adopted a very positive stance vis-a-vis a possible Commission proposal to adopt IAS 39 with the exception of the fair value option and of certain provisions relating to hedge accounting. Whilst a significant number of Member States were in favour of the Commission proposal, they needed more time and information to evaluate the suggestion properly....
  • Many Member States in favour of full endorsement indicated nevertheless their willingness to find constructive solutions and hence their readiness to examine a possible intermediate solution as sketched out by the Commission.
  • A few Member States maintained their strong preference for full endorsement of IAS 39 and rallied to an alternative proposal put forward by one of them that would consist of endorsing IAS 39 while granting Member States the possibility to disapply collectively or individually some of the provisions of IAS 39. This alternative did not attract much support and was opposed by some other Member States on the ground that it would lead to discrepancy in financial reporting throughout the EU and be contradictory to the objective of harmonisation sought after through the IAS Regulation....
  • Five Member States were not in a position to offer a view, as they had not yet completed their domestic consultations on the Commission proposal. Three Member States were not represented at the meeting.
  • A significant number of Member States insisted on the importance of allowing the full application of IAS 39 by companies that would wish to do so.

The ARC will meet next on 8 September 2004 to consider endorsement of IAS 39.

IASB announces 2005 meeting schedule

30 Jul 2004

The IASB has announced its own meeting schedule through December 2005 and those of the Standards Advisory Council and the International Financial Reporting Interpretations Committee.

The schedules are noted below. You can always find them on our IASB Future Meetings Page.

I A S B a n d S A C M E E T I N G S 2 0 0 4

London, UK

22-24 September 2004 27 September Meeting with World Standard Setters 28 September Meeting with Chairs of Partner National Standard Setters

Norwalk, CT, USA

18-22 October 2004

London, UK

15-17 November 2004 (and 18-19 November 2004 Standards Advisory Council)

London, UK

15-17 December 2004

I A S B a n d S A C M E E T I N G S 2 0 0 5

London, UK

17-21 January 2005

London, UK

14-18 February 2005 (and 10-11 February 2005 Standards Advisory Council)

London, UK

14-18 March 2005

London, UK

18-22 April 2005

London, UK

16-20 May 2005

London, UK

20-24 June 2005 (and 27-28 June 2005 Standards Advisory Council)

London, UK

18-22 July 2005

London, UK

19-23 September 2005

Norwalk, CT, USA

17-21 October 2005

London, UK

14-18 November 2005 (and 10-11 November 2005 Standards Advisory Council)

London, UK

12-16 December 2005

I F R I C M E E T I N G S 2 0 0 4

London, UK

2-3 September 2004

London, UK

7-8 October 2004

London, UK

4-5 November 2004

London, UK

2-3 December 2004

I F R I C M E E T I N G S 2 0 0 5

London, UK

3-4 February 2005

London, UK

31 March - 1 April 2005

London, UK

2-3 June 2005

London, UK

28-29 July 2005

London, UK

1-2 September 2005

London, UK

3-4 November 2005

London, UK

1-2 December 2005

Report from the July 2004 IFRIC meeting

30 Jul 2004

The International Financial Reporting Interpretations Committee (IFRIC) held a one-day meeting in London on Thursday 29 July 2004. Presented below are the preliminary and unofficial notes taken by the Deloitte observers at the meeting.Notes from the IFRIC Meeting29 July 2004 The Chairman (Gilbert Gelard in the absence of Kevin Stevenson) noted that a quorum was not present hence decisions could not be taken at the meeting. Report of the Agenda Committee Staff report on the Agenda Committee meeting and presented a list of the issues that were not taken onto the agenda. Service Concession Arrangements As requested by the IFRIC at its last meeting, staff prepared a set of draft Interpretations for the IFRIC to consider.

They are:

  • D10A Service Concession Arrangements - Determining the Accounting Model
  • D10B Service Concession Arrangements - The Receivable Model
  • D10C Service Concession Arrangements - The Intangible Asset Model

The Flowchart (Click to Open in New Window) sets out the structure of the draft interpretations. New terminology is proposed. The party that grants the concession is called the grantor (formerly the concession provider), and the party that operates the concession is called, simply, the operator (formerly the concession operator). The terminology will be incorporated into SIC 29 as well for consistency purposes.

The July discussion was a preliminary one. Further discussion will take place at the IFRIC's September 2004 meeting. Staff hopes, after the September meeting, to be in a position to prepare definitive drafts, with a view to publishing them in October or, at the latest, November. A comment period of at least two months would be provided.

IFRIC D3: Determining Whether an Arrangement Contains a Lease (Rights of Use)


Concern was expressed that it was not clear where lease accounting ended and accounting for service concession arrangements begins. After discussion, IFRIC concluded that decisions had to be taken first on who controlled the assets, as this would determine the relevant accounting literature to look to.

The differences between 'control' and 'right of use' were discussed, with members indicating that control was a more permanent notion compared to right of use.

Members raised the concern as to how the holistic approach of examining service concession arrangements may potentially contradict the components approach in IAS 16 Property, Plant and Equipment. This concern was illustrated by considering an example where a road is layered with tar by an operator in line with a service concession agreement. Should the asset recognised by the operator only be that layer as the rest of the road potentially belongs to the grantor? This approach would be consistent with the components approach in IAS 16. Members agreed to continue the discussion of whether to 'draw a line' as to where the holistic view to be taken in the scope paragraph ends.

The need to define 'service concession arrangements' was discussed and staff would look into this. Members indicated that this may require that staff consider the multiple elements revenue recognition issues as well.

Control vs. risks and rewards, and consistency with IFRSs

IFRIC members generally agreed that the significance of the residual interest in the assets should be a factor in establishing who controls the assets. IFRIC discussed other factors that indicate control, including whether the asset was constructed by the operator, estimated useful lives and concession periods, replacement assets expected to be purchased or constructed in the future (whether obliged or not), and the passing on of ownership. This debate was in the context of the different models used in IAS 18 Revenue and IAS 17 Leases in establishing when risk and rewards are passed and therefore, who controls the assets.

Members requested that staff prepare examples for consideration by the IFRIC at the next meeting.

The IFRIC noted a decision taken previously that an interpretation was to be developed regarding a sale and leaseback arrangement with a repurchase agreement. It was noted that such an interpretation would complete the suite of guidance regarding such issues. IFRIC discussed whether such guidance would be issued in the form of an interpretation or as an amendment to IAS 17, but no decisions were made.

Receivables model and intangible asset model

IFRIC debated when each model should be used. The staff requested guidance on the issue of what type of asset arises when either the grantor pays the operator or when the end user makes payment. The IFRIC suggested looking into the segmentation of concession contracts, which would help identify an asset construction phase (if any) and then a service phase that would cover the operation of the asset or provision of specified services. The importance of this segmentation proposal was underscored by the fact that certain arrangements may dictate that the operator will only be compensated for the construction phase based on the maintenance of the asset (for instance, the road constructed must be kept in good condition). In such a case, where the first phase receivable depends on the second phase performance, such segmentation may not be required.

IFRIC also discussed whether a different treatment would result if two operators were engaged separately for each phase.

In terms of the receivables model, a discussion ensued regarding the type of receivable: whether it is an IAS 11 Construction Contracts type receivable similar to 'gross amount due from customers for contract work' or an IAS 39 Financial Instruments: Recognition and Measurement type financial asset. There was concern that such a receivable would not necessarily meet the definition of a financial asset. Staff will explore this issue further.

The issue of whether a receivable still existed if the amount was dependent on demand risk (level of activity in the service phase, such as number of cars using the road) was raised. The IFRIC appeared to be in general agreement that a receivable existed under IAS 11 but this was not the case in terms of IAS 39. Staff were again asked to explore the disconnect between the two standards. It was expressed that a receivable might exist that was based on part performance (that is, not an executory contract) but absent any demand risk. This scenario was effectively where the grantor had 'guaranteed' a minimum amount based on work done but subject to completion of construction.

Regarding the demand risk discussion, staff asked the IFRIC to consider whether an intangible asset existed, instead of a financial asset. A debate ensued but no decisions were made.

Revenue and profit or loss treatment of services provided in exchange for an intangible asset

A general discussion took place regarding the exchange notion contained in IAS 16 and IAS 38 Intangible Assets. Specifically, IFRIC discussed any changes to the cash configuration as a principle that is used in existing literature. A conclusion was not reached as to whether cash flows changed in a service concession arrangement. Members noted that for an exchange to take place there must be an asset given up, whereas in the context of the discussion on service concession arrangements, it was not yet clear whether the assets in question were controlled by the operator. The debate was postponed as this issue had not yet been finalised.

D5 Applying IAS 29 Financial Reporting in Hyperinflationary Economies for the First Time

Staff presented an overview of responses received on D5. In total, 30 comment letters were received. A significant number of respondents raised concerns pertaining to broader issues in relation to IAS 29 itself. Some debate around these broader issues ensued with IFRIC concluding that the issues had to be elevated to the IASB, as the IAS 29 approach required revision. Staff raised the concern that it was unlikely that the IASB would be able to take this onto its agenda in the short term.

The IFRIC suggested that staff take these issues to the Board members individually as well as to the Director of Technical Activities in order to get input from them for consideration at the next IFRIC meeting. The tentative proposal from IFRIC was that the following issues should form part of the IASB's short-term project with the specific suggestion that amendments be made to IAS 29 ahead of the long-term project that would revisit inflation accounting as a whole:

  • 'High' vs. 'hyper' inflation – the IFRIC observed that in practice, the 100%-in-three-years guideline is used more definitively than intended whereas jurisdictions with cumulative inflation rates in the region of say 40% to 80% should ideally be applying the standard were in fact not doing so. The IFRIC suggestion would be to redraft IAS 29 appropriately in this regard.
  • Having removed the 100% criteria, the existence of 'high' inflation would then be determined on the basis of expected future inflation levels as opposed to the current criteria, which are based on past inflation.
  • Amend IAS 29 such that it only requires restatement from the point in time when it is determined that hyperinflation exists. The rationale for this was that it made no sense to restate from the time the asset was acquired as a similar principle was not applied to jurisdictions with inflation of say 6%. IFRIC members believe such an amendment would result in more comparable information.

The requirements of US GAAP were noted (remeasure into a hard currency), but IFRIC members generally felt that the IAS 29 model was superior.

The IFRIC noted that if the IASB were to take on this project, D5 would become redundant and therefore would not be issued.

A discussion ensued regarding specific issues related to D5:

  • Deferred taxation - a member indicated his intention to dissent if the wording in BC12 remained in the Interpretation. This member felt that IFRIC should reach a conclusion as to whether deferred taxation is a monetary or non-monetary item; otherwise, BC12 should not refer to the issue. This member also pointed out that the manner in which deferred taxation is measured does not influence its nature. Some debate around this point took place, but not agreement was reached. The point was then made that resolution of this issue was unlikely to alter the conclusions reached in D5.
  • The IFRIC was in general agreement with the suggestion to limit the example to an illustration of just the deferred taxation issue, as the whole example was generally viewed as too simplistic.
  • The IFRIC expressed general agreement with a comment received regarding a misallocation in the example between the deferred taxation charge / credit to the income statement and the monetary adjustment. Staff agreed to amend D5.

Employee Benefit Trusts

At its May meeting, the IFRIC began discussing issues concerning employee benefit trusts (EBTs) relating to share-based payment arrangements. The IFRIC discussed a request from the IASB to consider:

1. Whether the scope of SIC-12 Consolidation-Special Purpose Entities should be amended once IFRS 2 becomes effective, to remove the scope exclusion for equity compensation plans.

This phase (step 1) culminated in the issuance of IFRIC D7 Scope of SIC-12 Consolidation - Special Purpose Entities on 30 June 2004, with a request for comments by 13 September 2004.

2. Whether any guidance should be developed on accounting for employee benefit trusts relating to share-based payment arrangements.

The discussion at this meeting would focus on the second step – guidance on accounting for employee benefit trusts relating to share-based payment arrangements. The following issues were discussed but no decisions were made:

  • The scope of the interpretation, to distinguish the employee benefit trusts covered by the interpretation from those within the scope of IAS 19 Employee Benefits.
  • Whether any guidance should be given on determining whether an EBT is under the entity's control.
  • Whether the EBT should be treated as a branch or a subsidiary.
  • What guidance, if any, should be given on the consolidation process?

The IFRIC discussed whether to provide guidance similar to that in the UK UITF 38 on consolidation procedures around employee compensation trusts. There was no overwhelming support that such an interpretation should receive IFRIC priority and should only be addressed (if at all) once the results of D7 were known. As a result, that feedback would be considered at the October meeting.

Constitution of an Obligating Event by Future Market Share

Certain types of products bear an obligation of the producer to contribute to the cost of waste management at the end of the product's life cycle. The obligation sometimes depends on the future market share of the producer at that time. The accounting question for the producer is whether the obligating event for the waste management cost occurs (a) when the product has been put onto the market or (b) when the future market share determines the cost for waste management.

The issue has arisen under EU Directive 2002/96/EC on Waste Electrical and Electronic Equipment (WEEE), which regulates the collection, treatment, recovery, and environmentally sound disposal of waste equipment. The Directive came into force on 13 February 2003.

The issue has been addressed by the Accounting Interpretations Committee of the German Accounting Standards Board (AIC) which has developed a draft interpretation on WEEE in December 2003 (D-AIC-1). The draft interpretation provides guidance on applying IAS 37 Provisions, Contingent Liabilities and Contingent Assets relating to the constitution of an obligating event. The draft proposes that if an obligation for cost of waste management depends on a participation of the producer in the future, i.e. future market share, the obligating event is the future participation in the market and not the date when the products are put onto the market.

The was some debate around the specific provisions of the draft interpretation put before the IFRIC with the following notable points:

  • IFRIC decided to rename the interpretation to 'Liabilities arising from market share'. It was decided not to include the notion of 'future' market share into the title.
  • Although no decision was made, IFRIC members questioned whether the draft interpretation should deal with measurement issues pertaining to the obligation, as it did not seem to be part of the issue brought to them to consider.

There was agreement not to mention the EU directive in the draft Interpretation but instead to use more generic wording.

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

New Accounting Roundup newsletter is available

29 Jul 2004

We have posted the of Accounting Roundup (PDF 161k), a newsletter published by Deloitte & Touche (USA).

Accounting Roundup summarises recent accounting and financial reporting developments and provides Internet links to related content. This issue has information about developments at FASB (including several proposed FSPs), EITF, GASB (including a proposal on net assets restricted by enabling legislation), AICPA (including several new Technical Practice Aids and a survey for private company stakeholders), SEC, PCAOB, and IASB (including exposure drafts on financial instruments disclosures and limited amendments to IAS 39). You will find all Past Issues Here.

Summary of new IASB business combinations standards in German

29 Jul 2004

Deloitte (Germany) has published a and the related new rules in IAS 36 Impairment of Assets and IAS 38 Intangible Assets (PDF 579k).

The title of this 21-page publication in German is IFRS 3: Unternehmenszusammenschlûsse sowie Änderungen der IAS 36 Wertminderung von Vermögenswerten und IAS 38 Immaterielle Vermögenswerten.

Second edition of Deloitte German GAAP–IFRS comparison

29 Jul 2004

The publisher is now accepting orders for the second edition of Deloitte's 170-page comparison of German GAAP and IFRSs – Rechnungslegung nach IFRS – which is expected to be available in the last week of August. Ab dem Jahr 2005 wird die Bilanzierung nach IFRS-Richtlinien fûr börsennotierte Unternehmen verbindlich - fûr viele ein tiefer Einschnitt in interne Organisationsprozesse, der sich nicht nur auf das Rechnungswesen beschränkt.

Aus dem Inhalt: Allgemeine Grundsätze fûr die Aufstellung von Jahresabschluss und Lagebericht, tabellarische Gegenûberstellung von IFRS- und HGB-Regeln, Besonderheiten der Konzernrechnungslegung, Ausblick auf Arbeitsprogramm 2004/2005 des IASB. For more information please visit the Publisher's Website.

Board-level overview of Australian equivalents to IFRSs

29 Jul 2004

Deloitte (Australia) has today released a new Discussion Paper: An Overview of Australian Equivalents to IFRS – A Guide for Boards and Audit Committees.

With the final versions of the Australian equivalents to International Financial Reporting Standards (A-IFRSs) having been issued by the Australian Accounting Standards Board last week, this publication is designed to assist boards and audit committees to quickly come to terms with the requirements of A-IFRSs and their immediate impacts on current financial reporting. The guide also includes a number of key questions that boards and audit committees can use to assess preparedness for the transition to A-IFRSs, as well as examples of the narrative disclosures that might be appropriate for disclosing the impact of adopting A-IFRSs. Click to (PDF 4,021k*). Because A-IFRSs are virtually identical to IFRSs, this publication is likely to be useful globally, not just in Australia. *Because of the large file size, a white screen may appear for a while when downloading.

FASB considers convergence for unremitted foreign earnings

29 Jul 2004

At its meeting earlier this week, the US Financial Accounting Standards Board agreed to explore the possibility of converging with IAS 12 Income Taxes by removing the existing exception to comprehensive recognition of deferred taxes for unremitted earnings of foreign subsidiaries.

Under current US GAAP, a deferred tax liability is not recognised for taxes potentially payable on profits earned and held overseas. US accounting treatment follows the tax law, which taxes overseas earnings only when received as dividends or realised through sale of the investment. Under IAS 12, however, these deferred taxes are accrued.

IOSCO report on Islamic capital markets

28 Jul 2004

The International Organization of Securities Commissions (IOSCO) has published Islamic Capital Market Fact Finding Report intended to assist regulators in assessing the extent of the development and potential regulatory issues relating to the Islamic capital market, as well as to gather information on Islamic financial products and activities.

Among the sections of interest from an IFRS perspective:
  • 3.3.1 Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI)
  • 4.3.2 Key issues relating to the Islamic capital market, which describes, among other things, how IFRSs are used by Islamic financial institutions.
Two excerpts relating to accounting:

"In some cases, Islamic financial institutions encounter accounting problems because the existing accounting standards such as International Accounting Standards (IASs), Generally Accepted Accounting Principles (GAAPs) or domestic standards, were developed based on conventional institutions, conventional product structures or practices, and may be perceived to be insufficient to account for and report Islamic financial transactions. Shariah compliant transactions may not have parallels in conventional financing and therefore, there may be significant accounting implications. For example, in the case of Mudharabah contracts, the transaction is neither equity nor liability in nature as the depositor does not assume the rights of an equity holder (i.e., shareholder) of the Islamic financial institution and neither is he guaranteed of returns. Hence, from an Islamic accounting viewpoint, a Mudharabah account may be presented as an 'investment account', appearing as a separate line item from equity or liability on the balance sheet."

"The current approach to developing financial standards for Islamic transactions is to benchmark against international standards such as International Accounting Standards (IASs) to ensure consistency with globally accepted standards and modifying them, where necessary, in order to ensure financial statements present fairly the financial position, financial performance and cash flows of the Islamic financial institution.... This can be seen as a response to the growth and increasing maturity of the Islamic capital market that requires more specific disclosure and standards that address the specific features of Islamic products and services. Hence, international Islamic financial institutions such as AAOIFI have begun to set international Islamic accounting standards for Islamic financial institutions which are likely to be used by the global Islamic financial services industry."

Click for Islamic Capital Market Fact Finding Report (PDF 611k).

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.