EFRAG views on IASB-FASB convergence activities

  • EFRAG (European Financial Reporting Advisory Group) (dk green) Image

01 Nov 2006

In our Meeting Notes for the 17 October 2006 Board Meeting we summarised the discussions between the IASB and representatives of the European Financial Reporting Advisory Group (EFRAG) concerning IASB-FASB convergence activities.

EFRAG has posted on its Website its own summary, which expands on ours. Click to download EFRAG's Summary (PDF 55k). Here is an excerpt:

EFRAG informed the IASB of their general support of the convergence activities between the IASB and the FASB, however the EFRAG delegation raised a number of concerns on specific projects as well as the process in general. The main European views presented on the different topics can be summarized as follows:

  • Equity-Liability accounting: There appears to be a widely held view that the existing equity/liability classification requirements are not satisfactory. These problems are proving to be a barrier towards the wider adoption of IFRS in certain European countries . EFRAG encouraged the IASB to ensure that the Framework project and the Equity-Liability project were running in parallel.
  • Financial statement presentation: Europe has not been persuaded thus far of the need for fundamental change as envisaged by the IASB. It is therefore of paramount importance that this issue is very thoroughly debated in the Discussion Paper proposed by the IASB. Europe is slightly anxious about certain working principles set by the IASB, partly because – despite their importance – they had not been broadly discussed upfront.
  • Business combinations: The European view is that it is inappropriate to either propose or implement any major changes to the existing measurement model until a debate on measurement has been conducted. EFRAG also indicated its concerns in connection with the full goodwill method, especially where minority interests are involved. Finally, Europe inquired as to how the IASB views the due process on this project, particularly bearing in mind that, although the proposals were widely criticised by commentators, it appears that to date the IASB has not agreed to many of the changes that are likely to address the main concerns raised.
  • Conceptual Framework: Europe's view was that it is concerned about the burden that is being placed on several assertions made in chapter 1 of the Discussion Paper, without justifying them. EFRAG also presented the European view on the proposed Framework's treatment of stewardship and accountability, which are treated as a sub-objective of the resource allocation decision usefulness objective. Finally, EFRAG believed that it is inappropriate, at the current time, to omit the notion of 'substance over form' as a sub-characteristic of good financial information.
  • Revenue recognition: Under the European PAAinE initiative, the German standard-setter and EFRAG have been working jointly on a paper on revenue recognition. The paper is nearing completion and is expected to be issued by early December.
  • Borrowing costs: EFRAG has decided not to support the proposals in the recently-published ED on this short-term convergence issue. The matter was discussed and EFRAG had questioned whether the degree of convergence that will be achieved through these proposals is sufficient to justify the disruption that implementing the proposed changes will cause.
Click for Meeting Notes.

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