May

Agenda for May 2007 IASB meeting

04 May 2007

The International Accounting Standards Board will hold its May 2007 Board meeting at its offices, 30 Cannon Street, London, on Tuesday through Friday 15-18 May 2007. Presented below is the agenda for the meeting.

BOARD MEETING AGENDA

15-18 May 2007, London

Tuesday 15 May 2007

Wednesday 16 May 2007

  • Conceptual Framework – Reporting Entity
  • IFRS 2 Vesting Conditions and Cancellations
  • Update on the IFRIC meeting held on 3 and 4 May 2007
  • Annual Improvements 2006-2007:
    • 1. At what point should costs associated with advertising and promotional activities be recognised as an expense in the income statement and when should an entity may recognise a prepayment?
    • 2. Should the IAS 28 and IAS 31 disclosures be required when the investment in the associate or jointly controlled entity is accounted for at fair value, for example by a venture capital organisation?
    • 3. Can impairments recognised against associates be reversed?
    • 4. Clarification of whether subsidiaries held for sale in separate financial statements are within the measurement scope of IFRS 5.
    • 5. Proposed wording revisions to IAS 20 and IAS 29 to confirm to defined or more consistently used terms.

Thursday 17 May 2007

Friday 18 May 2007

Notes from the May 2007 IFRIC meeting day 1

04 May 2007

The International Financial Reporting Interpretations Committee (IFRIC) is meeting at the IASB's offices in London on Thursday and Friday 3-4 May 2007. Presented below are the preliminary and unofficial notes taken by Deloitte observers at the first day of the meeting.

Most significantly:
  • Final Interpretations based on IFRIC D19 (Asset Ceiling) and D20 (Customer Loyalty Programmes) were approved subject to drafting, to be effective 1 January 2008.
  • Draft Interpretations on net investment hedging and real estate sales were approved, subject to drafting.
Both sets of documents will be submitted to the IASB no later than June for review and approval, so the Interpretations can be issued, and the Draft Interpretations published, in July.

Notes from the IFRIC Meeting -- 3 May 2007

IFRIC D20: IAS 18 – Customer Loyalty Programmes

The IFRIC continued redeliberating the proposed Interpretation in light of comments received on Draft IFRIC Interpretation D20 Customer Loyalty Programmes. The meeting considered a revised draft of an Interpretation, in particular changes made as a result of the March 2007 meeting.

Allocation of consideration to award credits

In March 2007, the IFRIC had requested that the Interpretation not be prescriptive about the how the fair value of the consideration received should be allocated between the goods and services delivered and the award credits received by the customer. The staff proposed that the Interpretation should retain the requirement to use the relative fair value method, but to add application guidance (mandatory material) explaining that the fair value of the award credits might provide an acceptable substitute. The IFRIC disagreed and directed the staff to draft the Interpretation on the basis that the consideration allocated to the award credits shall be measured by reference to their fair value – the amount for which they could be sold separately. There was some discussion about how this method could best be explained in the Interpretation and related Basis.

Awards supplied by third parties

In March 2007, the IFRIC decided to amend the Interpretation:

  • (a) to highlight that the entity might be collecting the consideration allocated to award credits as an agent for a third party supplying awards; and
  • (b) to explain the consequences for measurement and recognition of revenue if this was the case.

The IFRIC discussed revised wording together with a related Illustrative Example, neither of which was reproduced in the Observer Note.

The IFRIC seemed to agree that, when the seller is acting as agent for the supplier, revenue should be recognised on the basis of the consideration received less the amount payable to the supplier of the award. Recognition would be at the time the entity is obliged to pass the consideration to the third party.

The IFRIC agreed that the type of award should not alter the timing of revenue recognition. Thus, if a hotel awards a voucher supplied by a third party (such as a department store), revenue is recognised when the voucher is given to the customer, not when the customer uses the voucher in a transaction at the department store.

Changes in accounting policy

In March 2007, the IFRIC requested that a comment be added to the transition section to stress that entities that had previously accrued the costs of supplying awards would be changing an accounting policy, rather than an estimate, when they first applied the Interpretation. At this meeting, the IFRIC agreed with a staff analysis that this comment was unnecessary as it should be obvious that accruing a liability and deferring revenue are different accounting policies, even if the effect of the change is not significant.

Other matters

IFRIC members raised a concern that the Interpretation as drafted implied that information would have to be assessed on a transaction-by-transaction basis. The staff amended the discussion of the allocation method in the Basis for Conclusions such that this inference was avoided. The highest level of aggregation would, however, be award credits awarded in an annual period.

IFRIC members also discussed the 'credit card example', agreeing that the Interpretation should clarify that award credits can be awarded by one party (the credit card company) as a result of a transaction between the customer and a third party (the retailer accepting payment by credit card). The staff observed that the Interpretation did suggest this, but agreed to clarify this issue.

An IFRIC member expressed concern with the way in which the guidance on onerous customer loyalty programmes was expressed. There appeared to be an inference that an additional liability would be recognised. The staff agreed to work with the IFRIC member to rectify this inference, which was unintended.

The IFRIC did not think that any additional disclosure requirements were necessary. The existing requirements of IAS 1 and IAS 18 were thought sufficient.

Re-exposure

The IFRIC agreed with a staff analysis that re-exposure was not necessary.

Effective date

The IFRIC agreed that the Interpretation should be effective for financial years beginning on or after 1 January 2008. If implementing the Interpretation required a change in accounting policy, IAS 8 would apply.

Approval

The IFRIC Chairman asked whether, based on the draft Interpretation and the discussions today, whether any IFRIC members would not support the Interpretation. None of the IFRIC indicated their dissent.

Next Steps

The staff will present a revised draft Interpretation to the IFRIC as soon as possible, with the intention that it will be presented to the June 2007 meeting of the IASB for their approval, subject to written ballot. Provided that the IASB approves the Interpretation, it should be issued in July 2007.

IAS 18 Revenue – Sales of Real Estate

The IFRIC considered a revised draft of a Draft Interpretation addressing the decisions and suggestions made by the IFRIC at the March 2007 meeting.

Distinguishing between IAS 11 construction contracts and IAS 18 agreements of purchase and sale

The IFRIC discussed the proposed indicators that would help determine whether a sale if real estate is a construction contract within the scope of IAS 11 Construction Contracts or an agreement of purchase and sale within the scope of IAS 18 Revenue.

After a rather lengthy discussion, the IFRIC agreed that features that, individually or in combination, might indicate that an agreement is for the provision of construction services to the buyer's specifications, rather than the sale of goods (constructed real estate), would include:

  • (a) the buyer being able to specify the major elements of the design of the real estate before construction begins and/or alter it while construction is in progress (whether it exercises that ability or not);
  • (b) the buyer obtaining the risks and rewards of ownership or control over the work in progress as construction progresses.

There was some discussion of possible sub-indicators of (b), such as whether, in the event of the contractor/developer defaulting on the contract, the buyer had a right to sue for specific performance (suggesting an IAS 11 contract) or a right to monetary damages (indicating an IAS 18 contract). The staff agreed to work with the suggestions made by IFRIC members.

The IFRIC also agreed that the list of indicators should not suggest any form of hierarchy or create any rebuttable presumptions (that is, they are indicative only).

Approval

The IFRIC Chairman asked whether, based on the provisional Draft Interpretation and the discussions today, any IFRIC members would not support the Draft Interpretation. None of the IFRIC members indicated a dissent.

Next Steps

The staff will present a revised Draft Interpretation to the IFRIC as soon as possible, with the intention that it will be passed to the IASB for negative clearance as provided in the IFRIC's Due Process Handbook. Provided that the IASB does not object to its publication, a Draft Interpretation should be published by July 2007.

Scheduling of IAS 19 Issues

The IFRIC staff responsible for employee benefit accounting issues discussed a paper that laid out the possible timetable for existing IAS 19 issues in light of current specialist staffing constraints. Because of the IASB's ongoing Employee Benefits project, the employee benefits team is spending the majority of its time on that project and has only limited time to devote to IFRIC projects.

The IFRIC noted this constraint, but was not particularly happy about it. Some suggestions were made about relative priorities for IFRIC IAS 19 projects, and for ways to alleviate the IASB's staffing constraint.

IFRIC D19: IAS 19 – The Asset Ceiling: Availability of Economic Benefits and Minimum Funding Requirements

The IFRIC discussed a variety of amendments to D19 reflecting the proposals in the comment letters received.

Additional guidance and examples on what is a minimum funding requirement

The staff noted that it had added requirements to the scope of the Interpretation such that:

  • the Interpretation only applies to defined benefit plans. Therefore, any requirements to contribute to a defined contribution plan are not minimum funding requirements for the purpose of the Interpretation.
  • minimum funding requirements are any requirements that create a legal or constructive obligation for the entity to make contributions to fund a post-employment or other long-term defined benefit plan (emphasis added). Therefore a benefit promise defined in terms of notional contributions is not a minimum funding requirement for the purpose of the Interpretation.

IFRIC members generally supported these scope clarifications, but had concerns about the manner in which the clarifications had been expressed in the Interpretation.

An entity's right to a refund

The IFRIC agreed that an entity should recognise a potential refund as an asset only if the entity has an unconditional right to that refund. The IFRIC agreed that the entity's intentions with respect to the use of the surplus do not affect the existence of the asset. In addition, if the entity's right to a refund depends on the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity, the entity does not have an unconditional right to the refund (and therefore should not recognise an asset).

Assumptions underlying the future service cost used to determine the reduction in future contributions

The IFRIC discussed a wording that would require an entity to determine the maximum economic benefit that is available from refunds, reductions in future contributions or a combination of both. An entity should not recognise economic benefits from a combination of refunds and reductions in future contributions that are mutually exclusive.

IFRIC members expressed concerns that the Interpretation should be based on facts and circumstances existing at the balance sheet date, rather than assumptions about the future. Thus, an entity should assume a stable workforce unless (at the balance sheet date) something had happened that would negate that assertion, for instance, closing a plan to new members. The IFRIC noted that closing an existing plan to new members was not a curtailment; however the act of closing the plan to new members did affect the defined benefit obligation and minimum funding requirements.

Title

The IFRIC agreed that the title of the Interpretation should be the title should be IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction.

Re-exposure

The IFRIC agreed with a staff analysis that re-exposure was not necessary.

Effective date

The IFRIC agreed that the Interpretation should be effective for financial years beginning on or after 1 January 2008.

Approval

The IFRIC Chairman asked whether, based on the draft Interpretation and the discussions today, whether any IFRIC members would not support the Interpretation. None of the IFRIC members indicated a dissent.

Next Steps

The staff will present a revised draft Interpretation to the IFRIC as soon as possible, with the intention that it will be presented to the June 2007 meeting of the IASB for their approval, subject to written ballot. Provided that the IASB approves the Interpretation, it should be issued in July 2007.

IAS 21 Foreign Exchange: Hedging a Net Investment in a Foreign Operation

The IFRIC discussed some 'sweep issues' related to a proposed Draft Interpretation on the accounting for a hedge of a net investment in a foreign operation.

Translation to a presentation currency

After considerable debate, the IFRIC agreed that IAS 39 Implementation Guidance issue F2.14 is applicable to the hedge of a net investment, and there is no requirement to use internal hedging instruments. In other words, the translation gain or loss can be used as part of the hedging instrument.

This approach would permit an entity to hold a hedging instrument anywhere within the consolidated group. However to obtain a qualifying instrument that would be effective both prospectively and retrospectively, the amounts included in the foreign currency translation reserve must be considered when testing effectiveness. If the foreign currency translation reserve is not included in the effectiveness tests the instrument may not be deemed eligible.

What exposure arises from the net investment?

The IFRIC agreed that an entity can hedge up to the full extent of its carrying amount in a net investment regardless of whether that net investment has investments in other foreign operations, because IAS 39 does not require a risk reduction notion when using hedge accounting.

Effective date and transition

The IFRIC agreed that the Draft Interpretation should propose prospective application of the [draft] Interpretation. IFRIC members noted that it was probably impracticable to require retrospective application given the documentation requirements for hedge accounting.

Approval

The IFRIC Chairman asked whether, based on the provisional Draft Interpretation and the discussions today, any IFRIC members would not support the Draft Interpretation. None of the IFRIC members indicated a dissent. However, some IFRIC members wanted to see the next revision of the Draft Interpretation before making a definitive determination about whether further discussion by the IFRIC is necessary.

Next Steps

The staff will present a revised Draft Interpretation to the IFRIC as soon as possible, with the intention that it will be passed to the IASB for negative clearance as provided in the IFRIC's Due Process Handbook. Provided that the IASB does not object to its publication, a Draft Interpretation should be published by July 2007.

IAS 18 – Guidance on Identifying Agency Relationships

The IFRIC discussed a request for guidance from the staff about how best to proceed with this project.

Some IFRIC members were in favour of developing an Interpretation on this pervasive accounting issue. There is existing guidance in some jurisdictions (for example, the UK and US) that is not inconsistent with IAS 18. An Interpretation would reduce a perceived diversity in practice. Other IFRIC members saw the issue as one that could potentially lead to a rule-based interpretation. Identifying agency relationships is often difficult in practice and this would not change as a result of anything that IFRIC could hope to achieve. However, to the extent that there is useful guidance that might command the support of a majority of IFRIC, some guidance might be worthwhile.

The IFRIC members agreed to share any existing guidance of which they are aware (including internal guidance) with the staff. If the staff determined that there is a high degree of consistency around that guidance, it might indicate that either (a) no Interpretation is necessary; or (b) an Interpretation could be developed quite quickly. If the staff concluded that there is little consistency, an Interpretation project might be necessary.

The IFRIC will return to this issue at a subsequent meeting.

Potential Agenda Item: In-Specie Distributions

The issue is how to account for non-cash ('in-specie') distributions to owners. The IFRIC began an assessment of this potential agenda item against its agenda criteria. In doing so, it agreed that the issue is widespread and that there is known diversity in practice. Some IFRIC members suggested that even reducing the number of allowed alternative treatments might be useful.

The staff noted that at least three alternative treatments are known to be in use:

  • Distributions recorded at the carrying amounts.
  • Distributions recorded at the fair values, with any difference between the fair values and the carrying amounts being recognised in profit or loss.
  • Distributions recorded at the fair values, with any difference between the fair values and the carrying amounts being recognised in equity.

IFRIC members noted that in-specie distributions interacted with a number of areas: non-monetary transactions with owners, company law, and securities regulation. As such, the scope of any Interpretation would need to be determined very carefully. The IFRIC seemed to agree that a useful starting point would be to limit the scope to in-specie distributions (of any asset) to owners acting in their capacity as owners. This would usually be pro-rata distributions (that is, all owners would receive a pro-rata share of the asset), but would not preclude distributions in which some shareholders received a cash alternative (for example, because of legal restrictions in a particular jurisdiction).

The IFRIC was unable to conclude whether the project satisfied all of its agenda criteria and will continue its discussions at the July 2007 meeting.

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

Commissioner cites benefits of IFRSs in Europe

04 May 2007

EC Commissioner for Internal Market and Services Charlie McCreevy commented on the benefits of IFRSs in a speech on Capital Markets and European Competitiveness, at the European Financial Forum in Brussels on 2 May 2007.

Mr McCreevy said: "For an attractive Europe, we have adopted best of breed international standards: IFRS, Basel II and soon Solvency II, which are principles-based regulations. We are determined to remove obstacles to cross-border business and clamp down on anticompetitive practices."
Click for Full Transcript.

US-EU summit meeting agrees goal of mutual GAAP recognition

03 May 2007

The leaders of the United States (President George W Bush) and the European Union (Angela Merkel, the current President of the European Council, and Jose Manuel Barroso, President of the European Commission) held a political summit meeting in Washington on 30 April 2007. Among other things, they reached agreement on a Framework for Advancing Transatlantic Economic Integration Between the United States of America and the European Union.

The framework commits the US and the EU to accelerate work on key 'priority projects' in the areas of intellectual property rights, secure trade, investment, financial markets, and innovation. As part of the financial markets project, the US and the EU agreed to "promote conditions for the US Generally Accepted Accounting Principles and International Financial Reporting Standards to be recognised in both jurisdictions without the need for reconciliation by 2009 or possibly sooner".The US and the EU also agreed to "fully support roadmap discussions between the European Commission and the Public Company Accounting Oversight Board in the area of auditor oversight". Click for:

Further guidance on new Chinese Accounting Standards

03 May 2007

In our news story on 21 November 2006, we reported that the Ministry of Finance of China issued a 263-page book of implementation guidance on 32 of the 38 new Chinese Accounting Standards* (CASs) that were adopted by the China Accounting Standards Committee (CASC) in February 2006, effective for 2007 financial reports.

The new CASs cover nearly all of the topics under the current IFRSs and, with a few exceptions, are substantially in line with IFRSs. The new CASs must be used by all Chinese listed companies and may be used by unlisted Chinese companies. The MOF has recently published additional guidance on the CASs as follows:

    • A 622-page book of Interpretations of New Chinese Accounting Standards, in Chinese. This book is not available for downloading on the CASC website but may be purchased in bookstores in China.
      0705casguidance.gif
    • Questions and Answers Set #1 (PDF 163k, Chinese language)

The November 2006 MOF implementation guidance is available in Chinese – Click to Download in ZIP Format (4,009k ZIP). Alternatively, all of the CASs and guidance can be downloaded in Chinese from the official website of China Accounting Standards Committee.

*Note that when the 38 new standards were adopted in February 2006, they were generally referred to in English as Accounting Standards for Business Enterprises, or ASBEs. Because of possible confusion of that term with some older pronouncements, the MOF now refers to the 38 new standards as Chinese Accounting Standards, or CASs.

Motion in UK Parliament opposing IFRS 8

03 May 2007

Thirteen members of the United Kingdom House of Commons (Parliament) have submitted a Parliamentary Motion urging both the UK government and the European Commission to carry out "urgent and in-depth impact assessments on IFRS 8 'Operating Segments' – a standard that, in their view, is "totally unacceptable".

The draft resolution is below. See also our News Story of 27 April 2007  for a similar resolution under consideration by the EU Parliament.

Accountability of multinational companies

That this House finds International Financial Reporting Standard (IFRS) 8, concerning disclosure of operating segments by multinational corporations, totally unacceptable because it gives company directors carte blanche to decide what they disclose and how they disclose it and does not require consistency of disclosure either between periods or between companies and therefore fails to create a clear standard for disclosure to help investors, abolishes previous requirements for geographical disclosure and allows different accounting rules to be applied to segment information from that used in the rest of a company's financial statements; and therefore urges the UK Government and the European Commission to carry out their own urgent and in-depth impact assessments on IFRS 8 and require multinational companies to adopt, in addition to any segment data they disclose, full country-by-country disclosures of all activities in each geographical jurisdiction in which they operate, together with details of turnover, profits and taxes paid in each of those territories.

 Click for further information on the Parliamentary Motion.

IASB Discussion Paper on insurance contracts

03 May 2007

The IASB has published a Discussion Paper (DP) Preliminary Views on Insurance Contracts.

Comments are requested by 16 November 2007. Thereafter, IASB will develop firm proposals for an exposure draft to be published towards the end of 2008. Allowing for a further period of public consultation, the IASB expects the new standard to be in place in 2010. IASB subscribers may download the DP now (one document for main text, a second for appendices). The DP will be available on the IASB's public website from 14 May. Printed copies will be mailed to IASB comprehensive subscribers or may be Purchased from the IASB. Click for Press Release (PDF 69k). Here is the link to our Agenda Project Page.

Discussion Paper: Preliminary Views on Insurance Contracts

The DP proposes that an insurer should measure its insurance liabilities using the following three building blocks:

  • explicit, unbiased, market-consistent, probability-weighted and current estimates of the contractual cash flows.
  • current market discount rates that adjust the estimated future cash flows for the time value of money.
  • an explicit and unbiased estimate of the margin that market participants require for bearing risk (a risk margin) and for providing other services, if any (a service margin).

 These principles would apply to all types of insurance contracts.

The DP suggests that an informative and concise name for a measurement that uses the three building blocks is 'current exit value'. The DP defines current exit value as the amount the insurer would expect to pay at the reporting date to transfer its remaining contractual rights and obligations immediately to another entity. A measurement at current exit value is not intended to imply that an insurer can, will or should transfer its insurance liabilities to a third party. Indeed, in most cases, insurers cannot transfer the liabilities to a third party and would not wish to do so. Rather, the purpose of specifying this measurement objective is to provide useful information that will help users make economic decisions. In addition, 'current exit price' is not meant to imply that the insurer does not intend to settle its obligations with the policyholder. Ultimate settlement with the policyholder would clearly be an important consideration in the price that the third party would charge for assuming the liabilities.

The paper addresses several other topics, including policyholder behaviour, participating contracts, and the reporting of changes in insurance liabilities.

 

Three proposed International Standards on Auditing

02 May 2007

The International Auditing and Assurance Standards Board (IAASB) has published exposure drafts of three proposed International Standards on Auditing (ISAs) for public comment.

One (ISA 200) is a revision of the existing standard. The other two are redrafts in accordance with the IAASB's new drafting conventions designed to enhance the clarity of its pronouncements:
  • ISA 200 (Revised and Redrafted) Overall Objective of the Independent Auditor, and the Conduct of an Audit in Accordance with International Standards on Auditing. Comments are due by 15 September 2007
  • ISA 500 (Redrafted) Considering the Relevance and Reliability of Audit Evidence. Comments are due by 15 September 2007
  • ISA 250 (Redrafted) The Auditor's Responsibilities Relating to Laws and Regulations in an Audit of Financial Statements. Comments are due by 31 July 2007.
The proposals may be downloaded from The IFAC Website until the close of the comment period. Click for Press Release (PDF 88k).

Opinion – challenges facing the IASB

02 May 2007

We have recently published IFRSs in your Pocket 2007 – the sixth edition of our popular guide to IFRSs (see news story of 25 April 2007).

In his Foreword to that publication, Ken Wild – Deloitte's Global IFRS Leader – discusses some of the challenges facing the IASB, including principle-based standards, convergence, and the conceptual framework. Ken's comments are presented below. Click for 25 April 2007 News Story.

Foreword to IFRSs in your Pocket 2007

It is a difficult time to be a member of the IASB. The Board must at times feel that they are attempting to construct a house on shifting sands. The solid ground on which they have previously anchored their efforts is gradually eroding – as the basic principles of the Framework are redebated. As keen observers, we do not underestimate their predicament.

But we do believe that predicament is aggravated by a degree of disarray in the management of the current agenda. We consider that the ultimate objective for the Board should be clear – the development of a cohesive body of principle-based Standards. We are concerned, however, that a number of the proposals emerging from the Board's recent deliberations do not seem to achieve real progress toward that objective. In fact, some of those proposals would undermine Standards (such as IAS 1 and IAS 37) that are operating satisfactorily within the current accounting model and environment and would, in our opinion, lead to inferior Standards. The underlying cause for this situation, we believe, is the pressure imposed by the Board's short-term commitments under the Roadmap for Convergence with US GAAP and the related IASB/FASB Memorandum of Understanding.

We at Deloitte are committed supporters of the convergence efforts of the world's national accounting standard setters, and the IASB and FASB in particular. While we support this process, we have significant reservations about the IASB's approach to its 'short-term convergence' agenda. Convergence should always be to the highest-quality solution – and the Board must, in all cases, demonstrate (not merely assert) that there is conclusive evidence that the approach chosen is the highest quality solution. A recent example of the Board's failure to meet this obligation is the elimination of the option to expense all borrowing costs. There had been practically no conceptual debate, and a solid rejection of the proposals by respondents to the Exposure Draft – and yet the Board has proceeded with its proposals in order to meet its Roadmap commitments. Clearly, the MoU is a highly influential planning document – one that received no public debate.

In moving forward, we believe that the Board's highest priority should be the progression of the new Conceptual Framework. We acknowledge that there will be projects that cannot wait until that Framework is finalised, and that there will be a need for interim 'fixes' in some areas. But the Board needs to approach these with care and avoid undermining Standards that, while they might not be perfect, work well enough until those building blocks are in place.

Ken Wild Global IFRS Leader Deloitte Touche Tohmatsu

Australia rescinds amendments made to IFRSs

02 May 2007

The Australian Accounting Standards Board has approved an 'Amending Standard' that would, in effect, undo the changes that the AASB had made to IFRSs when it initially adopted them as Australian Equivalents of IFRSs.

The changes are based on the proposals in ED 151 Australian Additions to, and Deletions from, IFRSs. The Amending Standard also incorporates a number of editorial corrections and amendments made by the IASB to IFRSs. The Amending Standard (which is not yet publicly available) is applicable from 1 July 2007 but may be adopted earlier. In all, 34 Australian Standards will be affected by the Amending Standard. Significant changes implemented by the Amending Standard include:
  • permitting the 'indirect method' of presenting cash flows statements
  • revisions to the definition of 'separate financial statements' and the requirement to prepare consolidated financial statements
  • introduction of an option to account for jointly controlled entities using proportionate consolidation
  • new options in accounting for government grants
  • elimination of a large number of disclosures across many Standards.
Deloitte (Australia) intends to issue a comprehensive Accounting Alert on the new requirements, which we will post on IAS Plus.

 

Our comments on proposed amendments to IFRS 1

01 May 2007

We have submitted a letter in response to the IASB's January 2007 Exposure Draft of a proposed amendment to IFRS 1 First-time Adoption of International Financial Reporting Standards: Cost of an Investment in a Subsidiary.

The Exposure Draft proposes to allow a parent to use a 'deemed cost' to measure its investment in subsidiaries when it first adopts IFRSs. This deemed cost can be determined by reference to the parent's investment in the net assets of the subsidiary or the fair value of the parent's investment. In addition, the proposals would alleviate the need to restate the pre-acquisition accumulated profits of the subsidiary in accordance with IFRSs for the purposes of classifying dividends. Click to Download Our Letter  (PDF 128k). An excerpt:

We welcome the fact that the Board has taken this issue on to its agenda. The proposals in the Exposure Draft address a real concern that it may be impracticable to apply IAS 27 with full retrospective effect on transition. This is creating a significant barrier, in some jurisdictions, to the adoption of IFRSs for the separate financial statements of parent companies. Addressing the issue should therefore lead to wider use of IFRSs and reduced costs for companies because they will no longer have to prepare financial statements under local GAAP.

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