Notes from IASB meeting with EFRAG

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22 Jul 2009

The IASB is holding its July 2009 monthly Board meeting at its offices in London on Tuesday to Friday, 21-24 July 2009. The portion of the meeting on 23-24 July will be a joint meeting with the US Financial Accounting Standards Board.

Representatives of the Board also met with representatives of the European Financial Reporting Advisory Group (EFRAG) on Monday 20 July. Presented below are the preliminary and unofficial notes taken by Deloitte observers at the meeting with EFRAG representatives.

The Chairman of the Board started the meeting by welcoming three new Board members (Amaro Gomes, Patrick Finnegan and Patricia McConnell).

The first item on the agenda was the meeting of representatives of IASB and an EFRAG delegation to discuss convergence related issues. The Chairman of EFRAG kicked off the discussion by appreciating the work of the Board on the financial crisis-related issues. Nonetheless, he expressed the concerns of EFRAG about the IASB's technical plan. EFRAG is of the opinion that there are too many items on the agenda and that fact may eventually affect the quality of the due process, as many constituents struggle to provide feedback to the increasing number of new proposals. EFRAG recommended that the Board focus on financial crisis-related issues, Financial Instruments, Fair Value Measurement, Insurance and Conceptual Framework and defer 'housekeeping' (for example, annual improvements process and smaller projects) to the period when the constituents are able to process the proposed changes. EFRAG also challenged the timetable of the MoU with FASB, as it has concerns whether 2011 deadline was still achievable and whether convergence always led to 'improvements' to accounting standards. EFRAG acknowledged that all the issues on the agenda are important; but urged the Board to reconsider the priorities and align the pace of change with capabilities of the constituents.

The Chairman of the Board defended its strategy. He made his case referring to the recommendations of G20 (the aim of having global standards), adoption of IFRS in many jurisdictions in 2012, by the time the major changes in the standards should have been completed (in order for new jurisdictions not to change requirements two times, what was the same strategy as before Europe adopted IFRS in 2005) and by the need for convergence with the US. In the opinion of the IASB Chairman, any delay in convergence agenda could delay IFRS adoption in the US. Moreover, some issues (such as the rights issues question that was referred to the Board by the IFRIC in July 2009 or emissions trading schemes) seem to have huge repercussions and have the support of other constituents.

IASB members asked if delaying of some projects (e.g. extractive industries DP) or extended comment periods would help to alleviate the concerns. EFRAG seemed to be in favour.

The discussion turned to an analysis of responses from constituents to the consolidation and derecognition EDs. EFRAG expressed its concerns that the Board seemed to be in a hurry to replace the parts of IFRS that appeared to be working relatively well in the crisis, especially in comparison with US Standards. The Board felt confident that the consolidation standard could be issued until the year end (after re-deliberation) and that the positions of IASB and FASB are relatively close. Regarding derecognition project, the staff acknowledged that based on the feedback received, alternative views seem to be preferred by the constituents (with net balance shown on the statement of financial position and gross disclosed in the notes). The Board defended its approach as it thought that IAS 39 requirements are complex and rule based.

Another point of discussion focused on the IAS 39 replacement project. EFRAG seems to be broadly supportive of the proposed classification criteria. Several issues were floated that cause concern, notably the border between classification criteria (definition and interpretation of the contractual yield basis), stage approach selected by the board (many constituents do want to know how will hedging be fixed before they opt for classification), the treatment of embedded derivatives, lack of possibility of reclassification of financial instruments between categories and abolishing the cost exception for equity instruments. The discussion briefly touched also the proposed US approach (fair value) with EFRAG not supportive of such alternative.

As the contemplated impairment is concerned, EFRAG urged the Board not to be in a hurry as there is no immediate impact of this change. In general several IASB and EFRAG members were supportive of the idea to reconcile accounting provisioning and prudential regulation on the basis of a kind of expected losses model.

The Board presented EFRAG with the update on other programmes like Insurance, Conceptual framework and Joint ventures. Finally, EFRAG presented its proactive activities in the area of pensions accounting, asset definition, taxes, share based payments as well as contemplated disclosure framework. The Chairman welcomed these initiatives as possible input into the agenda for the period after 2011.


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