We are concerned that two of the three proposals in the Exposure Draft result in arrangements being differentiated on a basis other than the relevance of the resulting information:

• A subsidiary providing services that relate to the parent's investment activities. We believe that the proposals to subsume a service providing entity into a single fair value number will, for some arrangements, result in an inappropriate lack of transparency and that they will allow structuring opportunities.
• Application of the equity method by a non-investment entity investor to an investment entity investee. We believe that an assumed difference in the ease of obtaining information is not sufficient reason to introduce a difference in the equity method of accounting for associates and joint ventures.

Click for the full comment letter.

As the IASB concluded that diversity in practice around the recognition of a deferred tax asset that is related to a debt instrument measured at fair value is mainly attributable to uncertainty about the application of some of the principles in IAS 12, the proposed amendments consist of some clarifying paragraphs and an illustrating example.

EFRAG in its draft comment letter agrees with most of the proposals but has some concerns or wording suggestions as EFRAG believes that some of the amendments are difficult to read or would need further clarification. In relation to the new paragraph 29A the IASB proposes to add, EFRAG explicitly asks constituents for their view (should EFRAG agree or disagree) and presents two alternative answers as EFRAG is aware that there are significant different views on the issue.

Comments on the draft comment letter are due by 28 November 2014. It is available on the EFRAG website.

The endorsement status report, dated 11 September 2014, is available here.

The new paper discusses the presentation and disclosure of information on the reversal of step-ups recognised in a business combination. 

IFRS 3 Business Combinations generally requires identifiable assets acquired and liabilities assumed to be measured at their acquisition-date fair value, which may result in upward adjustments to the carrying amounts in the acquiree's financial statements (so-called 'step-ups'). In the paper, EFRAG discusses whether and to what degree information about the impact of a subsequent reversal of the step-ups may be relevant to users and how this information should be presented. The discussion is structured into the following chapters:

• The case for fair value in IFRS 3
• Is the an issue with step-ups?
• Is this only an issue in a business combination?
• What assets should be considered?
• Discussion of alternatives:
  • Presenting the impact of the step-ups in a separate line item of the statement of comprehensive income
  • Offsetting the revenue and cost of goods sold for the performance completed by the acquiree until the acquisition date
  • Presenting cost of goods sold based on the acquiree’s carrying amounts in profit or loss and the reversal of the step-ups in other comprehensive income
  • Disclosing sufficient information to enable users to make the adjustment
  • Voluntary provision of information
• Practical problems

Questions to constituents to guide the discussion are included in the paper as well.

The discussion paper is open for comment until 31 December 2014. Click for press release and the discussion paper on the EFRAG website.

Earlier papers in the series were:

• The Equity Method: a measurement basis or one-line consolidation? (comment period closed)
• The use of information by capital providers - Academic literature review (comment period closed)
• Levies: what would have to be changed in IFRS for a different accounting outcome? (open for comments until 15 December 2014)
  

The finalised requirements are largely consistent with proposals released in November 2013, and the modifications made to the existing PBE standards are designed to make these standards fully applicable and understandable in the context of not-for-profit financial reporting. However, the amendments requirements are not expected to impact public sector entities who also apply this suite of standards.

The not-for-profit amendments made include extensions to existing language to include not-for-profit concepts, adding example illustrative financial statements for not-for-profit entities, additional guidance on concepts such as control and non-exchange transactions, and additional concessions to reduce the costs of transition to revised standards.

Under the New Zealand Accounting Standards Framework, the applicability of accounting standards is determined both by the type of the entity (for-profit, not-for-profit, public sector) and a 'tiered' structure that reflects the nature of the entity, which in the case of not-for-profit entities relies on whether the entity is 'publicly accountable' and/or 'large' (by reference to its level of expenses).

In summary terms, the tiers of reporting entities for not-for-profit entities are determined as follows:

• Tier 1. Not-for-profit entities having 'public accountability' (based on the IASB's definition, but with supplementary information and deeming of particular entities), or having total expenses of more than NZ$30 million
• Tier 2. Not-for-profit entities not having 'public accountability' or total expenses of more than NZ$30 million, which are not eligible, or do not elect, to report using Tier 3 or Tier 4 reporting requirements. Entities eligible to apply Tier 2 reporting requirements can also elect to apply Tier 1 reporting requirements
• Tier 3. Not-for-profit entities without 'public accountability' and having total expenses not exceeding NZ$2 million, which elect to report under Tier 3 requirements
• Tier 4. Not-for-profit entities permitted by an Act to report in accordance with non-GAAP standards (e.g. cash basis of accounting), because they do not have public accountability (as defined) and do not meet the size threshold to be a 'specified not-for-profit entity' (as defined), which elect to report under Tier 4 requirements.

The revised PBE standards apply to 'Tier 1' and 'Tier 2' not-for-profit entities, with 'Tier 2' entities having disclosure concessions but otherwise applying all the recognition and measurement requirements of the standards.

The new standards and framework are applicable for periods beginning on or after 1 April 2015. Click for press release (link to New Zealand External Reporting Board website).

A summary of the agenda (as at 10 September 2014) is set out below:

Agenda papers for the meeting will be available in due course on the IASB website.