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Tuesday, 13 December 2011

• IFRS 10 – Transitional requirements (IASB only)
• IFRIC Update (IASB only)
• Financial instruments – Macro hedge accounting (IASB only)
• Financial instruments – Classification and measurement (IASB only)

Notes from the session on Leases will be posted soon.

Click here to go to the preliminary and unofficial notes taken by Deloitte observers for the entire meeting.

The tentative agenda decisions deal with the following accounting issues arising from a proposed 'Mineral Resource Rent Tax' (MRRT) and extension of 'Petroleum Resource Rent Tax' (PRRT) that are currently being considered by the Australian Parliament:

• Whether MRRT is an income tax. The agenda decision stops short of concluding MRRT is an income tax, but notes existing guidance is sufficient to address the issue, referencing the possible direct or analogous application of AASB Interpretation 1003 Australian Petroleum Resource Rent Tax (a domestic Interpretation)
• Accounting for an uplift in allowances on the commencement of a new tax. Entities becoming subject to the MRRT/PRRT for the first time are given the option of adopting an 'starting base allowance' which increases future deductions available based on the market value of the operation, rather than the actual cost of establishing the operation. The agenda decision states such increases in deductions available are to be treated "as a deductible temporary difference giving rise to a deferred tax asset"
• Substantive enactment. The Bills required to enact the tax have been passed by the Lower House of the Australian Parliament, but will not be considered by the Australian Senate until 2012. The tentative agenda decision concludes existing guidance (including a further Australian domestic Interpretation) "is sufficient to address the issue of when substantive enactment has occurred".

The tentative agenda decisions arose from the AASB's discussions at its December 2011 meeting, where the AASB also debated the question of accounting for payments to Australian State Governments for royalties that can be credited against MRRT/PRRT payable. There is currently debate about whether such royalties should be considered production costs or a form of 'prepaid' MRRT/PRRT and the AASB has indicated it will raise this additional issue with the IFRS Interpretations Committee.

Comments on the AASB's tentative agenda decisions close on 17 January 2012. Click for:

• AASB's tentative agenda decisions (link to AASB website)
• AASB Action Alert (link to AASB website) from the AASB's December meeting with more details of the discussion
• Deloitte (Australia) submission to AASB on accounting for MRRT/PRRT, providing some additional background to the issues arising.

On 18 November 2011, EFRAG held a meeting via public conference call. The EFRAG TEG meeting was held 7 to 9 December 2011. Highlights of the meetings were a draft endorsement advice on the amendments of IFRS 1 and the draft comment letters to the IASB's draft on government loans.

Click for the EFRAG Update (PDF 347k, link to EFRAG website). Links to earlier issues are available here.

Mr Upton has been with the IASB since 2001, and previously worked at the FASB for almost 20 years. In an interview with financial journalist Robert Bruce, who is also the resident commentator for IAS Plus, Mr Upton compares his United States and global roles, the challenges of global standard setting such as consistency in application across jurisdictions and the needs of emerging economies, and his plans as Chairman of the IFRS Interpretations Committee.

Click for access to the interview (link to IASB website).

In the letter, EFRAG requests a deferral of the effective date of IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IFRS 12 Disclosure of Interests in Other Entities, IAS 27 Separate Financial Statements and IAS 28 Investments in Associates and Joint Ventures.

EFRAG's reasons for requesting a deferral include:

• during EFRAG field-tests of IFRS 10 and IFRS 11, some participants noted that they have concerns that the mandatory effective date of 1 January 2013 would not allow them sufficient time to implement the new requirements and make the required assessments. Concerns about implementing IFRS 10 are concentrated in the financial services and insurance industries, whereas concerns about IFRS 11 relate to the need to access detailed information regarding joint arrangements
• the IASB is currently undertaking its project on investment entities and is also considering possible amendments to the transitional requirements around IFRS 10 (including at the December IASB meeting this week), both projects affect the application of IFRS 10 and create uncertainty for constituents
• although the above concerns relate to IFRS 10 and IFRS 11, EFRAG notes that given the considerable interaction between the requirements of the standards in the package, all standards must continue to have the same effective date, requiring a deferral for all five standards.

The standards are currently effective for annual periods beginning on or after 1 January 2013.  EFRAG believes that the effective date of the Standards should be deferred to the later of (a) 1 January 2014 or (b) 12 months after the amendments to IFRS 10 and the standard on investment entities have both been published.

Click for access to the EFRAG letter (link to EFRAG website).

Michel Prada has taken the helm as the new Chairman of the Trustees of the IFRS Foundation. To be the guiding hand at the top of the organisational pyramid which oversees the IASB and international standard setting is a complex role. But it is a role which has shown its worth in the past. Both Paul Volcker and Tommaso Padoa-Schioppa, have amongst others, added the necessary strength and intelligent sense of mission to the task in the past.

Now it is up to Prada to help steer the organisation forward in times which continue to be uncertain. There is still a decision due from the US regulatory body, the SEC, on whether IFRS can become the norm for major US corporates. Decisions have to be made following the consultations on the IASB’s future agenda. These are not quiet times. The whole organisation will be the better for more solidity at the centre.

And Prada has the skills. And he knows the landscape intimately. He is a onetime head of the executive and technical committees of IOSCO, the international stock exchange body. He was a founding member of the Financial Stability Board. He was a member of the Financial Crisis Advisory Group which produced rigorous work on the role of accounting standards in the financial crisis. He played a leading role in the idea of European adoption of IFRSs in 2005. He chairs the International Valuation Standards Council. And he chaired the main French regulatory body, first the COB, then the AMF, for twelve years.

As Prada put it himself a few years ago: ‘The task of the IASB will be complete only if, and when, IFRS will be accepted on every financial market without local additional requirements. I also recognize that the world will continue to change and that the existing accounting standards are not etched in stone forever. But setting accounting standards is not, let me say it again, an academic exercise. It should take into account the practical aspects and realities of this world’.

Robert Bruce
December 2011

Related links

• Our article on the announcement of Michel Prada as Chairman of the Trustees of the IFRS Foundation.

Michel Prada is the former Chairman of the Executive and Technical Committees of the International Organization of Securities Commissions (IOSCO) and currently serves as the Chairman of the International Valuation Standards Council, co-Chairman of the Council on Global Financial Regulation and is a non-executive Director of the International Centre for Financial Regulation. His initial term begins 1 January 2012 and will expire in three years. Please click for IASB press release (link to IASB website) and our overview of Trustees working currently for the IFRS Foundation.

You can access the meeting details on our upcoming events page.