The IASB considered an updated version of the tentative questions to be included in the Request for Information (RfI).
The IASB was also informed about the input received from the Accounting Standards Advisory Forum (ASAF) on those tentative questions, and noted that the ASAF members generally agreed with the areas covered and with the tentative questions suggested.
The IASB plans to publish the RfI by the end of January 2014.
In November 2012 the IASB published an Exposure Draft of proposed amendments to IAS 28. The IASB proposed in the ED that:
an investor should recognise, in the investor’s equity, its share of the changes in the net assets of the investee that are not recognised in profit or loss or OCI of the investee, and that are not distributions received (‘other net asset changes’); and
the investor should reclassify to profit or loss the cumulative amount of equity that the investor had previously recognised when the investor discontinues the use of the equity method.
At this meeting, the IASB continued its discussions on this topic in the light of the comments received on the ED. The IASB acknowledges that a number of respondents are concerned that the proposals in the ED would cause a departure from some aspects of current IFRS literature. The IASB considered four different models as alternatives to the proposals in the ED. The IASB observed that each model presented has challenges for the accounting for the investor’s share of the investee’s other net asset changes.
The IASB noted that the proposed amendments are a short-term solution to address diversity in practice until the IASB revisits the principles of the equity method of accounting. Consequently, the IASB tentatively decided to finalise the amendments on the basis of the proposals in the ED, subject to reviewing a further analysis of the application of those requirements to some specific fact patterns.
Eleven members agreed with this decision.
The IASB will consider an analysis of the application of the proposed amendments to a selection of fact patterns at a future meeting.
The IASB staff explained the due process steps undertaken by the IASB in completing the narrow-scope amendments to IAS 16 and IAS 38 on the ‘Clarification of Acceptable Methods of Depreciation and Amortisation’.
Agenda Paper 12B: Narrow-scope amendment: IAS 16 and IAS 38
Due process consideration
All IASB members agreed that:
the amendments to IAS 16 and IAS 38 should be finalised without re-exposure;
the effective date of the amendments should be 1 July 2015 and earlier application should be permitted; and
the due process requirements to date have been complied with.
No IASB members indicated that they intend to dissent to the publication of the final amendments to IAS 16 and IAS 38.
The IASB plans to publish the final amendments to IAS 16 and IAS 38 in Q1 2014.
The IASB received an update on the IFRS Interpretations Committee’s discussions and decisions on the determination of the discount rate for post-employment benefit obligations. In November 2013, the Interpretations Committee finalised its decision not to add this issue to its agenda and recommended that this issue should be addressed in the IASB’s research project on discount rates.
The IASB noted that its research project on discount rates is not likely to address the issue of determining the discount rate for post-employment benefit obligations directly, but the results of that project may be helpful in addressing that issue.
The IASB will discuss the scope of its research project on discount rates in a future meeting. No further work is currently planned on the issue of determining the discount rate for post-employment benefit obligations.
The IASB discussed whether some of the short-term exemptions in Appendix E of IFRS 1 First-time Adoption of International Financial Reporting Standards should be deleted, after those short-term exemptions have served their intended purpose.
The IASB tentatively decided to propose the deletion of the short-term exemptions in paragraphs E3-E7 of IFRS 1 with an effective date of annual periods beginning on or after 1 July 2016. It also tentatively decided to propose the deletion of the short-term exemption relating to the amendment to IFRS 7 Financial Instruments: Disclosures that was proposed in the Exposure Draft Annual Improvements 2012-2014 Cycle published in December 2013, but with an effective date of annual periods beginning on or after 1 January 2018. The IASB decided to include these proposed amendments in the Exposure Draft Annual Improvements 2013-2015 Cycle.
All IASB members agreed with these decisions.
The IASB plans to publish the Exposure Draft Annual Improvements 2013–2015 Cycle for comment in the third quarter of 2014.
The IASB met on 12 December 2013 to continue its redeliberations on the clarifications and enhancements to the proposals in the Exposure Draft Financial Instruments: Expected Credit Losses (the Exposure Draft). The IASB will decide at a future meeting whether to proceed to finalise the Exposure Draft.
At this meeting, the IASB considered the following specific aspects of the proposals in the Exposure Draft:
loan commitment and financial guarantee contracts; and
transition and effect analysis
Agenda Paper 5A: Loan commitments and financial guarantee contracts
The IASB discussed whether the tentative decision that expected credit losses for revolving credit facilities should be estimated for the period over which an entity is exposed to credit risk and over which future drawdowns cannot be avoided, should be extended to other loan commitments and financial guarantees.
The IASB tentatively:
confirmed the proposals in the Exposure Draft that the maximum period over which expected credit losses should be estimated for loan commitments and financial guarantee contracts, other than revolving credit facilities, is the contractual period over which the entity is committed to provide credit;
decided that an entity should apply the same discount rate when estimating expected credit losses on the drawn amount and the undrawn balance, unless the effective interest rate cannot be determined, in which case the discount rate should be determined as proposed in the Exposure Draft; and
decided that an entity should present the provision for the expected credit losses on the undrawn balance together with the loss allowance for expected credit losses on the drawn amount if the entity cannot separately identify the expected credit losses associated with the undrawn balance.
Sixteen IASB members agreed with these decisions.
Agenda Paper 5B: Transition and Effect Analysis
The IASB discussed the proposed transition requirements that an entity should apply on initial application of the proposed expected credit loss model. The IASB tentatively confirmed that:
the requirements should be applied retrospectively in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors; and
in order to assist entities to apply the proposals retrospectively, entities may apply the low credit risk exception (as proposed in paragraph C2(a) of the Exposure Draft) to identify financial instruments for which the credit risks have not significantly increased.
The IASB also tentatively decided to clarify that an entity could approximate the credit risk on initial recognition by considering the best available information that is available without undue cost or effort. The best available information is information that is:
reasonably available and does not require the entity to undertake an exhaustive search for information; and
relevant in determining or approximating the credit risk at initial recognition.
The IASB tentatively confirmed that if an entity is not able to determine or approximate the credit risk on initial recognition, the entity should measure the loss allowance based on the credit quality at each reporting date until that financial instrument is derecognised.
Furthermore, the IASB tentatively decided that it would in drafting, by the use of application guidance or by the use of examples, describe how:
an entity would consider the significant increases in credit risk on transition using the rebuttable presumption for contractual payments that are more than 30 days past due, if the entity identifies increases in credit risk according to days past due; and
an entity could assess whether there have been significant increases in credit by comparing the credit risk at the date of transition to the initial maximum credit risk that is accepted for a particular portfolio (by product type and/or region).
The IASB discussed the fair value option and tentatively decided to confirm the proposal in its recent Exposure Draft to extend the current fair value option in IFRS 9 Financial Instruments to financial assets that would otherwise be mandatorily measured at fair value through other comprehensive income. Thus an entity may measure these financial assets at fair value through profit or loss if doing so would eliminate or significantly reduce a measurement or recognition inconsistency (sometimes referred to as an ‘accounting mismatch’). That designation would be permitted only at initial recognition and would be irrevocable.
Fifteen members agreed. One member was absent.
The IASB will consider the remaining aspects of its proposals at a future meeting with the aim of issuing the limited amendments to IFRS 9 in the first half of 2014.
The IASB discussed the application of the portfolio exception as set out in IFRS 13 Fair Value Measurement for portfolios that comprise only Level 1 financial instruments whose market risks are substantially the same.
The IASB tentatively decided that the measurement should be the one resulting from multiplying the net position by the Level 1 prices. The IASB also tentatively decided that the Exposure Draft that clarifies the fair value measurement of quoted investments in subsidiaries, joint ventures and associates should include a non-authoritative example to illustrate the application of the portfolio exception for a portfolio that comprises only Level 1 financial instruments whose market risks are substantially the same.
Fifteen members agreed. One member was absent.
Work plan—projected targets as at 17 December 2013
Note that the information published in this newsletter originates from various sources and is accurate to the best of our knowledge. However, the International Accounting Standards Board and the IFRS Foundation do not accept responsibility for loss caused to any person who acts or refrains from acting in reliance on the material in this publication, whether such loss is caused by negligence or otherwise.