At the June 18 2013 meeting the IASB and the FASB continued discussing feedback received on their respective proposals on the classification and measurement of financial instruments. No tentative decisions were made at this meeting.
Agenda Paper 6A
The IASB staff presented to the IASB and the FASB a summary of the feedback received from users of financial statements on the IASB’s Exposure Draft. The sources of this feedback were:
an online survey for users of financial statements;
outreach meetings with users of financial statements, including joint outreach with the FASB; and
joint outreach with the FASB on their proposed Accounting Standards Update (ASU) Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.
The IASB’s online survey for users of financial statements closed on 31 May 2013, and the planned outreach meetings had been substantially completed at the time of the meeting. Overall the IASB had received feedback on its Exposure Draft from over 60 individual users and user groups covering different regions and industries.
Agenda Paper 6B
The FASB and the IASB also discussed the comment letter and outreach summary of the FASB’s February 2013 Exposure Draft Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities and April 2013 Exposure Draft Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities—Proposed Amendments to the FASB Accounting Standards Codification®.
The comment period for the FASB’s proposed ASU ended on 15 May 2013.
At future joint meetings, the staff will present a more detailed analysis of specific issues, starting with the contractual cash flow characteristics assessment for classifying financial assets. The IASB and the FASB will begin joint redeliberations on the project starting in July 2013.
The IASB met on 19 June to discuss the remaining issues in the comprehensive review of the IFRS for SMEs.
IFRS Advisory Council discussions
The staff provided the IASB with a short summary of discussions from the IFRS Advisory Council. The IFRS Advisory Council met on 10 June to discuss three issues relating to the IFRS for SMEs:
Whether to permit use of the IFRS for SMEs by publicly accountable entities.
How to address changes to full IFRS during reviews of the IFRS for SMEs.
How frequently should reviews of the IFRS for SMEs take place?
The staff noted that a majority of Advisory Council members favoured:
keeping the requirement in paragraph 1.5 of the IFRS for SMEs that prevents publicly accountable entities from stating compliance with the IFRS for SMEs;
prioritising the need to provide SMEs with a stable, independent and standalone Standard over maintaining close alignment with full IFRS; and
increasing the time between future reviews of the IFRS for SMEs from three to five years.
Section 29 Income Tax (Agenda Paper 8A)
Section 29 Income Tax is based on the IASB’s March 2009 Exposure Draft Income Tax (the ‘2009 ED’). At its April 2013 meeting, the IASB tentatively decided that because the 2009 ED was not finalised, the requirements in Section 29 should be aligned with IAS 12 Income Taxes, taking into account appropriate modifications in the light of users’ needs and cost-benefit considerations.
At this meeting the staff presented their first draft of a revised Section 29. IASB members generally supported the process that the staff had followed in redrafting the section. A few IASB members provided suggestions for the staff to consider during drafting. The IASB was not asked to approve the final drafting of the section at this meeting.
Additional issues identified by the staff (Agenda Paper 8B)
At this meeting the IASB considered a few additional issues identified by the staff outside the IASB’s 2012 Request for Information process. The IASB made the following tentative decisions to amend the IFRS for SMEs to:
add an undue cost or effort exemption from the requirement to offset deferred tax assets and liabilities if significant detailed scheduling would be required;
amend paragraph 9.3(b) of the IFRS for SMEs to clarify that all subsidiaries acquired with the intention of sale or disposal within one year should be excluded from consolidation;
include leases with an interest rate variation clause linked to market interest rates within the scope of Section 20 Leases, rather than Section 12 Other Financial Instruments Issues;
require that the liability component of a compound financial instrument is accounted for consistently with similar standalone financial liabilities and, therefore, that amortised cost measurement is only appropriate if the liability component meets the conditions in paragraph 11.9 of the IFRS for SMEs;
make a number of amendments to Section 26 Share-based Payment to clarify that equity instruments of other group entities are within its scope and that the simplification in paragraph 26.17 of the IFRS for SMEs for group plans applies only to the measurement of the share-based payment expense and not its recognition; and
clarify that Section 26 applies to all share-based payment transactions in which the identifiable consideration received by an entity appears to be less than the fair value of the equity instruments granted or liability incurred and not just those established under law.
All IASB members agreed with the above decisions.
The IASB also discussed whether to permit SMEs relief from the requirement to use option pricing models to determine the fair value of share options issued in share-based payment transactions. The IASB tentatively decided not to change the current requirements. Thirteen IASB members agreed with this decision.
The IASB has now completed discussing the main issues identified during the comprehensive review of the IFRS for SMEs. The next step will be for the IASB staff to present to the IASB and the Due Process Oversight Committee a summary of the due process steps undertaken, before preparing an Exposure Draft of the proposed amendments to the IFRS for SMEs.
The IASB discussed the proposed amendments included in the Exposure Draft Annual Improvements to IFRSs 2011-2013 Cycle published in November 2012. On the basis of the comments that the IASB received from respondents and the recommendations of the IFRS Interpretations Committee, the IASB tentatively decided to finalise all the four proposed improvements. The four amendments that the IASB tentatively decided to finalise are:
IFRS 1 First-time Adoption of International Financial Reporting Standards—Meaning of effective IFRSs;
IFRS 3 Business Combinations—Scope exception for joint ventures;
IFRS 13 Fair Value Measurement—Scope of paragraph 52 (portfolio exception); and
IAS 40 Investment Property—clarifying the interrelationship of IFRS 3 with IAS 40 when classifying property as investment property or owner-occupied property.
The IASB also tentatively decided that the effective date of the amendments should be 1 July 2014.
All IASB members agreed with the above decisions.
Due process steps
The IASB staff explained the due process steps the IASB has taken since the publication of the Exposure Draft and noted that the applicable due process steps have been completed.
All IASB members agreed that the IASB has complied with the due process requirements to date.
The IASB staff will start drafting the ballot of the final amendments.
IFRS 2 Share-based Payment—length of the performance target with respect to the period of service
The IASB discussed a sweep issue that had been raised during the drafting of the final amendment to IFRS 2 Share-based Payment regarding the length of the performance target with respect to the period of service within the proposed definition of performance condition. This issue had been included as part of the proposed amendment to the definition of vesting conditions, which was presented to the IASB in February 2013 as part of the Annual Improvements to IFRSs 2010-2012 Cycle.
The IASB tentatively decided to allow the start of the assessment period for the performance target to precede the service period provided that:
the assessment period for the performance target substantially coincides with the service period; and
the assessment period for the performance target does not extend beyond the end of the service period.
All IASB members tentatively agreed to finalise the proposed amendment on this basis.
The IASB plans to finalise the amendment to IFRS 2 as part of the Annual Improvements to IFRSs 2010-2012 Cycle, which will be published in the fourth quarter of 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.