IFRS for SMEs: Comprehensive Review 2012–2014 (Agenda Paper 5)
Insurance Contracts (Agenda Paper 2)
The IASB met on 19 November to discuss the remaining issues raised by respondents on the changes proposed by the Exposure Draft Proposed amendments to the IFRS for SMEs (the ED).
Agenda Papers 5A and 5B: Additional issues raised by respondents: Specific requirements
After considering the remaining issues raised by respondents, the IASB tentatively decided to make the following changes to the proposals in the ED:
All of the fourteen IASB members agreed with these decisions.
- in Section 29 Income Taxes:
- to align the criteria for assessing the probability that taxable profit will be available against which unused tax losses or credits can be utilised so that they are the same as the criteria in paragraph 36 of IAS 12 Income Tax;
- to add the requirement in paragraph 41C of IAS 12 that the presumption that the carrying amount of investment property will be recovered through sale is rebutted if the property is depreciable and held within a business model that will consume substantially all of the economic benefits of the investment over time;
- to move guidance on ‘substantively enacted’ from the Glossary into the body of Section 29 to avoid defining a term in full Standards; and
- to redraft paragraph 29.29 to clarify the use of the 'undue cost or effort' exemption for offsetting deferred tax assets and liabilities.
- for each undue cost or effort exemption in the IFRS for SMEs, to require that an SME should disclose when it has used the exemption and disclose its reasoning for doing so;
- to clarify the criterion for basic financial instruments in paragraph 11.9(a)(iv) through clearer drafting and the addition of examples;
- to align the main recognition and measurement requirements for exploration and evaluation assets with IFRS 6 Exploration for and Evaluation of Mineral Resources;
- to add guidance on how to account for a subsidiary acquired with the intention of sale or disposal within one year if the subsidiary is not sold or disposed of within that timeframe;
- to add guidance on when a price in a binding sale agreement may be a good estimate of fair value;
- to require investment property measured under the cost model to be presented separately from investment property measured under the fair value model on the face of the statement of financial position;
- to permit the exemption in paragraph 70 of IAS 16 Property, Plant and Equipment that an entity may use the cost of the replacement as an indication of what the cost of the replaced part was at the time it was acquired or constructed, if it is not practicable for that entity to determine the carrying amount of a part of an item of property, plant and equipment that has been replaced;
- to state more clearly when financial instruments are not measured at their transaction price in paragraph 11.13; and
- not to modify the definition of a financial liability as proposed in the ED to incorporate IAS 32 (2009 amendment) Classification of Rights Issues.
The IASB also tentatively decided to add an undue cost or effort exemption from the requirement to measure the liability to pay a non-cash dividend at the fair value of the non-cash assets to be distributed. Twelve of the fourteen IASB members agreed with this decision.
Paragraph 11.2 of the IFRS for SMEs permits an entity to apply the recognition and measurement provisions of IAS 39 Financial Instruments: Recognition and Measurement and the disclosure requirements of Sections 11 and 12, instead of Sections 11 and 12 in full. The ED did not propose to modify that requirement. Consequently the IASB tentatively decided that it would post the latest version of IAS 39, not updated by IFRS 9 Financial Instruments, to the SME project pages of the IASB website. The updated version of the IFRS for SMEs would refer to this location. All of the fourteen IASB members agreed.
The IASB tentatively decided to modify the ED proposal so that the forthcoming amendments to the IFRS for SMEs should be applied retrospectively as follows:
All of the fourteen IASB members agreed with these decisions.
- if it is impracticable for an entity to apply any of the amendments to Sections 2–34 retrospectively, the entity shall apply those requirements in the earliest period for which it is practicable to do so; and
- an entity may elect to apply the amendments to Section 29 prospectively as of the beginning of the annual period in which the amendments are initially applied.
At the next meeting the IASB will review the due process steps taken so far in this initial review of the IFRS for SMEs and decide whether the staff can begin the balloting process for the final amendments to the IFRS for SMEs.
Some respondents and SMEIG members raised general issues about the IFRS for SMEs that go beyond the scope of the comprehensive review, for example, regarding supporting the implementation of the IFRS for SMEs and improving engagement with stakeholders. The IASB will discuss these issues in early 2015 together with comments raised in response to Question 7 in the ED about the procedures surrounding future reviews of the IFRS for SMEs.
Conceptual Framework (Agenda Paper 10)
(IASB education session)
The IASB held an education session on 19 November in which it considered a paper prepared by the European Insurance CFO Forum setting out its proposals for the accounting for contracts with participating features.
No decisions were made.
The IASB intends to consider the input from this education session, together with input from other sources, in making its decisions on the accounting for contracts with participating features. The IASB expects to continue its discussion on the accounting for insurance contracts in early 2015.
Disclosure Initiative (Agenda Paper 11)
On 19 November the IASB discussed:
The staff also provided the IASB with an update on the Conceptual Framework projects undertaken by the US Financial Accounting Standards Board (FASB) and the International Public Sector Accounting Standards Board (IPSASB).
- sweep issues that have arisen during the early stages of drafting the Conceptual Framework Exposure Draft (the Exposure Draft); and
- transaction costs.
Agenda Paper 10B: Sweep issues
The IASB tentatively decided to update the definitions of income and expenses in the Exposure Draft and to align them with the proposed definitions of assets and liabilities. Hence the IASB tentatively decided that:
The IASB also tentatively decided that the discussion of income and expenses in the elements chapter of the existing Conceptual Framework should be amended as follows:
- income should be defined as increases in assets or decreases in liabilities that result in increases in equity, other than those relating to contributions from equity participants; and
- expenses should be defined as decreases in assets or increases in liabilities that result in decreases in equity, other than those relating to distributions to equity participants.
In addition, the IASB tentatively decided that the Conceptual Framework should not comment on whether the objective of disclosure should include the provision of information that enables a user of financial statements to recalculate the amounts recognised in the financial statements. Instead, the IASB should consider that topic in its Disclosure Initiative project.
- the discussion about presentation of income and expenses should be moved to the presentation and disclosure chapter;
- the Conceptual Framework should no longer contain references to ordinary activities; and
- the discussion of income should not refer to revenue and gains, and the discussion of expenses should not refer to expenses and losses. The Basis for Conclusions should explain that the removal of these terms is not intended to restrict the definitions of income and of expense. The elements chapter should not define distinct categories of income and expenses, but could include examples of different types of income and expenses.
The IASB also noted that it believes that the tentative decisions it has already taken are sufficient to ensure that the revised Conceptual Framework will adequately explain the role of matching in IFRS, and will not conflict with IFRS 15 Revenue from Contracts with Customers.
Eleven IASB members agreed with these decisions on sweep issues and three IASB members disagreed.
Agenda Paper 10D: Measurement—Transaction costs
The IASB tentatively decided that the Exposure Draft should state that:
Nine IASB members agreed with these decisions and five IASB members disagreed.
- if a measurement depicts the current value (ie fair value, fulfilment value or value in use) of an asset or liability then that measurement should not reflect the transaction costs of acquiring the asset or incurring the liability.
- if a measurement depicts the value in use of an asset, the transaction costs that would be incurred on ultimate disposal of that asset should be deducted in producing the measurement.
- if a measurement depicts the fulfilment value of a liability, the costs that would be incurred in fulfilling that liability should be added in producing the measurement. That measurement would not include transaction costs that would be incurred on transferring the liability to another party or on negotiating a settlement of the liability.
- the fair value of an asset (liability) is not reduced (increased) by the costs of selling (transferring) the asset (liability). However, this does not preclude the IASB from deciding to measure an asset at fair value less costs to sell (or a liability at fair value plus costs of transfer), if doing so would provide users of financial statements with information that is more relevant than a fair value measurement.
- if a measurement depicts the cost of an asset or liability (rather than its transaction price), that measurement:
- should reflect (among other things) the transaction costs of acquiring the asset or incurring the liability;
- should not be decreased (increased) to reflect the transaction costs of realising the asset (or settling or transferring the liability).
At this meeting, the IASB substantially completed its redeliberations of the Conceptual Framework. The IASB plans to publish the Exposure Draft in the first quarter of 2015.
Leases (Agenda Paper 3)
The IASB met on 20 November to discuss the Principles of Disclosure, Materiality and Amendments to IAS 1 as part of its Disclosure Initiative.
Principles of Disclosure
The IASB continued its discussion on topics to be included in the Discussion Paper Principles of Disclosure, namely:
Agenda Paper 11A: Format of information in the notes
- whether the IFRS should include guidance about the formatting of information in the notes to the financial statements; and
- when it might be appropriate to disclose information required by IFRS outside the financial statements and use cross-referencing to incorporate it into the financial statements.
The IASB tentatively decided that:
Thirteen IASB members agreed with these decisions and one disagreed.
- the Discussion Paper should include high level guidance on formatting that is applicable across IFRS; and
- it would develop educational material on formatting.
Agenda Paper 11B: Cross-referencing—disclosing IFRS information outside the financial statements
The IASB tentatively agreed that the Discussion Paper should include:
Twelve IASB members agreed with these decisions and two disagreed.
- a general principle for disclosing information required by IFRS outside of financial statements and incorporating such information into financial statements by cross-referencing; and
- to limit the application of this general principle to situations in which:
- an entity places information required by IFRS outside of its financial statements but within its annual report. The annual report would be described as a single reporting package of the entity. It would have boundaries similar to those proposed by the International Auditing and Assurance Standards Board in ED ISA 720;
- applying the general principle would make the annual report as a whole more understandable; and
- the financial statements remain understandable and fairly presented.
Agenda Paper 11C: Materiality
The IASB discussed the next steps for its Materiality project and tentatively decided:
Amendments to IAS 1
- to change the current definition of materiality within IFRS only to align the definitions in IAS 1 Presentation of Financial Statements, IAS 8 Accounting Policies, Changes in Accountings Estimates and Errors and the Conceptual Framework for Financial Reporting with each other. However the Discussion Paper Principles of Disclosure would describe the rationale for retaining the current definition of materiality, and ask for feedback on this issue. All fourteen IASB members agreed with this decision.
- to insert a paragraph in IAS 1 clarifying the key characteristics of materiality. This will also be included in the Discussion Paper Principles of Disclosure. All fourteen IASB members agreed with this decision.
- to provide guidance on the application of materiality, which will take the form of a Practice Statement. Thirteen IASB members agreed that there should be such guidance and one disagreed. Eleven IASB members agreed that the guidance should be in the form of a practice statement.
- to wait until further work has been performed on the Review of Standards project before considering possible changes to address the use of inconsistent or excessively prescriptive language in Standards. All fourteen IASB members agreed with this decision.
- not to include a reminder in each Standard that requirements only apply where their application is material. All fourteen IASB members agreed with this decision.
Agenda Paper 11D: Sweep issue
The IASB tentatively decided that an entity need not disclose that it has applied the amendments proposed in Disclosure Initiative: Amendments to IAS 1, whether through early or mandatory application. However, an entity would still need to comply with disclosures about any change in accounting policy required by IAS 8.
All fourteen IASB members agreed with this decision
At its December meeting IASB plans to discuss the following topics as part of its Principles of Disclosure project:
- grouping of information and the cohesive depiction of entities’ activities;
- non-IFRS information in a complete set of financial statements; and
- issues relating to cash flow statements and related disclosures.
Emission Trading Schemes (Agenda Paper 6)
The IASB met on 20 November 2014 to continue redeliberating the proposals in the May 2013 Exposure Draft Leases, specifically discussing the consequential amendments to IAS 40 Investment Property.
Agenda Paper 3: Consequential amendments to IAS 40
The IASB tentatively decided to confirm the proposed amendments to IAS 40 in the 2013 ED, ie right-of-use assets arising from property leases should be within the scope of IAS 40 if the property would otherwise meet the definition of investment property.
Twelve IASB members agreed with this decision and two disagreed.
The IASB will continue the redeliberations, together with the FASB, at a future joint Board meeting.
The IASB held an education session on Emissions Trading Schemes in which it considered a summary of background information on common types of emissions management schemes and related accounting issues.
No decisions were made.
The staff will bring a Project Plan to a future IASB meeting.
Work plan—projected targets as at 24 November 2014