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March 2015
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Welcome to the IASB Update
The IASB met in public from 17-19 March 2015 at the IASB offices in London, UK.
The topics for discussion were:
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Leases (Agenda Paper 3)
The IASB met on 17 March 2015 to continue redeliberations on the proposals in the May 2013 Exposure Draft Leases ('the 2013 ED'), specifically discussing:
- disclosures on transition (sweep issue); and
- due process, re-exposure and permission to ballot.
Agenda Paper 3B: Disclosures on Transition—Sweep Issue
The IASB tentatively decided that, in the annual reporting period that includes the date of initial application of the new Leases Standard, a lessee’s financial statements should disclose:
- the weighted average incremental borrowing rate at the date of initial application;
- an explanation of any differences between:
- the result of discounting the operating lease commitments reported under IAS 17 Leases at the end of the annual reporting period preceding the date of initial application; and
- lease liabilities recognised on the balance sheet immediately after posting the cumulative catch-up adjustment on the date of initial application.
These disclosures would replace the disclosure requirements of paragraph 28(f) of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors relating to the initial application of a new Standard.
Eleven IASB members agreed with these decisions and three disagreed.
The IASB also observed that although these disclosures would not be specifically required for interim financial statements, IAS 34 Interim Financial Reporting requires that the notes to the interim financial statements must include a description of the nature and effect of a change in accounting policy. Accordingly, depending on the significance of initial application of the change in accounting for an entity, it may also be relevant for the entity to provide, in the interim financial statements following the date of initial application, similar disclosures to those required on transition in the annual financial statements.
Agenda Paper 3A: Due Process, Re-Exposure and Permission to Draft
The IASB reviewed the mandatory and non-mandatory due process steps that the IASB has taken in preparation for the publication of the new Leases Standard, also noting the role that convergence with the FASB has played in the Leases project and the reasons for any non-converged decisions.
The IASB also considered the re-exposure criteria in the Due Process Handbook. The IASB noted it had made changes to the proposals in the 2013 ED, but that those changes:
- have already been exposed for comment (eg the single lessee accounting model was proposed in the 2010 Exposure Draft);
- are changes to retain existing accounting (eg the lessor accounting model); or
- represent simplifications or clarifications to the guidance proposed in the 2013 ED in response to feedback received (eg the small asset recognition and measurement exemption).
The IASB also noted that the questions in the 2013 ED specifically asked for respondents’ views on alternative approaches to lessee and lessor accounting, which facilitated receiving extensive feedback in these areas. Accordingly, the IASB decided that re-exposure was unnecessary because it would be unlikely to reveal any new information. All IASB members agreed with this decision.
All IASB members confirmed that they are satisfied that the IASB has completed all of the necessary due process steps on the project to date and therefore instructed the staff to commence the drafting process for the new Leases Standard.
One IASB member indicated an intention to dissent from issuing the new Leases Standard.
Next steps
The staff will start the balloting process for the new Leases Standard. The IASB will discuss the effective date and any sweep issues that arise at a future Board meeting.
Research Update (Agenda Paper 8)
The staff presented an update of the status of the projects in the Research Programme. The IASB was not asked to make any decisions.
Disclosure Initiative (Agenda Paper 11)
The IASB met on 18 March to discuss the Principles of Disclosure and Materiality projects as part of its Disclosure Initiative.
Materiality
Agenda Paper 11A: Practice Statement—Application of materiality to financial statements
The IASB considered, and expressed broad support for the direction and content of the proposed Practice Statement on the application of materiality. The IASB aims to publish an Exposure Draft of the Practice Statement in June 2015.
No decisions were made.
Principles of Disclosure
Agenda Paper 11B: Role of financial statements excluding the notes
The IASB tentatively decided that a general disclosure Standard (such as IAS 1 Presentation of Financial Statements or a replacement Standard) should:
- specify that the statements of financial position, profit or loss and other comprehensive income, changes in equity and cash flows are collectively the ‘primary financial statements’.
- always specify the intended location as either ‘in the primary financial statements’ or ‘in the notes’ when using the terms ‘present’ or ‘disclose’.
- include a description of the role of primary financial statements and the implications of a particular statement forming part of the primary financial statements.
The IASB also tentatively decided it would not undertake further work in the Principles of Disclosure project to reassess which individual statements make up the current set of primary financial statements.
All fourteen IASB members agreed with these decisions.
Next steps
At its April 2015 meeting, as part of the Materiality project, the IASB plans to discuss:
- the proposed changes to the IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors definitions of materiality for inclusion in the Principles of Disclosure Discussion Paper; and
- a summary of the due process taken on the Materiality project to date and a request for permission to ballot an Exposure Draft of the Practice Statement.
The IASB is also planning to discuss the following papers as part of the Principles of Disclosure project:
- Review of Existing Standards—a paper presented by the New Zealand External Reporting Board (NZ XRB);
- Aggregation in the context of disclosures; and
- The content of the notes.
Revenue from Contracts with Customers—Issues emerging from TRG discussions (Agenda Paper 7)
(Joint session with FASB)
The IASB and the FASB (the Boards) met on 18 March 2015 to discuss issues emerging from meetings of the joint Transition Resource Group for Revenue Recognition (TRG). The Boards discussed the following implementation issues related to the guidance in IFRS 15 Revenue from Contracts with Customers and Topic 606 Revenue from Contracts with Customers (collectively, the new revenue Standard):
- Practical expedients upon transition—contract modifications and completed contracts
- Sales tax presentation: gross versus net
- Non-cash consideration
- Collectability considerations
- Principal versus agent considerations.
Agenda Paper 7A: Practical expedients upon transition—contract modifications and completed contracts
Contract modifications
The Boards decided to provide a practical expedient on transition that would permit an entity to account for a modified contract by:
- identifying all the satisfied and unsatisfied performance obligations in the contract at the contract modification adjustment date (CMAD) reflecting all modifications from contract inception to the CMAD;
- determining the transaction price at the CMAD reflecting all modifications from inception to the CMAD; and
- allocating the transaction price to the performance obligations identified at the CMAD based on the historic standalone selling price of each good or service.
Eleven IASB and five FASB members agreed.
The FASB decided that entities electing the full retrospective transition method would use the beginning of the earliest period presented as the CMAD and that entities electing the modified retrospective transition method would use the date of initial application as the CMAD. All FASB members agreed.
The IASB decided that entities electing either the full retrospective or modified retrospective transition method would use the beginning of the earliest period presented as the CMAD. Thirteen IASB members agreed.
Completed contracts
The IASB decided to provide a practical expedient that would permit an entity electing the full retrospective approach to apply the new revenue Standard retrospectively only to contracts that are not completed contracts as of the beginning of the earliest period presented. A completed contract is a contract for which the entity has transferred all of the goods and services identified in accordance with IAS 11 Construction Contracts, IAS 18 Revenue, and related Interpretations. Nine IASB members agreed.
The FASB decided not to add a similar practical expedient to Topic 606. Five FASB members agreed.
Transition disclosures
The Boards decided to require entities to disclose the use of either of the above practical expedients and, to the extent reasonably possible, a qualitative assessment of the estimated effect of applying the expedient(s). Thirteen IASB and all FASB members agreed.
Technical Correction
The FASB decided to make a technical correction for application of the full retrospective approach upon transition. An entity would not be required to disclose what its financial information would have been under legacy GAAP in the period of adoption of the new revenue Standard. All FASB members agreed.
Agenda Paper 7B: Sales tax presentation: gross versus net
The FASB decided to provide a practical expedient that would permit entities, as an accounting policy election, to present amounts collected from customers for taxes within the scope of Subtopic 605-45 (paragraph 606-10-15-2(e)) net of the related amounts remitted (that is, such amounts would be excluded from the determination of the transaction price in the new revenue Standard). An entity not electing this practical expedient would apply the new revenue Standard, as issued, in determining whether those taxes should, or should not, be included in the transaction price. An entity would be required to disclose its accounting policy election to present tax amounts collected from customers on a net basis. Five FASB members agreed
The IASB decided not to add a similar practical expedient to IFRS 15. All IASB members agreed.
Agenda Paper 7C: Non-cash consideration
The FASB decided to clarify the guidance in the new revenue Standard to require that non-cash consideration to be measured at contract inception. All FASB members agreed.
The FASB also decided to clarify that when the fair value of the non-cash consideration varies due to both the form of the consideration and reasons other than the form of consideration, the constraint on variable consideration would only apply to variability resulting from reasons other than the form of the consideration. All FASB members agreed.
The IASB decided not to make any amendments to the requirements for non-cash consideration or the accompanying Illustrative Example 31. Thirteen IASB members agreed. The IASB noted that the approach required by the FASB’s amendment, if finalised, would not be the only acceptable interpretation of IFRS 15. The IASB directed its staff to monitor the progress of the FASB on this topic.
Agenda Paper 7D: Collectability considerations
The FASB decided to amend the collectability guidance in Step 1 (Identifying the Contract) in Topic 606 to clarify:
- when a contract is ‘terminated’ in accordance with paragraph 606-10-25-7 [paragraph 15]; and
- that the objective of the collectability threshold in paragraph 606-10-25-1(e) [paragraph 9(e)] is to assess an entity’s exposure to credit risk for the goods and services that will be transferred to the customer. Consequently, in some circumstances, an entity might not assess its ability to collect all of the consideration in the contract in order to meet the collectability threshold.
All FASB members agreed.
The IASB made no technical decisions at this meeting with respect to collectability but will decide whether, and if so how, to clarify the requirements at a future meeting.
Agenda Paper 7E: Principal versus agent considerations
The staff provided the Boards with an update about the ongoing work on principal versus agent considerations (gross versus net revenue reporting).
The FASB research project includes consideration of legacy GAAP and the new revenue Standard, both with respect to principal versus agent considerations and scenarios in which an entity sells goods or services to end customers using an agent but does not know how much the end customer was charged. The discussion of this topic was educational; the FASB did not reach any technical decisions.
The IASB decided that it would focus its ongoing work on determining whether an entity is acting as a principal or an agent. It decided that it would not address implementation questions relating to scenarios in which an entity sells goods or services to end customers using an agent but does not know how much the end customer was charged. All IASB members agreed.
Next steps
The FASB directed the staff to draft a proposed Accounting Standards Update for vote by written ballot that will include the tentative decisions reached by the FASB. The FASB decided on a 45-day comment period for the proposed Update.
The IASB decided to incorporate its tentative decisions with respect to contact modifications and completed contracts into the Exposure Draft of proposed clarifications to IFRS 15 that it decided to develop at its February meeting. The IASB expects to approve the clarifications to be included in this Exposure Draft at its meeting in June 2015.
Conceptual Framework (Agenda Paper 10)
On 19 March the IASB discussed issues that have arisen in drafting the Conceptual Framework Exposure Draft (the Exposure Draft), and tentatively decided:
- to clarify the discussion of how measurement uncertainty can affect the relevance of financial information, along the lines indicated in Appendix A of Agenda Paper 10. IASB members suggested incorporating a statement similar to the last sentence of paragraph QC16 of the existing Conceptual Framework and removing an example from paragraph 2.12A of the draft. No formal vote was taken.
- to use the following terms in the Exposure Draft:
- ‘statement(s) of financial performance’. Nine IASB members agreed with this decision and five IASB members disagreed.
- ‘other comprehensive income’. Twelve IASB members agreed with this decision and two IASB members disagreed.
- on derecognition of an asset or liability, how to describe the treatment of related gains or losses accumulated in other comprehensive income (OCI). That treatment should be described in a manner consistent with commonly used notions of ‘recycling’ or ‘reclassification’, rather than as a form of disaggregation. All IASB members agreed with this decision.
- to add to the Exposure Draft more discussion of how to establish the boundary of a reporting entity that is not a legal entity. The discussion should provide a reminder of the need to consider the qualitative characteristics of useful financial information. Ten IASB members agreed with this decision and three IASB members disagreed. One IASB member was absent.
- to add a further item to the IASB’s proposals for updating existing references to the Conceptual Framework. The additional reference appears in IFRS 2 Share-based Payment. Thirteen IASB members agreed with this decision. One IASB member was absent.
Next steps
The IASB plans to publish the Exposure Draft in the second quarter of 2015.
Measuring Quoted Investments in Subsidiaries, Joint Ventures and Associates at Fair Value (Proposed amendments to IFRS 10, IFRS 12, IAS 27, IAS 28 and IAS 36 and the Illustrative Examples for IFRS 13) (Agenda Paper 6)
The IASB discussed summaries of the comments received in response to the Exposure Draft Measuring Quoted Investments in Subsidiaries, Joint Ventures and Associates at Fair Value (Proposed amendments to IFRS 10, IFRS 12, IAS 27, IAS 28 and IAS 36 and Illustrative Examples for IFRS 13).
No decisions were made.
Next steps
The IASB will continue the discussions on the project in future meetings.
Accounting for Dynamic Risk Management: a Portfolio Revaluation Approach to Macro Hedging (Agenda Paper 4)
The IASB discussed summaries of the comments received in response to the Discussion Paper Accounting for Dynamic Risk Management: a Portfolio Revaluation Approach to Macro Hedging.
No decisions were made.
Next steps
The IASB will consider possible next steps in future meetings.
Insurance Contracts (Agenda Paper 2)
(IASB education session)
The IASB met on 19 March 2015 to continue its discussions on insurance contracts at an education session. At that education session the IASB discussed three key issues for the accounting for contracts with participation features:
- if and how the contractual service margin should be adjusted to reflect changes in entity’s share of underlying items;
- how to determine interest expense in profit or loss; and
- how the amounts in the contractual service margin should be allocated to profit or loss as the entity provides services to the policyholder.
No tentative decisions were made.
Work plan—projected targets as at 24 March 2015
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