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IASB/FASB
sessions
Investment Entities
The boards continued their discussion about how an entity would
determine whether it is an investment entity. At the May 2012 joint
board meeting, the boards tentatively decided that an entity would be
required to meet specific criteria to be an investment entity. At
this meeting, the boards tentatively decided to provide additional
guidance describing the typical characteristics of an investment
entity, which an entity would be required to consider when
determining whether it is an investment entity.
The boards tentatively decided that if an entity did not meet one or
more of the typical characteristics it would not necessarily be
precluded from being an investment entity. The boards also
tentatively decided that when an entity does not meet one or more of
the typical characteristics, it would be required to justify how its
activities continue to be consistent with that of an investment
entity.
The boards tentatively decided that an investment entity should have
all of the following typical characteristics:
a. multiple
investments;
b. multiple
investors;
c. investors
that are not related to the parent entity or the investment manager;
and
d. ownership
interests in the form of equity or partnership interests.
All
IASB and FASB members present agreed. One IASB member was absent.
At the May 2012 joint board meeting, the FASB had tentatively decided
that the fair value management of investments would be a typical
characteristic rather than a required characteristic to be an
investment entity. At the same joint board meeting, the IASB
tentatively decided that an investment entity would be required to
manage its investments on a fair value basis to be an investment
entity.
Leases
The IASB and the FASB continued their deliberations of the proposed
Leases model. The boards discussed:
a. Lessee
accounting-transition, presentation and disclosure relating to leases
for which the lessee would recognise a single lease expense in its
statement of comprehensive income.
b. Lessor
receivable and residual approach-how the lessor would measure the
underlying asset if the lease terminates or expires.
c. Interim
disclosures-whether the interim reporting Standards should be amended
to require specific lease disclosures in a lessee's or lessor's
interim financial statements.
d. The
Exposure Draft comment period-the length of the comment period and
whether the staff can begin the drafting process.
The
IASB also discussed whether it has complied with its due process
steps in publishing a revised Exposure Draft.
Lessee—Statement of Financial Position
The boards discussed the presentation in a lessee's statement of
financial position for leases for which the lessee recognises a
single lease expense (SLE) in its statement of comprehensive income
and tentatively decided that a lessee should:
a. separately
present in the statement of financial position, or disclose in the
notes to the financial statements, right of use (ROU) assets and
liabilities to make lease payments (lease liabilities). If ROU assets
and lease liabilities are not separately presented in the statement
of financial position, the disclosures should indicate in which line
item in the statement of financial position the ROU assets and lease
liabilities are included.
b. Present
ROU assets under the SLE approach as if the underlying asset were
owned.
ROU
asset presentation: All IASB and FASB members agreed.
Lease liability presentation: Nine IASB members and six FASB members
agreed.
Lessee—Statement of Cash Flows
The boards discussed presentation in a lessee's statement of cash
flows for leases for which the lessee recognises a single lease
expense and tentatively decided that a lessee should:
a. Classify
cash paid for lease payments within operating activities. Twelve IASB
members and all FASB members agreed.
b. Disclose
the ROU asset acquired as a supplemental non cash transaction. All
IASB and FASB members agreed.
Lessee Disclosures
The boards discussed lessee disclosures and tentatively decided that
a lessee should disclose the following:
a. a
single maturity analysis, which sets out the future undiscounted cash
flows relating to all lease liabilities and reconciles to the total
lease liability. All IASB and FASB members agreed.
b. a
separate reconciliation of opening and closing balances for:
i.
lease liabilities recognised
under the interest and amortisation (I&A) approach; and
ii.
lease liabilities
recognised under the SLE approach. The reconciliation should include
interest or the unwinding of the discount on the lease liability.
Fourteen
IASB members and all FASB members agreed.
In addition, the FASB tentatively decided not to bifurcate the
disclosure of the maturity of contractual commitments associated with
services and other non-lease components between the two lessee
accounting approaches. All FASB members agreed.
The IASB tentatively decided to require a lessee to provide a
reconciliation of the opening and closing balances of ROU assets
under both the I&A approach and the SLE approach, disaggregated
by class of underlying asset. The FASB tentatively decided to not
require any reconciliation relating to the ROU asset. Eleven IASB
members and all FASB members agreed.
The boards tentatively decided to revise the previous tentative
decision regarding disclosure of lease costs incurred in the
reporting period to only include costs relating to variable lease
payments that are not included in the lease liability. Nine IASB
members and four FASB members agreed.
Lessee Transition—Measurement of the ROU Asset
The boards discussed transition requirements for leases for which the
lessee recognises a single lease expense in its statement of
comprehensive income and tentatively decided that a lessee should be
permitted to either:
a. recognise
an ROU asset for each outstanding lease, measured at the amount of
the related lease liability, adjusted for any uneven lease payments;
or
b. apply
a fully retrospective transition approach.
All
IASB and FASB members agreed.
Lessor Accounting—Measurement of the Underlying Asset When a
Lease Terminates Prematurely
The boards tentatively decided that, when applying the receivable and
residual approach, a lessor should measure the underlying asset as
the sum of the carrying amounts of the lease receivable (after any
impairment) and the net residual asset when re-recognising the
underlying asset on termination of the lease before the end of the
lease term.
Fourteen IASB members and all FASB members agreed.
Interim Disclosures
The boards tentatively decided not to amend IAS 34 Interim
Financial Reporting and Topic 270 Interim Reporting in the
FASB Accounting Standards Codification® to require lessee
disclosures at interim periods.
All IASB members and five FASB members agreed.
The FASB tentatively decided to amend Topic 270 to require a lessor
to provide a table of all lease-related income items in its interim
financial statements.
Four FASB members agreed.
The IASB decided to amend IAS 34 to require a lessor to disclose
total lease income in its interim financial statements. Additional
information about that lease income would be required if there has
been a significant change from the end of the last annual reporting
period.
Thirteen IASB members agreed.
Exposure Draft Comment Period
The boards tentatively decided that the revised Exposure Draft for
leases should have a comment period of 120 days. The FASB plans to
address issues specific to non-public entities at a future FASB-only
meeting.
Due Process
The IASB confirmed that it has complied with its due process steps in
publishing a revised Exposure Draft.
In July 2011, the boards agreed unanimously to re-expose their
revised proposals for a common Leases Standard. This is
because the revised proposals include significant changes to the
proposals that were included in the Leases Exposure Draft
(issued 2010) and the boards wish to provide interested parties with
an opportunity to comment on the revisions. The main areas of change
include the lessee accounting model-specifically, how the lessee
recognises lease expense in its statement of comprehensive income for
some leases; the lessor accounting model; the accounting for variable
lease payments and renewal options; and the definition of a lease.
Next steps
The decisions made at the July 2012 joint meeting complete the IASB's
public discussions at this stage of the project, other than sweep
issues that may arise during the drafting process. The staff plan to
proceed to drafting the revised Exposure Draft for publication in the
final quarter of 2012.
Classification and Measurement
The boards discussed
accounting for the reclassification of financial assets between
measurement categories. Some topics in the discussion were FASB-only
because IFRS 9 Financial Instruments already contains relevant
requirements. The discussion of reclassification disclosures was
IASB-only. The FASB will discuss disclosures related to its
classification and measurement model at a future FASB-only meeting.
Seven FASB members agreed.
Reclassification
mechanics—joint discussion
For reclassification of financial assets as a result of a change
in the business model, the boards tentatively decided that when
financial assets are reclassified from:
a.
Fair value through other comprehensive income (FVOCI) to FVPL,
the financial assets should continue to be measured at fair value and
any accumulated other comprehensive income (OCI) balances should be
derecognised from OCI and recognised in P&L on the date of
reclassification.
Fifteen IASB members and seven FASB members agreed.
b.
FVPL to FVOCI, the financial assets should continue to be
measured at fair value and particular changes in fair value
subsequent to the reclassification date should be recognised in OCI.
Fourteen IASB members and seven FASB members agreed.
c.
Amortised cost to FVOCI, the financial assets should be
measured at fair value on the reclassification date with any
difference between the previous carrying amounts and the fair values
recognised in OCI.
Fifteen IASB members and six FASB members agreed.
d.
FVOCI to amortised cost, the financial assets should be
measured at fair value on the reclassification date and the
accumulated OCI balance at the reclassification date should be
derecognised through OCI with an offsetting entry against the
financial asset balance. As a result, the financial assets will be
measured at the reclassification date at amortised cost as if they
had always been so classified.
Fourteen IASB members and six FASB members agreed.
Reclassification disclosures—IASB-only
The IASB discussed
disclosures related to reclassifying eligible debt investments into
and out of the FVOCI measurement category. The IASB tentatively
decided that the reclassification disclosures in:
a.
paragraph 12B of IFRS 7 should be extended to all
reclassifications into and out of FVOCI.
Fifteen IASB members agreed.
b.
paragraph 12C of IFRS 7 should be extended to reclassifications
from FVPL to FVOCI.
Fifteen IASB members agreed.
c.
paragraph 12D of IFRS 7 should be extended to apply to
reclassifications from FVPL to FVOCI and from FVOCI to amortised
cost.
Fourteen IASB members agreed.
Reclassification date—FASB only
The FASB tentatively decided
that the reclassification date should be the last day of the
reporting period in which there is a change in the business model.
Five FASB members agreed.
Reclassification
mechanics—FASB only
For reclassification of financial assets as a result of a change
in the entity's business model, the FASB tentatively decided that
when financial assets are reclassified from:
a.
Fair value through profit or loss (FVPL) to amortised cost, the
financial assets' fair values on the reclassification date should
become their new carrying amounts for amortised cost purposes.
b.
Amortised cost to FVPL, the financial assets' fair values on
the reclassification date should become their new carrying amounts,
with the difference between the previous carrying amounts and fair
values recognised in profit or loss (P&L).
Financial Instruments: Impairment
At this meeting, the boards discussed:
a.
the application of the proposed expected loss model to loan
commitments and financial guarantee contracts; and
b.
disclosures to accompany the proposed expected loss model.
Loan commitments and financial guarantee
contracts
The boards tentatively decided that:
a.
The proposed expected loss impairment model should apply to
loan commitments and financial guarantee contracts to which IAS 37 Provisions,
Contingent Liabilities and Contingent Assets applies, or that are
not accounted for at fair value through net income and not accounted
for as insurance in accordance with US GAAP.
b.
The proposed expected loss impairment model should apply to
instruments that create a present legal obligation to extend credit.
When estimating expected losses an entity shall consider the maximum
contractual period over which it is exposed to credit risk.
c.
The usage behaviour shall be estimated over the lifetime of a
loan commitment when estimating expected lifetime losses.
d.
Expected losses arising from undrawn loan commitments or
financial guarantee contracts should be recognised separately as a
liability.
All IASB members and FASB members agreed.
The IASB tentatively decided that:
a.
The discount rate to be applied to discounting the expected
losses arising from a loan commitment or a financial guarantee
contract shall be the rate that reflects:
i.
current market assessments of the time value of money (ie risk
free rate); and
ii.
the risks specific to the cash flows (but only if, and to the
extent that, the risks are taken into account by adjusting the
discount rate rather than by adjusting the cash shortfalls being
discounted).
Thirteen IASB members agreed.
b.
As part of the Impairment project, the accounting for revenue
arising from loan commitments or financial guarantee contracts shall
not be changed.
All IASB members agreed.
Disclosures to accompany the proposed
expected loss model
The boards considered the proposed disclosure requirements for the
proposed expected loss model in the context of the following
high-level disclosure objectives:
a.
To enable a user to understand an entity's estimate of expected
losses.
b.
To enable a user to understand the credit quality migration of
financial assets.
In meeting the above objectives, the boards
tentatively decided to require an entity to disclose:
a.
The inputs, assumptions and techniques used in:
i.
estimating expected losses; and
ii.
assessing whether the recognition of lifetime expected losses
have been met.
b.
Information regarding the quality of collateral.
c.
Quantitative information related to collateral for financial
assets for which lifetime expected losses are recognised. The IASB
decided at the IASB-only meeting to limit this disclosure to
financial assets that are credit-impaired (see 'Presentation of
Interest Revenue' in the IASB only meeting for criteria).
d.
A reconciliation of the beginning and ending balances,
disaggregated by whether the impairment allowance is measured using12
months' expected losses and lifetime expected losses, of:
i.
gross carrying amounts; and
ii.
impairment allowance balances.
e.
A narrative discussion of changes in the impairment allowance
balance.
f. A disaggregation of the gross carrying
amount by credit quality for both financial assets with an impairment
allowance measured at 12 months' expected losses and lifetime
expected losses (including a description of how the entity determines
the categories of credit quality). For the IASB, these disclosures
would be required only if other more detailed disclosures related to
credit risk profiles are not already required by regulators (eg,
Basel III). The FASB directed its staff to explore how this would be
integrated into existing disclosures of credit quality information, including
disclosures relating to credit quality indicators.
g. Amounts
related to purchased credit-impaired assets.
h. The
balance of financial assets evaluated on an individual basis and for
which impairment is measured at lifetime expected losses and the
allowance balance related to these financial assets.
The
IASB noted that if the disclosures above are satisfied by disclosures
required by other applicable regulations (such as prudential
regulations), an entity will be permitted to cross-refer to those
disclosures.
The boards asked the staff to consider the application of the
disclosures to non-financial institutions (including entities
applying the simplified model for trade receivables and lease
receivables) when drafting the proposals.
All IASB members and FASB members agreed.
Revenue
recognition
The IASB and the FASB commenced their redeliberations on the revised
Exposure Draft Revenue from Contracts with Customers (the
'2011 ED'), by discussing the following topics:
a.
Identifying separate performance obligations (Step
2 of the proposed revenue model)
b.
Performance obligations satisfied over time (Step
5)
c.
Licences
d.
Losses arising from onerous obligations in
contracts with customers.
Identifying Separate Performance Obligations (Step 2)
The boards tentatively decided:
a.
to retain the concept of a distinct good or
service, which is used to determine whether a promise to transfer a
good or service to a customer should be accounted for as a separate
performance obligation;
b.
to improve the assessment of whether a good or
service is distinct that was proposed in paragraphs 28 and 29 of the
2011 ED by clarifying the criterion proposed at paragraph 28 and by
replacing the proposed criterion in paragraph 29 of the 2011 ED with
indicators; and
c.
to remove the practical expedient in paragraph 30
of the 2011 ED (which permitted an entity to account for two or more
distinct goods or services as a single performance obligation if
those goods or services have the same pattern of transfer to the
customer).
To retain and improve the distinct concept
in the 2011 ED (paragraphs 28 and 29), the boards tentatively decided
that an entity should account for a promised good or service (or a
bundle of goods or services) as a separate performance obligation
only if:
a.
the promised good or service is capable of being
distinct because the customer can benefit from the good or service
either on its own or together with other resources that are readily
available to the customer (this criterion is based on paragraph 28(b)
of the 2011 ED); and
b.
the promised good or service is distinct within
the context of the contract because the good or service is not highly
dependent on, or highly interrelated with, other promised goods or
services in the contract.
The boards tentatively agreed that the
assessment of whether a promised good or service is distinct in the
context of the contract should be supported by indicators, such as:
a.
The entity does not provide a significant service
of integrating the good or service (or bundle of goods or services)
into the bundle of goods or services that the customer has
contracted. In other words, the entity is not using the good or
service as an input to produce the output specified in the contract.
b.
The customer was able to purchase or not purchase
the good or service without significantly affecting the other promised
goods or services in the contract.
c.
The good or service does not significantly modify
or customise another good or service promised in the contract.
d.
The good or service is not part of a series of
consecutively delivered goods or services promised in a contract that
meet the following two conditions:
a.
the promises to transfer those goods or services
to the customer are performance obligations that are satisfied over
time (in accordance with paragraphs 35 of the 2011 ED); and
b.
the entity uses the same method for measuring
progress to depict the transfer of those goods or services to the
customer.
The changes and clarifications for the
identification of separate performance obligations were agreed by all
IASB members and all FASB members.
Performance Obligations Satisfied over Time (Step 5)
The boards tentatively decided to make the following refinements to
the criteria proposed in paragraph 35 of the 2011 ED for determining
whether an entity satisfies a performance obligation over time and,
hence, recognises revenue over time:
a.
Retain the criterion proposed in paragraph 35(a),
which considers whether the entity’s performance creates or enhances
an asset that the customer controls as the asset is created or
enhanced;
b.
Combine the “simultaneous receipt and consumption
of benefits” criterion proposed in paragraph 35(b)(i) and the
“another entity would not need to substantially re-perform” proposed
criterion in 35(b)(ii) into a single criterion that would apply to
“pure service” contracts; and
c.
Link more closely the “alternative use” criterion
in paragraph 35(b) and the “right to payment for performance
completed to date’ criterion in paragraph 35(b)(iii) by combining
them into a single criterion.
The boards also tentatively decided to clarify
aspects of the "alternative use" and "right to payment
for performance completed to date" criteria. For example:
a.
The assessment of alternative use is made at
contract inception and that assessment considers whether the entity
would have the ability throughout the production process to readily
redirect the partially completed asset to another customer.
b.
The right to payment should be enforceable and, in
assessing the enforceability of that right, an entity should consider
the contractual terms as well as any legislation or legal precedent
that could override those contractual terms. The changes and
clarifications to the criteria for determining whether a performance
obligation is satisfied over time were agreed by all IASB members and
all FASB members.
Licences
The boards discussed possible refinements to the implementation
guidance on licences and rights to use. The boards requested the
staff to perform additional analysis and bring the topic back to a
future meeting.
Losses arising from onerous obligations in contracts with customers
The boards tentatively decided to not develop new
requirements for onerous contracts that would apply to contracts with
customers within the scope of the revenue standard. As a result, the
IASB tentatively decided that the requirements for onerous contracts
in IAS 37, Provisions, Contingent Liabilities and Contingent Assets,
should apply to all contracts with customers within the scope of the
revenue standard. The FASB tentatively decided to retain existing
guidance related to the recognition of losses arising from contracts
with customers, including the guidance relating to construction-type
and production-type contracts in Subtopic 605-35, Revenue
Recognition-Construction-Type and Production-Type Contracts in the FASB
Accounting Standards Codification®. The FASB also indicated it would
consider whether to undertake a separate project to develop new
guidance for onerous contracts.
Twelve IASB members and four FASB members agreed with not developing
new requirements for onerous contracts for the Revenue Standard.
Next steps
The boards expect to continue redeliberations in September 2012
IASB sessions
Insurance
Contracts
The IASB
received a summary of the recent Insurance Contracts Working Group
(the Working Group) meeting. At that meeting with the Working Group,
the staff had discussed some of the IASB’s tentative decisions and
had requested feedback on the issues that remain for the Insurance
Contracts project. These issues include adjustments to the residual margin
and the presentation of ‘earned premium’ in the statement of
comprehensive income and transition.
The IASB
received the report. No decisions were made.
Next steps
The IASB will
continue its joint discussions with the FASB on the Insurance
Contracts project at their meeting in September 2012.
Due
Process
The staff
presented four summary reports related to Due Process, which dealt
with Comment Letters, Availability of Meeting Papers, Consultative
Groups and Market and Prudential Regulators.
The staff
reported that in the year to 30 June 2012 they had not withheld from
observers any material distributed to the IASB for discussion at IASB
meetings. Similarly, all comment letters received in response to
consultative documents were made available on the IASB website.
The staff
provided a summary of the number of meetings held with project
working groups. The IASB supported a staff recommendation to formally
wind up three working groups, reflecting the successful completion of
the related projects.
The staff also
presented a summary of interactions with securities and prudential
regulators.
Accounting for macro hedging
As part of its
deliberations on accounting for macro hedging, the IASB discussed how
some entities incorporate capital management objectives into their
overall risk management. In an interest rate risk context, this is
colloquially referred to as an ‘equity model book’. When applying
this approach, capital is typically considered as a fixed interest
rate risk profile, which is then included in interest rate risk
management, reflecting multi-dimensional risk management objectives
(multidimensional in the sense that the capital objectives combine
retaining or avoiding fixed interest rate exposures for different
time horizons). The IASB discussed the accounting implications of
using or not using an equity model book within the accounting for
macro hedging. This relates to step 7 of the 11‑step overview
presented at the November 2011 meeting.
No decisions were
made.
The IASB will continue its discussion at future
meetings.
IAS 28 Investments in Associates and Joint Ventures
The IASB discussed how an investor should account for its share of
the changes in the net assets of the associate that are not
recognised in profit or loss or other comprehensive income of the
associate (ie, “other net asset changes”).
The IASB tentatively decided that an investor should account for the
other net asset changes in the investor’s equity.
The IASB decided that:
- It
would issue a separate exposure draft to amend IAS 28. No
additional amendment to IFRS 1 First-time Adoption of
International Financial Reporting is required.
- The
amendments should apply retrospectively.
- The
comment period should be no less than 120 days.
Fourteen Board members agreed.
Investment Entities
The IASB continued its discussions on the Investment Entities project
and discussed the following issues:
- request
for extension of exception to consolidation;
- sweep
issues;
- reassessment;
- disclosures;
- transition
and effective date; and
- due
process.
Request for extension of exception to consolidation
The IASB tentatively decided not to extend the exception to
consolidation for insurers' insurance investment fund subsidiaries
within the scope of the Investment Entities project.
Fourteen IASB members agreed and one IASB member was absent.
Sweep issues
The IASB tentatively decided that:
a. Controlled
investees and investments in associates and joint ventures should be
initially measured at fair value in accordance with IFRS 9 Financial
Instruments.
b. The
requirements for investment entities should not include any
measurement guidance for investments other than controlled investees
and investments in associates and joint ventures.
c. The
IASB should not introduce a net asset value ('NAV') practical
expedient for fair value measurement within the Investment Entities
project.
d. The
definition of an investment entity should not make reference to
existing regulatory requirements.
e. An
investment entity should not be prohibited from providing financial
support to its investees so long as the provision of financial support
does not constitute a separate substantive activity of the entity.
All IASB
members agreed.
Reassessment
The IASB tentatively decided to:
a. Require
an entity to reassess its investment entity status if facts and
circumstances indicate that its status has changed. All IASB members
agreed.
b. Provide
the following guidance regarding the accounting for controlled
investees when an en-tity changes its investment entity status:
a. When
an entity ceases to be an investment entity, it shall apply IFRS 3 Business
Combinations and recognise goodwill or a bargain purchase (as
applicable). Fourteen IASB members agreed and one IASB member was
absent.
b. When
an entity becomes an investment entity, it shall apply the
requirements of IFRS 10 Consolidated Financial Statements for loss of
control and any resulting gain or loss shall be recognised in profit
or loss. Ten IASB members agreed, four IASB members disagreed and one
IASB member was absent.
c. Retain
the proposed disclosures to be given when an entity changes its status.
All IASB members agreed.
d. Draft
reassessment guidance in IAS 28 Interests in Associates and Joint
Ventures and IAS 27 Separate Financial Statements that is
consistent with the decisions made for the reassessment guidance for
IFRS 10. Thirteen IASB members agreed, one IASB member disagreed and
one IASB member was absent.
The IASB noted
that paragraph 4 of IFRS 10 already provides some relief from preparing
consolidated financial statements for an intermediate parent entity
and tentatively decided not to provide any additional relief when an
intermediate parent entity ceases to qualify as an investment entity.
Eleven IASB members agreed, three IASB members disagreed and one IASB
member was absent.
Disclosures
The IASB tentatively decided that:
a. the
disclosure requirements should only apply to investment entities with
investments in subsidiaries, associates or joint ventures (all IASB
members agreed); and
b. an
investment entity with one or more subsidiaries, associates or joint
ventures should not be required to provide information about all of
its investment activities (Thirteen IASB members agreed, one IASB
member disagreed and one IASB member was absent).
c. An
investment entity should be required to provide the disclosures
required by IFRS 7 Financial Instruments: Disclosures and IFRS
13 Fair Value Measurement in addition to the disclosure
requirements for Investment Entities (Fourteen IASB members agreed
and one IASB member was absent).
d. The
'interests in subsidiaries' disclosures in IFRS 12 Disclosures of
Interests in Other Entities should only apply to consolidated
investments of investment entities, except for paragraphs 14 and 16,
which should still apply to an investment entity (Fourteen IASB
members agreed and one IASB member was absent).
e. Investment
entities with joint ventures and associates accounted for using the
fair value method need not apply paragraphs 21(b), 21(c), 22(b) and
22(c) of IFRS 12 (Fourteen IASB members agreed and one IASB member
was absent).
f. Paragraph
B20 of the Exposure Draft should not be carried forward to the final
investment entities requirements (Fourteen IASB members agreed and
one IASB member was absent).
g. An
investment entity should be required to disclose that it is an
investment entity and thus that it has not consolidated controlled
investees (all IASB members agreed).
h. An
investment entity should be required to disclose how it has met the
definition and typical characteristics to be an investment entity,
with specific reasons given if it has not met one or more of the
typical characteristics (all IASB members agreed).
Transition and effective
date
The IASB tentatively decided to develop transition guidance based on a
retrospective approach, which would be consistent with the approach
used in the IFRS 10 transition guidance. Thirteen IASB members
agreed, one IASB member disagreed and one IASB member was absent.
The IASB tentatively decided to:
a. allow
investment entities to apply the existing impracticability exception
in IAS 8 Accounting Policies, Changes in Accounting Estimates and
Errors to retrospective application;
b. require,
for the purposes of transition, the assessment of investment entity
status only at the date of initial application of the investment
entity requirements;
c. on
transition, to allow investment entities to retain the previous
accounting for investees disposed of in the comparative period(s);
d. for
the purposes of transition, to allow the use of fair value that is
consistent with fair value as defined by IFRS for periods prior to
the effective date of IFRS 13; and
e. for
the purposes of transition, to limit the requirement to present
adjusted comparatives to the annual period immediately preceding the
date of application of these investment entity requirements, with any
unadjusted comparatives being clearly identified.
Fourteen IASB
members agreed and one IASB member was absent.
The IASB tentatively decided that the transition guidance relating to
investment entities for IAS 28 Interests in Associates and Joint
Ventures and IAS 27 Separate Financial Statements should
be consistent with the decisions made for the transition guidance for
IFRS 10.
Fourteen IASB members agreed and one IASB member was absent.
In respect of first-time adopters of IFRS, the IASB tentatively
decided:
a. To
require retrospective application of the requirements. Entities
preparing their first IFRS financial statements for annual periods
ending on or before 31 December 2014 would be permitted to apply the
same impracticability exception and IFRS 13 exception as described in
the transition requirements above.
b. To
require the assessment of investment entity status at the date of
transition to IFRS.
c. To
allow first-time adopters to apply the consolidation exception in
IFRS 10 early, together with the other requirements of IFRSs 10-12.
All IASB
members agreed.
The IASB tentatively decided to set an effective date of 1 January
2014 for the final amendments and permit early adoption. All IASB
members agreed. The IASB noted that it is important to explain
clearly in the Basis for Conclusions that it is setting an effective
date of 1 January 2014 to allow a sufficient time lag between the
publication of the investment entities requirements and their
effective date. However, the IASB thinks that it is important to allow
early adoption in order to allow entities to apply the investment
entities amendments at the same time as the initial application of
IFRS 10, which has a mandatory effective date of 1 January 2013.
Due Process
All IASB members stated that they are satisfied that the IASB has
performed all mandatory due process steps and performed sufficient
additional due process steps to support the decisions made in this
project. The IASB believes that:
a. it
has not changed the basic concepts exposed in the Investment Entities
Exposure Draft but has made a number of refinements to the proposals
in response to comments received;
b. the
proposed changes affect only a limited number of entities; and
c. the
issues involved are well understood by both the IASB and its
constituents.
Consequently,
all IASB members agreed that none of the amendments require
re-exposure.
All IASB members agreed that they should proceed to ballot the
Investment Entities requirements.
No IASB members stated that they plan to dissent from the Investment
Entities requirements.
Financial
Instruments: Impairment
The following
topics were discussed at the IASB only meeting:
a. presentation
of interest revenue;
b. the
application of the proposed expected loss model to assets
reclassified from fair value through profit or loss;
c. disclosures
specific to IFRSs; and
d. transition.
Presentation of interest
revenue
The IASB tentatively decided that:
a. The
accounting treatment of purchased credit-impaired financial assets
should be extended to all financial assets subject to impairment
accounting that are credit-impaired on initial recognition.
Thirteen IASB members agreed and one IASB member was absent.
b. For
other financial assets subject to the general deterioration
impairment model, an entity should present interest revenue
calculated on the carrying amount net of the impairment allowance if
the asset is credit-impaired as at the reporting date. This
evaluation should be made at each reporting date and will be
applicable for the following reporting period.
Nine IASB members agreed and one IASB member was absent.
c. Financial
assets should be considered to be credit-impaired if there is
objective evidence of the criteria in paragraphs 59(a)-(e) of IAS 39 Financial
Instruments: Recognition and Measurement. The IASB noted that
this will be a subset of financial assets with an impairment
allowance measured at lifetime expected losses.
Eight IASB members agreed and one IASB member was absent.
Assets
reclassified from fair value through profit or loss
The IASB considered how the proposed impairment model would apply to
financial assets that are reclassified from fair value through profit
or loss to:
a. amortised
cost under IFRS 9 Financial Instruments; and
b. fair
value through other comprehensive income as per the Classification
and Measurement project.
The IASB
tentatively decided that the application of the proposed impairment
model to a financial asset on the date of reclassification from fair
value through profit or loss should be the same as a financial asset
at initial recognition. Fourteen IASB members agreed and one IASB
member was absent.
Disclosures
The IASB continued to discuss disclosure requirements for the
proposed expected loss model. In addition to the decisions at the
joint board meeting, the IASB tentatively decided to require that an
entity disclose:
a. qualitative
information related to the discount rate elected;
b. information
regarding financial assets for which an impairment allowance of
lifetime expected losses is required that have been modified at any
time in their life;
c. the
gross carrying amount and related allowance, if any, of financial
assets measured under the impairment model if a default has occurred;
d. the
balance of financial assets 90 days past due with an impairment
allowance measured at 12 months' expected losses; and
e. the
amount of interest revenue and by how it is calculated (ie gross,
net, credit-adjusted EIR).
Fourteen IASB members agreed and one IASB member was absent. Transition
The IASB tentatively decided that:
a. an
entity should be required to use the credit quality at initial
recognition for existing financial assets when initially applying the
new impairment model, unless obtaining such credit quality
information requires undue cost or effort.
Fourteen IASB members agreed and one IASB member was absent.
b. if
the credit quality at initial recognition is not used at the date of
initial application (as per the relief outlined above), the
transition provisions should require these financial assets to be
evaluated only on the basis of the second criterion in the transfer
notion: the likelihood that contractual cash flows may not be
collected is at least reasonably possible.
Eleven IASB members agreed and one IASB member was absent.
c. the
restatement of comparative periods should be permitted, but not
required, if the information is available without the use of
hindsight.
Twelve IASB members agreed and one IASB member was absent.
d. the
disclosures in paragraph 28(f) of IAS 8 should not be required, but
should be permitted, for prior periods if the information is
available without the use of hindsight.
Twelve IASB members agreed and one IASB member was absent.
e. the
disclosures in paragraph 28(f) of IAS 8 should be required for the
current period.
Fourteen IASB members agreed and one IASB member was absent.
Next steps
Subject to any further issues being identified, the IASB has taken
all the technical decisions for developing an IASB Exposure Draft for
the new impairment model.
During deliberations IASB members and IASB staff members have
conducted ongoing outreach and have met with investors, preparers,
auditors and regulators to discuss the boards' tentative decisions on
the proposed expected loss model. As part of the IASB's due process,
matters raised during these outreach meetings have been reported to
the boards on a timely basis during their deliberations.
Before publishing the impairment proposals, the IASB will discuss the
comment period and permission to ballot at future meetings.
Classification
and measurement
The IASB discussed the transition and disclosure requirements as a
result of the limited amendments to IFRS 9 Financial Instruments.
Transition
The IASB discussed how the classification and measurement (C&M)
requirements in IFRS 9 should be applied in light of the limited
amendments to IFRS 9, as well as when the limited amendments should
be applied. The IASB also discussed the transition to IFRS 9 as a
whole considering the interaction between its phases.
Limited amendments to C&M (Agenda Paper 6B)
The IASB tentatively decided that on transition to the amended
C&M requirements, an entity should be required to:
a. retrospectively
apply the contractual cash flow characteristics assessment as set out
in IFRS 9 (2010) where it is impracticable to apply the amended
contractual cash flow characteristics assessment retrospectively; and
b. disclose
the carrying values of the financial assets whose contractual cash
flows have been assessed under IFRS 9 (2010) rather than the amended
C&M requirements due to impracti-cability until the affected
financial assets are derecognised.
Fourteen IASB
members agreed and one IASB member was absent.
The IASB also tentatively agreed that no amendments to the existing
IFRS 9 transition requirements are required in the light of either:
a. the
proposed amendments to the business model assessment, or
b. the
proposed extension of the Fair Value Option (FVO) for accounting
mismatches to debt instruments that would otherwise be measured at
Fair Value Through Other Comprehensive Income (FVOCI).
Fourteen IASB members agreed and one IASB member was absent.
IFRS 9 as a whole (Agenda
Paper 6C)
The IASB tentatively decided to require entities that have already
applied IFRS 9 (2009) and/or IFRS 9 (2010) before they apply the
limited amendments to IFRS 9 (i) to revoke previous FVO elections if
an accounting mismatch no longer exists at initial application of the
amended C&M requirements; and (ii) to permit them to apply the
FVO to new accounting mismatches created by the initial application
of the amended C&M requirements. Fourteen IASB members agreed and
one IASB member was absent.
The IASB tentatively decided that once the limited amendments to IFRS
9 and the impairment project are finalised, entities should no longer
be permitted to early apply previous versions of IFRS 9. Those
entities that-prior to the publication of the complete version of
IFRS 9-already early applied a previous version of IFRS 9 should be
able to continue applying that version and not be required to apply
the final requirements until the mandatory effective date. Eight IASB
members agreed and one IASB member was absent.
The IASB also tentatively decided that early application of the
entire IFRS 9 should be permitted once all of the requirements are
issued. Eleven IASB members agreed and one IASB member was absent.
The IASB tentatively decided to re-affirm that comparative C&M
information should be permitted, but not required, to be restated, if
the information is available without the use of hindsight. Fourteen
IASB members agreed and one IASB member was absent.
Presentation and disclosure (Agenda Paper 6D)
The IASB discussed additional presentation and disclosure
requirements in the light of proposed limited amendments to IFRS 9,
as well as the interaction with the disclosures proposed in the
impairment project.
The IASB tentatively decided the following related to the amended contractual
cash flow characteristics assessment:
a. That
the judgement involved in the assessment of contractual cash flow
characteristics should be added to IAS 1 as an example of a judgement
that could have a significant effect on the amounts recognised in the
financial statements. Fourteen IASB members agreed and one IASB
member was absent.
b. Not
to require quantitative disclosures when the assessment of
contractual cash flow characteristics could have a significant effect
on the amounts recognised in the financial statements. Nine IASB
members agreed and one IASB member was absent.
The IASB tentatively decided the following related to the proposed
addition of a FVOCI category for eligible debt instruments:
a. No
new requirements should be added related to the presentation of gains
or losses arising from the derecognition of debt instruments measured
at FVOCI. Fourteen IASB members agreed and one IASB member was
absent.
b. The
impairment disclosures for debt instruments measured at FVOCI should
be consistent with those for assets measured at amortised cost,
including disclosure of an accumulated impairment amount. Twelve IASB
members agreed, two IASB members disagreed and one IASB member was
absent.
c. Presentation
of an allowance balance on the face of the statement of financial
position should be prohibited for debt instruments measured at FVOCI.
Fourteen IASB members agreed and one IASB member was absent.
Work plan
The work plan reflecting decisions made at this meeting will be
updated on the IASB website in the week beginning 23 July 2012.
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