Technical Update IASB Progress

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Technical UpdateIASB Progress Plans

• IASB members Jan Engström,
• Bob Garnett and Jim Leisenring

The views expressed in this presentation are
those of the presenters, not necessarily those
of the IASB
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Consultation process
Active Projects
9-15 months
9-15 months
12-18 months

• IFRS published

Exposure Draft (ED)
Comment analysis
Comment analysis
Discussion Paper (DP)
Effective Date
Feedback statement
Research
Standard Setter / EFRAG
Two year post implementation review
Others
Round table
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Presenter Jim Leisenring
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Conceptual FrameworkOverview

• Foundation for all standards
• Current versions need an overhaul
• converge, update, complete
• Being done in phases
• Plan to finalise in phases

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Conceptual FrameworkWork plan
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Phase A Objective of general purpose external
financial reporting

• To provide financial information about the
  reporting entity that is useful to present and
  potential equity investors, lenders, and other
  creditors in making decisions in their capacity
  as capital providers.
• Notes
• Scopewider than financial statements
• Audiencecapital providers
• Purposeinformation for capital providers
  decisions (includes stewardship)

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Phase A Qualitative Characteristics

• Fundamental QCs
• Relevance
• Faithful representation
• complete
• neutral
• free from material error

• Enhancing QCs
• Verifiability
• Comparability
• Understandability
• Timeliness

• Pervasive constraints
• Materiality
• Cost versus benefits

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Phase BElements and Recognition

• Definition of elements

• Asset
• Liability
• Liabilities/equity
• Income

• Expense
• Others (eg cash flow, comprehensive income)

• Recognition and derecognition
• Unit of account

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Phase CMeasurement

• Divided into 3 milestones
• Define and describe potential measurement bases
• Evaluate measurement bases using criteria that
  includes the qualitative characteristics
• Derive conceptual conclusions from Milestones I
  and II and address practical implications

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Phase CMilestone I Measurement Basis Candidates

• Past --
• Entry price
• Modified entry amount
• Exit price

• Present --
• Entry price
• Exit price
• Equilibrium price
• Value in use

• Future --
• Entry price
• Exit price

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Phase DThe Reporting Entity

• The current frameworks do not include a reporting
  entity concept
• What is an entity?
• How to determine a group?
• What does control mean?
• Should separate (parent-only) financial
  statements be allowed/required?

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Revenue RecognitionOverview

• Project objectives
• Single conceptual model to apply to all
  industries and all transaction types
• Why
• Eliminate weaknesses in existing standards
• US GAAP over 200 pieces of literature, not
  always consistent
• IFRSs insufficient guidance eg
  multiple-components
• Converge IFRSs and US GAAP

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Revenue RecognitionConceptual model

• Revenue arises from changes in assets and
  liabilities, not overridden by earnings notion
• But what changes in what assets and liabilities?
• Exploring a model in which revenue arises from
  satisfying contractual obligations (performance
  obligations), eg
• obligation to deliver goods
• obligation to provide services
• eg warranty obligation
• Amount of revenue recognised depends on carrying
  amount of the satisfied performance obligation

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Revenue RecognitionTwo measurement approaches

• Fair value approach
• Measure performance obligations at fair value
• Fair value price would have to pay another
  party to take over remaining obligations to
  customer (lay off notion)
• Measurements reflect current market prices and
  circumstances throughout contract
• Customer consideration approach
• Measure performance obligations at customer
  consideration amount
• Total contract price allocated among performance
  obligations
• Measurements locked at contract inception (unless
  contract becomes onerous)
• Preliminary viewcustomer consideration

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Liabilitiesamendments to IAS 37

• Scope
• Apply to all liabilities not within scope of
  another standard
• Except executory contracts, unless onerous
• Eliminate contingent liabilities
• Currently describes two different ideas
• Unrecognised present obligation
• Possible obligation (business risks)

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Liabilitiesamendments to IAS 37

• Present obligations are liabilities
• Non-recognition inconsistent with Framework and
  other standards
• Business risks are not liabilities
• Recognition inconsistent with Framework

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Liabilitiesamendments to IAS 37

• Tentative decisions after considering
  feedback????
• Lawsuits
• Claim against company ? obligation
• Claim may be evidence that obligation exists
• More guidance on identifying liabilities
• Distinguishing business risks from liabilities
• Need for evidence to support judgement that
  present obligation exists
• More guidance on measurement
• expected value calculations

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Liabilitiesamendments to IAS 37

• Still to consider
• Disclosures of business risks
• currently disclosed as contingent liabilities
• no disclosure requirements proposed in ED
• concern about loss of information

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Fair Value MeasurementObjectives

• Clarify the fair value measurement objective in
  current IFRSs
• Develop a single source of guidance for all fair
  value measurements
• Eliminate dispersed and inconsistent fair value
  measurement guidance from IFRSs
• Individual standards might retain specific
  guidance
• Improve and harmonise the disclosures for fair
  value measurements

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Fair Value Measurement IFRSs vs SFAS 157

• MoUIASBs starting point was SFAS 157
• Definition of fair value
• Day-one gains and losses
• When inputs are based on bid and ask prices
• Determining on which market a fair value
  measurement should be based

SFAS 157 was used to initiate comments from
constituentsit is not the final solution.
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Presenter Bob Garnett
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Consolidations

• Concept of control as the basis for consolidation
• Developing a single approach to all entities,
  including SPEs
• IASB and FASB working separately but projects may
  be combined later

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Common Control

• Added to the Agenda in December 2007
• Business combinations under common control are
  outside the scope of IFRS 3
• IASB staff are assessing the likely scope of the
  projectbusiness combinations, transactions,
  separate and group financial statements
• The Board expects to begin deliberations in early
  2009

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Joint Arrangements

• ED 9, issued Q3 2007
• 111 comment letters received
• Increase comparability by removing the choice for
  jointly controlled entities
• IAS 31 legal form, ED 9 substance
• A party to a joint arrangement recognises its
  rights and obligations arising from the
  arrangement

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Income Taxes

• Short-term convergence
• Current IFRS and US GAAP
• basically same underlying standard with different
  exceptions to fundamental principle
• ProposalIFRS and US GAAP same fundamental
  principle with same exceptions
• goodwill
• foreign subsidiaries and joint ventures
• Tax uncertainties
• FIN 48 vs IAS 37 approach

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Extractive Activities

• Research project to examine financial reporting
  of oil gas and mineral reserves
• How should reserves be defined
• When should an asset be recognised
• How should the asset be measured
• What disclosures should be required, permitted,
  or prohibited

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Amendments to IFRSs
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Annual Improvements

• For non-urgent, necessary amendments
• Purposepractical expedient
• resolve inconsistencies between standards
• clarify unclear wording
• Process
• Published on website
• Annual ED
• 90 day exposure
• 9 month effective date

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IFRS for Private Entities

• Stand-alone standard, no mandatory fallback to
  full IFRSs
• Four types of simplifications of IFRSs
• Topics irrelevant to PEs not included
• Only the simpler IFRS options are included
• Recognition and measurement simplifications
• Redrafted in simplified English
• To be updated every two years or so

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Management Commentary

• Added to the agenda December 2007
• Work to be based on the 2005 DP Management
  Commentary
• Develop a guidance documentnon-mandatory
• Deliberations to begin in H2 2008

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Presenter Jan Engström
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Financial Statement Presentation - Objective

• Present information in ways that improve users
  ability to
• Understand past and present financial position
• Understand operating, financing and other
  activities that caused position to change
• Use information to assess amounts, timing and
  uncertainty of future cash flows

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Financial Statement PresentationPhase A

• Amendments to IAS 1
• All owner changes in equity separate from
  non-owners
• Non-owner changes in a single statement or two
  separate statements
• IASB
• revised September 2007

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Financial Statement PresentationPhase B Working
principles

• Portray cohesive financial picture
• Consistent categorisation between statements
• Separate financing from business activities
• Help users understand
• Measurement attributes
• Measurement uncertainties
• Causes of changes in recognised amounts

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Financial Statement PresentationPhase B Working
principles

• Help users assess
• Ability to generate future cash flows
• Ability to meet its obligations, its ability to
  pay dividends, and its need for external
  financing
• Help users differentiate cash transactions and
  accruals

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Financial Statement Presentation
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Key issues

• Statement of comprehensive income
• Single statement
• OCI items and recycling
• Subtotals and totals (net income?)
• Income tax presentation
• Direct method cash flow statement
• Reconciliation schedule
• Management approach to classificationcomparabilit
  y concerns
• Costs and benefits

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Leases

• Fundamental reconsideration of lease accounting
• First step - a discussion paper
• A right of use approach
• Lessees right to use Asset
• Lessees obligation to pay Liability
• Difficult areas to be addressed include
• Options to renew or terminate a lease
• Measurement
• Overlap with other projects (eg revenue
  recognition, derecognition, conceptual framework)

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Post-employment Benefits

• Definition of defined benefit and defined
  contribution arrangements and accounting for cash
  balance plans
• Smoothing and deferral mechanisms
• Treatment of settlements and curtailments
• Presentation
• DP issued

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Post-employment Benefits

• May consider other issues later
• Ultimate aim converged IFRS/US GAAP

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Insurance Contractstiming

• IASB DP May 2007
• DP covers accounting by insurers
• Accounting by policyholders to be subject of an
  ED in due course
• Comments being reviewed

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Insurance Contractsthe basic model

• Three building blocks
• Current estimates of future cash flows
• Time value of money
• A margin
• Label for the result
• Current exit value ( fair value?)

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Insurance Contractsmajor issues

• Day one profit
• Settlement over time or immediate exit?
• How to estimate margins
• Whole contract or individual rights and
  obligations?
• Policyholder behaviour
• Participating contracts
• Performance report

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Emissions Trading Schemes

• Activated project in December 2007
• Joint project with FASB
• Currently developing accounting models for
  discussion Q4