User questionnaire for Fair Value Option exposure draft

On 24 May 2010 the International Accounting Standards Board (IASB) produced a questionnaire for financial statement users on its May 2010 exposure draft Fair Value Option for Financial Liabilities.

The IASB asks analysts to complete the questionnaire to provide input on the proposals in the exposure draft on the fair value option. This questionnaire, targeted at analysts, forms part of a comprehensive programme of outreach activities to all IFRS constituents.

Responses to the questionnaire must be received by 16 July 2010. Click here for more information.

IASB published its proposed changes to the accounting for financial liabilities

IASB on May 11, 2010 announced a press release concerning the changes to the accounting for liabilities based on IFRS 9 Financial Instruments.

The International Accounting Standards Board (IASB) today published for public comment its proposed changes to the accounting for financial liabilities. This proposal follows work already completed on the classification and measurement of financial assets (IFRS 9 Financial Instruments).

The IASB is proposing limited changes to the accounting for liabilities, with changes to the fair value option. The proposals respond to the view expressed by many investors and others in the extensive consultations that the IASB has undertaken—that volatility in profit or loss resulting from changes in the credit risk of liabilities that an entity chooses to measure at fair value is counter-intuitive and does not provide useful information to investors.

When the IASB introduced IFRS 9 many stakeholders around the world advised the IASB that the existing requirements for financial liabilities work well, except for the effects of changes in the credit risk of a financial liability (‘own credit’) that an entity chooses to measure at fair value.

Building on that global consultation on IFRS 9, the IASB sought the views of investors, preparers, audit firms, regulators and others on the ‘own credit’ issue. The views received were consistent with the earlier consultations—that volatility in profit or loss resulting from changes in ‘own credit’ does not provide useful information except for derivatives and liabilities that are held for trading.

The IASB is therefore proposing that all gains and losses resulting from changes in ‘own credit’ for financial liabilities that an entity chooses to measure at fair value should be transferred to ‘other comprehensive income’. Changes in ‘own credit’ will therefore not affect reported profit or loss.

No other changes are proposed for financial liabilities. Therefore, the proposals will affect only those entities that choose to apply the fair value option to their financial liabilities. Importantly, those who prefer to bifurcate financial liabilities when relevant may continue to do so. That is consistent with the widespread view that the existing requirements for financial liabilities work well, other than the ‘own credit’ issue that these proposals cover.

Commenting on the proposals, Sir David Tweedie, Chairman of the IASB, said:

Whilst there are theoretical arguments for treating financial assets and liabilities in the same way it is hard to defend the accounting as providing useful information when a company suffering deterioration in credit quality is able to book a corresponding large profit, especially when investors tell us that such information is often excluded from their financial models.

An IASB ‘Snapshot’, a high level summary of the proposals, is available to download free of charge from the IASB website at http://go.iasb.org/financial+liabilities.

The exposure draft Fair Value Option for Financial Liabilities is open for comment until 16 July 2010. It can be accessed via the ‘Comment on a proposal’ section on www.iasb.org from today.

Source : www.IASB.org

IFRS for SMEs, who can use this standard ?

Previously, on July 09, 2009 the IASB has published IFRS for SMEs.

This IFRS was designed for use by small and medium-sized entities (SMEs). Within this of about 230 pages tailored standards, many of the principles in full version of IFRSs for recognising and measuring assets, liabilities, income and expenses have been simplified, topics not relevant to SMEs have been omitted, and the number of required disclosures has been significantly reduced.

So, what is the criteria of small and medium-sized entities who this standards applicable to ?

The definition of Small and medium-sized entities (SMEs) based on this standard are entities that :

(a) do not have public accountability, and

(b) publish general purpose financial statements for external users. Examples of external users include owners who are not involved in managing the business, existing and potential creditors, and credit rating agencies.

An entity has public accountability if :

(a) its debt or equity instruments are traded in a public market or it is in the process of issuing such intruments for trading in a public market (a domestic or foreign stock exchange or an over-the counter market, including local and regional markets), or

(b) it holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses. This is typically the case for banks, credit unions, insurance companies, securities brokers/dealers, mutual funds and investment banks.

Some entities may also hold assets in a fiduciary capacity for a broad group of outsiders because they hold and manage financial resources entrusted to them by clients, customers or members not involved in the management of the entity. However, if they do so for reasons incidental to a primary business (as, for example, may be the case for travel or real estate agents, schools, charitable organisations, co-operative enterprises requiring a nominal membership deposit, and sellers that receive payment in advance of delivery of the goods or services such as utility companies), that does not make them publicly accountable.

If a publicly accountable entity uses this IFRS, its financial statements shall not be described as conforming to the IFRS for SMEs - even if law or regulation in its jurisdiction permits or requires this IFRS to be used by publicly accountable entities.

A subsidiary whose parent uses full IFRSs, or that is part of a consolidated group that uses full IFRSs, is not prohibited from using this IFRS in its own financial statements if that subsidiary by itself does not have public accountability. If its financial statements are described as conforming to the IFRS for SMEs, it must comply with all of the provisions of this IFRS.

The complete IFRS for SMEs (together with the basis for conclusions, illustrative financial statements, and a presentation and disclosure checklist) can be downloaded free of charge from here : http://go.iasb.org/IFRSforSMEs.

Related articles :

1. New Option for Private Companies in Streamlined IFRS (JofA)
2. Private Companies Get IFRS Made Easy (CFO.com)

Download from here : Deloitte - IFRS for SMEs in your pocket

IASB proposes improvements to defined benefit pensions accounting

Below is the IFRS Alert dropped into my e-mail inbox on April 29, 2010 :

The International Accounting Standards Board (IASB) today published for public comment an exposure draft of proposed amendments to IAS 19 Employee Benefits.

The proposals would amend the accounting for defined benefit plans through which some employers provide long-term employee benefits, such as pensions and post-employment medical care. In defined benefit plans, employers bear the risk of increases in costs and of possible poor investment performance.

The draft interpretation is open for comment until 6 September 2010.

More information:

• Read the press release.
• Read the Snapshot, a short introduction to the document.
• Visit the project page.

Access the document online:

• To access the document visit the "Get involved / Comment on a proposal" section on www.iasb.org
• If you are an eIFRS/Comprehensive subscriber, you can also view the document in the 'Latest Additions' section of eIFRS (you will be required to provide your login details).

Printed copies of the document:

• Printed copies of the document will be available shorlty from the IASC Foundation's online shop.
• Comprehensive subscribers will receive a print copy shortly.

Extraordinary Items, why it was prohibited ?

IAS 1 Presentation of Financial Statements in paragraph 87 states that an entity shall not present any items of income or expense as extraordinary items, in the statement of comprehensive income or the separate income statement (if presented), or in the notes.

Further, in the Basis for Conclusions (BC) on IAS 1 Presentation of Financial Statements, BC 60 states that IAS 8 Net Profit or Loss for the Period, Fundamental Errors and Changes in Accounting Policies (issued in 1993) required extraordinary items to be disclosed in the income statement separately from the profit or loss from ordinary activities. That standard defined ‘extraordinary items’ as ‘income or expenses that arise from events or transactions that are clearly distinct from the ordinary activities of the enterprise and therefore are not expected to recur frequently or regularly’.

In 2002, the IASB decided to eliminate the concept of extraordinary items from IAS 8 and to prohibit the presentation of items of income and expense as ‘extraordinary items’ in the income statement and the notes. Therefore, in accordance with IAS 1, no items of income and expense are to be presented as arising from outside the entity’s ordinary activities.

Some respondents to the exposure draft of 2002 argued that extraordinary items should be presented in a separate component of the income statement because they are clearly distinct from all of the other items of income and expense, and because such presentation highlights to users of financial statements the items of income and expense to which the least attention should be given when predicting an entity’s future performance.

The Board (IASB) decided that items treated as extraordinary result from the normal business risks faced by an entity and do not warrant presentation in a separate component of the income statement. The nature or function of a transaction or other event, rather than its frequency, should determine its presentation within the income statement. Items currently classified as ‘extraordinary’ are only a subset of the items of income and expense that may warrant disclosure to assist users in predicting an entity’s future performance.

Eliminating the category of extraordinary items eliminates the need for arbitrary segregation of the effects of related external events-some recurring and others not-on the profit or loss of an entity for a period. For example, arbitrary allocations would have been necessary to estimate the financial effect of an earthquake on an entity’s profit or loss it it occurs during a major cyclical downturn in economic activity. In addition, paragraph 97 of IAS 1 requires disclosure of the nature and amount of material items of income and expense.

Read also for further references  :

1. Extraordinary Items : Time to Eliminate the Classification (the CPA Journal)
2. Extraordinary Items Share Exclusive Company (Journal of Accountancy)
3. Accounting and Auditing Issues surrounding the September 11 Disasters (the CPA Journal)
4. Firms can't account for attacks as extraordinary items (CNN Money)

Source : IAS 1 Presentation of Financial Statements (IFRS Bound Volume 2009)

Cost of Investment – amendments to IFRS 1 and IAS 27

The amendments to IFRS 1. “First-time adoption of IFRS”, and IAS 27, “Consolidated and separate financial statements”, bring three major changes :

• The cost of a subsidiary, jointly controlled entity or associate in a parent’s separate financial statements, on transition to IFRS, is determined under IAS 27 or as a deemed cost. Deemed cost is either fair value or the carrying amount under the previous accounting practice.
• Dividends from a subsidiary, jointly controlled entity or associate are recognized as income. There is no longer a distinction between pre-acquisition and post-acquisition dividends.
• The cost of the investment of a new parent in a group (in a reorganization meeting certain criteria) is measured at the carrying amount of its share of equity as shown in the separate financial statements of the previous parent.

What was the reason for the amendment ?

The main reason for the amendment is to facilitate the transition to IFRS without significantly reducing the relevance of the financial statements. IAS 27 requires an entity to account for its investments at cost or in accordance with IAS 39 in its separate financial statements. For those accounted for at cost, a parent entity could previously recognize income from the investment only to the extent that distributions were received from post-acquisition earnings. Distributions in excess of post-acquisition earnings were recognized as a reduction to the cost of the investment.

Prior to the amendment, IFRS 1 required retrospective application of this method of calculating cost, which was often cumbersome to reconstruct for investments that had been held for several years. With the amendments, a first-time adopter can use a deemed cost, which may be the previous GAAP carrying amount.

If dividends are recognized as income and not as a reduction to the cost of the investment, is there risk of impairment ?

Yes, IAS 36 has been amended to identify circumstances when a dividend payment requires impairment testing. These circumstances include :

• Dividends exceeding the total comprehensive income (under IAS 1 – revised) of the subsidiary, jointly controlled entity or associate in the period the dividend is declared; or
• The carrying amount of the investment in the separate financial statements exceeding the carrying amount in the consolidated financial statements of the investee’s net assets, including goodwill.

How will the alleviate ‘dividend trap’ issues ?

Prior to the amendment, dividends from pre-acquisition earnings were recognized as a reduction of the cost of an investment. Because they were not recognized as profits by the parent, they were not available for further distribution. Under the new standard, dividends are credited to income and available for distribution, subject to there being no impairment and subject to local legal requirements.

Source : A Practical guide to new IFRSs for 2010 - PWC publication

Assessing Indonesia’s Readiness in Adopting IFRS by 2012

Indonesia is in the process of IFRS Convergence with gradual approach. By 2012 Indonesian Accounting Standard Board determines to eliminate material differences among Indonesian Accounting Standard and IFRS as per 1 January 2009 by. During 2009-2010, The Board has issued many new standards and interpretations to be effective in 2011 and 2012 and also has revoked many standards that are not in compliance with IFRS. Indonesia as one of G20 country members is required to achieve a global accounting standard; therefore the support from Indonesia’s regulators is imperative in achieving that goal.

Indonesian Institute of Accountants invites Indonesian regulators and authorities to explain their preparation in embracing IFRS Convergence.  The IASB Director for International  Activities, Wayne Upton, would also share information on IFRS Convergence progress around the world, in particular how regulatory bodies in other country have been preparing for IFRS Convergence.

This special event is very important for all key decision makers in the regulatory bodies, accountants, business practitioners and academics in Indonesia. The panel discussion among regulators in Indonesia would become the main agenda of the first day seminar.  On the second day, the seminar would discuss what are the challenges faced by Indonesian business entities in applying IFRS to date and beyond. In detail the agenda of two-day seminar will be held on 11 and 12 May 2010. Further detail in here

AICPA IFRS for SMEs-US GAAP Comparison Tool

The American Institute of CPAs (AICPA) staff have developed an IFRS for SMEs–US GAAP Comparison Tool, which is being added to collaboratively by those who use the tool. AICPA technical staff monitor and review the additions. Here is an excerpt of the AICPA's description:

The purpose of this Wiki is to provide a detailed and comprehensive comparison of the International Accounting Standards Board's International Financial Reporting Standard for Small-and Medium-Sized Entities ('IFRS for SMEs') with corresponding requirements of United States generally accepted accounting principles ('US GAAP'). But this is more than just a comparison resource, it is a Wiki. That means it is a collaborative, ongoing work in progress for anyone to contribute and use.

You can access the AICPA IFRS for SMEs – US GAAP Comparison Tool at http://wiki.ifrs.com/

Where to obtain IFRS for SMEs materials

• The standard online
  (English, Spanish, Italian and Romanian)
• The standard in hard copy
• Presentations at 'Train the Trainers' Workshops
• Training materials in PDF format
• Past issues of the IFRS for SMEs Update

Source : IFRS for SMEs Update – Issue 2010-2, 14 April 2010

Recent adoptions of the IFRS for SMEs

We try to keep track of jurisdictions that have adopted, or are planning to adopt, the IFRS for SMEs. Our list currently includes 60 jurisdictions. In a future Update we will include a summary. Meanwhile, in the past few weeks we have become aware of the following adoptions:

Argentina. On 19 March 2010, the Federación Argentina de Consejos Profesionales de Ciencias Económicas (the national professional accounting body in Argentina) issued an exposure draft proposing to adopt the IFRS for SMEs as an option for all entities not required to use full IFRSs. The SME exposure draft proposes that those private entities should also be permitted to use accounting standards that the Federation has issued or may issue in the future. Full IFRSs will be required in Argentina for all companies that publicly offer equity or debt securities starting in 2012, with an option to use IFRSs in 2011 or, in some cases, 2010.

Brazil. In December 2009, the Brazilian Accounting Pronouncements Committee (Comitê de Pronunciamentos Contábeis, or CPC) adopted a Portuguese version of the IFRS for SMEs as an option for SMEs in Brazil. By Resolution 1255 of 2009, the CPC's SME standard was endorsed by the Brazilian Federal Accounting Council (Conselho Federal de Contabilidade, or CFC), the national professional body. The standard is a temporary and unofficial translation of the IFRS for SMEs that is available on the CPC website pending completion of the official translation by the IFRS Foundation. It is anticipated that auditors will be able to report that financial statements that comply with the CPC's SME standard are in conformity with the IFRS for SMEs because there are no substantive differences between the unofficial Portuguese translation and the IFRS for SMEs. The estimated number of SMEs in Brazil (January 2009) was 5.9 million, representing 99 per cent of Brazilian enterprises. While many of them are expected to continue to follow a very simple accounting system permitted under the Brazilian SMEs law, many others are expected to switch to the Brazilian IFRS for SMEs equivalent. For example, the Brazilian National Development Bank (Banco Nacional de Desenvolvimento Econômico e Social, or BNDES) is expected to encourage or even require all of its borrowers (approximately 250,000 SMEs) to use the new standard.

Costa Rica. The Costa Rican Institute of Certified Public Accountants Colegio de Contadores Publicos de Costa Rica is, by law, the accounting standard setter in Costa Rica. Currently, all companies follow IFRSs with the exception of some regulated entities (banks and finance entities, stockbrokers, and pension funds), which follow accounting policies adopted by the regulators. The Institute has adopted the IFRS for SMEs, to be effective for financial years beginning 1 January 2010. However, the Institute is still deliberating which entities will qualify as SMEs, and are therefore eligible to use the IFRS for SMEs.

Dominican Republic. In the Dominican Republic, the Instituto de Contadores Publicos Autorizados de la Republica Dominicana (Institute of CPAs of the Dominican Republic, or ICPARD) has had the legal power to establish accounting standards in accordance with article 31 of Law 479-08 since July 2009. In February 2010 the ICPARD adopted two resolutions:

• Listed companies. Resolution 001 requires the use of full IFRSs for companies whose shares are quoted on the Stock Exchange of the Dominican Republic starting in 2014 (some individual IFRSs will be mandatory starting in 2010).
• Other companies. Resolution 002 requires the use of the IFRS for SMEs for all companies whose shares are not quoted on the stock exchange (other than government-regulated companies). The resolution provides for a two-step implementation of the IFRS for SMEs, requiring some sections as mandatory starting in 2010, while the remaining sections become mandatory in 2014. In addition, the resolution allows unlisted companies that currently prepare financial statements in accordance with US GAAP to continue to do so up to 2014, when they will need to switch to the IFRS for SMEs. If the IFRSs for SMEs does not address an accounting question, Resolution 002 requires companies to follow full IFRSs and then US GAAP.

Namibia. By Resolution of its Council, the Institute of Chartered Accountants of Namibia has adopted the IFRS for SMEs for use in Namibia for financial statements authorised for issue after 17 February 2010. Applicability is as follows:

1. The Council of the Institute has decided that the IFRS for SMEs may be applied by: a 'public company' or a 'private company', as defined in the Companies Act, 1973, if it does not have public accountability as defined in Section 1 of the IFRS for SMEs.
2. For entities other than companies where the founding document or other regulation requires compliance with a 'fair presentation framework' as contemplated by the International Federation of Accountants ('IFAC') the IFRS for SMEs may be applied, if the entity does not have public accountability as defined in Section 1 of the IFRS for SMEs, except in the circumstances described in 4 below.
3. For entities where legal provisions or other regulations require compliance with a specific financial reporting framework (other than the IFRS for SMEs), such an entity may not apply the IFRS for SMEs even if it does not have public accountability as defined in Section 1 of the Statement of IFRS for SMEs.
4. For entities whose financial reporting framework is not set out by legal provisions, the founding statement or other regulations, if such an entity does not have public accountability, as defined in Section 1 of the Statement of IFRS for SMEs, it should assess whether it is appropriate to apply the IFRS for SMEs.

Philippines. The IFRS for SMEs has been adopted in the Republic of the Philippines effective 1 January 2010. It is known as the Philippine Financial Reporting Standard for SMEs (PFRS for SMEs). In the Philippines, listed companies, large unlisted companies, financial institutions, and public utilities are all required to use full PFRSs, which are nearly identical to full IFRSs. The PFRS for SMEs must be used by any other entity that has total assets of between P3,000,000 and P350,000,000 (US$70,000 to $8,000,000) or total liabilities of between P3 million and P250 million (US$70,000 to $5,500,000). Entities below those thresholds (so-called 'micro entities') may use the PFRS for SMEs or 'another acceptable basis of accounting'.

Source : IFRS for SMEs Update – Issue 2010-2, 14 April 2010)

Deloitte’s IFRS for SMEs in Your Pocket

Deloitte's IFRS Global Office has published the Global Edition of IFRS for SMEs in Your Pocket. This 45-page guide to the IFRS for SMEs is similar to Deloitte's very popular IFRSs in Your Pocket guide to full IFRSs. IFRS for SMEs in Your Pocket takes each section of the IFRS for SMEs, summarises its requirements, and highlights differences with full IFRS requirements. There is also a chronology of the development of the IFRS for SMEs and a discussion of how the IFRS for SMEs differs from full IFRSs. Click to download : IFRS for SMEs in Your Pocket (PDF 406k).

Source : IAS Plus Home Page

IASB IFRS Update – 8 April 2010

The IASB has done a public meeting in London on 8 April 2010, discussed several issues of IFRS regulation on Annual Improvements, Derecognition, Fair Value Measurement and also an amendments to IAS 19 regarding Termination Benefits. Here is the summary of the meeting result :

This IASB Update is a staff summary of the tentative decisions reached by the Board at a public meeting. As a project progresses, the Board can, and sometimes does, modify its earlier tentative decisions. Tentative decisions do not change existing requirements until those decisions are incorporated in a new or amended standard.

The International Accounting Standards Board met in London on 8 April 2010 for an additional Board meeting. The US Financial Accounting Standards Board (FASB) participated via video conference. The boards discussed:

• Annual improvements
• Derecognition
• Fair value measurement
• Termination benefits - amendments to IAS 19

Annual improvements

The Board had previously tentatively decided to include in the Annual Improvements 2008-2010 cycle an amendment to IFRS 1 First-time Adoption of International Financial Reporting Standards regarding the use of a previous GAAP carrying amount as deemed cost for property, plant and equipment and intangible assets used in operations subject to rate regulation. At this meeting the Board considered and tentatively agreed to clarifications to this proposed amendment.

The Board formally assessed the improvements proposed for inclusion in the forthcoming Improvements to IFRS against the current published criteria for Annual Improvements and concluded that the criteria were met.

Next step

The staff will circulate shortly a ballot draft of Improvements to IFRSs for publication in April 2010.

Derecognition

The staff held an education session for the FASB on the IASB's proposed derecognition model. The boards will hold further discussions on the proposed derecognition model at the next joint board meeting.

Fair value measurement

Considerations for re-exposure

The Board discussed whether there is a need to re-expose a draft of an IFRS on fair value measurement.

The Board tentatively agreed to publish a limited scope exposure draft of the measurement uncertainty analysis disclosure, including the effect of correlation. The comment period of the exposure draft will coincide with the FASB's comment period for proposed amendments to Accounting Standards Codification Topic 820 (Fair Value Measurements and Disclosures).

The Board also tentatively agreed to publish on the IASB website a Request for Views to solicit feedback on the FASB's proposed amendments to Topic 820. The IASB and FASB will consider jointly the feedback received on the IASB's limited scope exposure draft, the IASB's Request for Views and the proposed amendments to Topic 820.

Termination benefits - amendments to IAS 19

The Board tentatively decided that there is no need to re-expose the forthcoming amendments to IAS 19 Employee Benefits, relating to termination benefits.

The Board expects to publish the final amendments in the second quarter of 2010.

IAS 37 - Liabilities project - Staff paper posted

Just got today April 08, 2010 an email from IFRS alert regarding IAS 37 – Liabilities project.

The IASB staff have prepared a staff paper discussing one aspect of the working draft IFRS to replace IAS 37 Provisions, Contingent Liabilities and Contingent Assets.

The paper explains how the recognition criteria would apply to liabilities arising from lawsuits. Its purpose is to help people understand the recognition criteria before they comment on the revised measurement proposals in the Exposure Draft Measurement of Liabilities in IAS 37.

Further information is available on the Liabilities page of the IASB website.

IASB issues a discussion paper of Extractive Activities

This is an email alerted from IASB IFRS alert on Tuesday, April 6, 2010 :

The IASB published today the results of an international research project on a possible future International Financial Reporting Standard (IFRS) for extractive activities in the form of a discussion paper - Extractive Activities. The discussion paper is open for comment until 30 July 2010.

More information:

• Read the press release
• Visit the project page. A Snapshot summary document will be available on the project page shortly.

Access the document online:

• To access the document visit the "Get involved / Comment on a proposal" section on www.iasb.org
• If you are an eIFRS/Comprehensive subscriber, you can also view the document in the 'Latest Additions' section of eIFRS (you will be required to provide your login details).

Printed copies of the document:

• Printed copies of the document can be purchased from the IASC Foundation's online shop for £12 each plus shipping. Discounts are available.
• Comprehensive subscribers will receive a print copy shortly.

The Components of Cash and Cash Equivalents (IAS 7)

The statement of cash flows, under the various national and international standards, may or may not include transactions in cash equivalents as well as cash. Under US standards, for example, preparers may choose to define cash as “cash and cash equivalents,” as long as the same definition is used in the balance sheet as in the statement of cash flows (i.e., the statement of cash flows must tie to a single caption on the balance sheet). IAS 7, on the other hand, rather clearly required that the changes in both cash and cash equivalents be explained by the statement of cash flows.

Cash and cash equivalents include unrestricted cash (meaning cash actually on hand, or bank balances whose immediate use is determined by the management), other demand deposits, and short-term investments whose maturities at the date of acquisition by the enterprise were 3 (three) months or less.

Equity investments do not qualify as cash equivalents unless they fit the definition above of short-term maturities of three months or less, which would rarely, if ever, be true. Preference shares carrying mandatory redemption features, if acquired within three months of their predetermined redemption date, would meet the criteria above since they are, in substance, cash equivalents. These are very infrequently encountered circumstances, however.

Bank borrowings are normally considered as financing activities. However, in some countries, bank overdrafts play an integral part in the enterprise’s cash management, and as such, overdrafts are to be included as a component of cash equivalents if the following conditions are met :

1. The bank overdraft is repayable on demand, and
2. The bank balance often fluctuates from positive to negative (overdraft)

Statutory (or reserve) deposits by banks (i.e., those held with the central bank for regulatory compliance purposes) are often included in the same balance sheet caption as cash. The financial statement treatment of these deposits is subject to some controversy in certain countries, which becomes fairly evident from scrutiny of published financial statements of banks, as these deposits are variously considered to be either a cash equivalent or an operating asset.

If the latter, changes in amount would be presented in the operating activities section of the statement of cash flows, and the item could not then be combined with cash in the balance sheet. In the appendix to IAS 7, which illustrates the application of the standard to statement of cash flows of financial institutions, does not include statutory deposits with the central bank as a cash equivalent. Given the fact that deposits with central banks are more or less permanent (and in fact would be more likely to increase over time than to be diminished, given a going concern assumption about the reporting financial institution) the presumption must be that these are not cash equivalents in normal practice.

(Source : WILEY – 2010 Interpretation and Application of International Financial Reporting Standards, Barry J. Epstein and Eva K. Jermakowicz)

Presentation of the Cash Flow Statement

Information about the cash flows of an entity is useful in providing users of financial statements with a basis to assess the ability of the entity to generate cash and cash equivalents and the needs of the entity to utilise those cash flows. The economic decisions that are taken by users require an evaluation of the ability of an entity to generate cash and cash equivalents and the timing and certainty of their generation.

The objective of this Standard (IAS 7 - Statement of Cash Flows) is to require the provision of information about the historical changes in cash and cash equivalents of an entity by means of a statement of cash flows which classifies cash flows during the period from operating, investing and financing activities.

IAS 7 requires that a cash flow statement should be classified into four components : (1) operating activities, (2) investing activities, (3) financing activities, and (4) cash and cash equivalents.

Due care must be taken to include transactions under the appropriate category. Whatever classification chosen has to be applied in a consistent manner from year to year. Example : if "interest received" is presented as cash flow from investing activities in year 1, the same classification should be followed from year to year, even though IAS 7 allows "interest received" to be presented either as a cash flow from operating activities or a cash flow from investing activities.

A single transaction may include cash flows that are classified partly as one type of activity and partly as another category. Example : cash payment made toward repayment of a bank loan has two components : the repayment of principal portion of the loan, which is classified as a financing activity, and repayment of the interest which is classified as an operating activity.

Operating Activities

Cash flows from operating activities are mainly derived from principle revenue-generating activities of the entity. This is a critical indicator of the financial strength of an entity because it is an important source of internal finance. Financial statement users usually look at cash flows from operating activities as a gauge of an entity's ability to maintain its operating capability and support other activities, such as servicing debt and repaying of borrowings, paying dividends to shareholders, and making investments without recourse to external funding.

Investing Activities

Investing activities include the purchase and disposal of property, plant and equipment and other long-term assets, such as investment property. They also include purchase and sale of debt and equity and debt instruments of other entities that are not considered cash equivalents or held for dealing or trading purposes.

Investing activities also include cash advances and collections on loans made to other entities. This however, does not include loans and advances made by banks and other financial institutions to their customers that would be classified as "operating activities" as they are cash flows from these entities' principal revenue-producing activities.

Financing Activities

Financing activities include obtaining resources from and returning resources to the owners. Also included in this category is obtaining resources through borrowings (short term or long term) and repayments of the amounts borrowed.

Non Cash Transactions

IAS 7 requires that noncash investing and financing activities should be excluded from the cash flow statement and reported "elsewhere" in the financial statements, where all relevant information about these activities is disclosed. This requirement is interpreted as the necessity to disclose noncash activities in the footnotes to financial statements instead of including them in the cash flow statement.

Investing and financing transactions that do not require the use of cash or cash equivalents shall be excluded from a statement of cash flows. Such transactions shall be disclosed elsewhere in the financial statements in a way that provides all the relevant information about these investing and financing activities (IAS 7 Par. 43).

Many investing and financing activities do not have a direct impact on current cash flows although they do affect the capital and asset structure of an entity. The exclusion of non-cash transactions from the statement of cash flows is consistent with the objective of a statement of cash flows as these items do not involve cash flows in the current period. Examples of non-cash transactions are : (a) the acquisition of assets either by assuming directly related liabilities or by means of a finance lease, (b) the acquisition of an entity by means of an equity issue, and (c) the conversion of debt to equity (IAS 7 Par. 44).

(Source : IFRS Practical Implementation Guide and Workbook - 2nd Edition, Abbas Ali Mirza, Magnus Orrell, Graham J. Holt and IFRS 2009 Bound Volume)

Exposure draft of Conceptual Framework for Financial Reporting

This was an email alert from eIFRS on March 11, 2010 :

The International Accounting Standards Board (IASB) and US Financial Accounting Standards Board (FASB) today published for public comment an exposure draft on the reporting entity concept.

The proposals form part of a joint project to develop a common and improved conceptual framework that provides the basis for developing future accounting standards.

Comments on the exposure draft are invited by 16 July 2010.

Access the document online:

• To access the exposure draft "Conceptual Framework for Financial Reporting: The Reporting Entity" visit the "Open to comment" section on www.iasb.org.
• If you are an eIFRS/Comprehensive subscriber, you can view the document in the "Latest Additions" section of the secure eIFRS online area.
  (you will be required to provide your login details).

Print copies of the document:

Printed copies can be purchased from the IASC Foundation's online shop at: http://buy.iasb.org

Comprehensive subscribers will receive their printed copies soon.

More information:

• Read the press release
• Visit the project page

Measurement of Revenue

IAS 18, par. 9 states that revenue shall be measured at the Fair Value of the consideration received or receivable.

The amount of revenue arising on a transaction is usually determined by agreement between the entity and the buyer or user of the asset. It is measured at the fair value of the consideration received or receivable taking into account the amount of any trade discounts and volume rebates allowed by the entity (par. 10).

Further, par. 11 of IAS 18 states that in most cases, the consideration is in the form of cash or cash equivalents and the amount of revenue is the amount of cash or cash equivalents received or receivable. However, when the inflow of cash or cash equivalents is deferred, the fair value of the consideration may be less than the nominal amount of cash received or receivable.

For example, an entity may provide interest free credit to the buyer or accept a note receivable bearing a below-market interest rate from the buyer as consideration for the sale of goods. When the arrangement effectively constitutes a financing transaction, the fair value of the consideration is determined by discounting all future receipts using an imputed rate of interest.

The imputed rate of interest is the more clearly determinable of either :

1. the prevailing rate for a similar instrument of an issuer with a similar credit rating; or
2. a rate of interest that discounts the nominal amount of the instrument to the current cash sales price of the goods or services.

The difference between the fair value and the nominal amount of the consideration is recognized as interest revenue in accordance with par. 29 and 30 and in accordance with IAS 39.

When goods or services are exchanged or swapped for goods or services which are of a similar nature and value, the exchange is not regarded as a transaction which generates revenue. This is often the case with commodities like oil or milk where suppliers exchange or swap inventories in various locations to fulfil demand on a timely basis in a particular location. When goods are sold or services are rendered in exchange for dissimilar goods or services, the exchange is regarded as a transaction which generates revenue. The revenue is measured at the fair value of the goods or services received, adjusted by the amount of any cash or cash equivalents transferred. When the fair value of the goods or services received cannot be measured reliably, the revenue is measured at the fair value of the goods or services given up, adjusted by the amount of any cash or cash equivalents transferred (par. 12).

IASC Foundation publishes second batch of training material for the IFRS for SMEs

This was an email alert from eFIRS on March 3, 2010 :

The International Accounting Standards Committee (IASC) Foundation published today the second batch of training material for the International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs).

Access the training material online:

The free-to-download training material can be accessed here.

More information:

• Read the press release
• Access the IFRS for SME pages to learn more about the standard

NEW - IFRS for SMEs Alert:
The IASC Foundation has introduced an IFRS for SMEs email alert to allow interested parties to keep up to date on developments related to the standard.

• To receive news relating to the IFRS for SMEs, register your interest here.

IASC Foundation publishes proposed IFRS Taxonomy 2010

(19 February 2010) The International Accounting Standards Committee (IASC) Foundation today published for public comment an exposure draft of the International Financial Reporting Standards (IFRSs) Taxonomy 2010. The proposed taxonomy is consistent with IFRSs and the IFRS for Small and Medium-sized Entities (SMEs).

The proposed taxonomy contains significant architectural improvements when compared with the 2009 version; in particular the proposed architecture integrates IFRSs and the IFRS for SMEs into a single taxonomy. Other proposed improvements include an extended use of axes (dimensions) in the taxonomy, reconsideration of the IASC Foundation's approach for concept naming and of its principle of deleting redundant (deprecated) concepts.

The IFRS Taxonomy 2010 is a translation of IFRSs as issued at 1 Janaury 2010 into XBRL (eXtensible Business Reporting Language). XBRL is rapidly becoming the format of choice for the electronic filing of financial information - particularly within jurisdictions reporting under IFRSs - because it facilitates simpler and faster filing and comparison of IFRS financial data by companies, regulators, investors, analysts and other users of the IFRS Taxonomy.

Interested parties are invited to comment on the exposure draft of the IFRS Taxonomy 2010 and accompanying materials by 22 April 2010. The proposed taxonomy and related material can be accessed here. The final version is expected to be released at the end of April 2010.

Kind regards,
IASC Foundation XBRL Team
www.iasb.org/xbrl

2010 IFRSs Bound Volume

Below is the e-IFRS email alerted by IASB.org :

The IASCF is pleased to announce that the "2010 International Financial Reporting Standards (IFRSs)" Bound Volume will be published soon, in March 2010.

This edition includes the latest version of International Financial Reporting Standards (IFRSs), International Accounting Standards (IASs), IFRIC and SIC Interpretations and the supporting documents - illustrative examples, implementation guidance, bases for conclusions and dissenting opinions - as issued by the IASB at 1 January 2010.

For convenience, this RED book edition is presented in two parts:

• Part A (the requirements) contains the latest version of International Financial Reporting Standards (IFRSs), International Accounting Standards (IASs), and IFRIC and SIC Interpretations.
• Part B contains the accompanying documents, such as illustrative examples, implementation guidance, bases for conclusions and dissenting opinions.

Copies are priced at £60 each, plus shipping. Discounts are available for:

• academics/students
• middle income and low income countries
• multiple orders.

The 2010 IFRSs Bound Volume (978-1-907026-60-7) (Product code 10201) is priced at £60 per copy, plus shipping. Further information can be found on our Webshop. Please register your interest in this product if you wish to be notified of its publication.

If you need any further information, please contact our customer services by email or telephone: +44 (0)20 7332 2730.

Kind regards,

IASC Foundation Publications Department
publications@iasb.org
www.iasb.org

Access to the whole content of IFRSs for free

The IASC Foundation provides access free of charge to the current year’s consolidated unaccompanied IFRSs in English as issued by the IASB and published in the Bound Volume (as of 1 January 2009).

Access to the accompanying documents, illustrative examples, implementation guidance, and bases for conclusions is available through subscription-based services or by purchasing print versions of IFRSs via our store.

All rights, including copyright, in the content of these web pages are owned or controlled by the IASC Foundation.

To access the unaccompanied IFRSs you need to be a registered user.  Registration is free and takes only a few minutes.  It allows you to access the unaccompanied IFRSs, the IFRS for SMEs, to register for email alerts, submit comment letters or register as an observer.

Here is the link to the source : http://www.iasb.org/IFRSs/IFRs.htm

Asset Exchange Transactions

Businesses sometimes engage in nonmonetary exchange transactions, where tangible or intangible assets are exchanged for other assets, without a cash transaction or with only a small amount of cash “settle up”. These exchanges can involve productive assets such as machinery and equipment, which are not held for sale under normal circumstances, or inventory items, which are intended for sale to customers.

IAS 16 Property, Plant and Equipment (PPE) provides authoritative guidance to the accounting for nonmonetary exchanges of tangible assets. It states that “an entity is required to measure an item of property, plant and equipment acquired in exchange for a non-monetary asset or assets, or a combination of monetary and non-monetary assets, at fair value unless the exchange transaction lacks commercial substance”.

The concept of  a purely “book value” exchange, as formerly employed in previous version of IAS 16, is now prohibited under most circumstances.

Paragraph 22 of the previous version of IAS 16 indicated that if (a) an item of PPE is acquired in exchange for a similar asset that has a similar use in the same line of business and has a similar fair value or (b) an item of PPE is sold in exchange for an equity interest in a similar asset, then no gain or loss is recognized on the transaction. The cost of the new asset is the carrying amount of the asset given up (rather than the fair value of the purchase consideration given for the new asset).

This requirement in the previous version of IAS 16 was consistent with views that :

1. gains should not be recognized on exchange of assets unless the exchanges represent the culmination of an earning process;
2. exchanges of assets of a similar nature and value are not a substantive event warranting the recognition of gains; and
3. requiring or permitting the recognition of gains from such exchanges enables entities to ‘manufacture’ gains by attributing inflated values to the assets exchanged, if the assets do not have observable market price in active markets.

Commercial Substance

Commercial substance is a new notion under IFRS, and is defined as the event or transaction causing the cash flows of the entity to change. That is, if the expected cash flows after the exchange differ from what would have been expected without this occurring, the exchange has commercial substance and is to be accounted for at fair value. In assessing whether this has occurred, the entity has to consider if the amount, timing and uncertainty of the cash flows from the new asset are different from the one given up, or if the entity-specific portion of the company’s operations will be different. If either of these is significant, then the transaction has commercial substance.

If the transaction does not have commercial substance, or the fair value of neither the asset received nor the asset given up can be measured reliably, then the asset acquired is valued a the carrying amount of the asset given up. Such situations are expected to be rare (Hrd).

(Sources : Wiley IFRS 2008 : Interpretation and Application of International Financial Reporting Standards - Barry J. Epstein, Eva K. Jermakowicz and IAS 16 Property, Plant and Equipment)

Determining the time period for capitalization of borrowing costs

An entity should begin capitalizing borrowing costs on the commencement date.

Three conditions must be met before the capitalization period should begin :

1. Expenditures for the asset are being incurred
2. Borrowing costs are being incurred
3. Activities that are necessary to prepare the asset for its intended use are in progress

As long as these conditions continue, borrowing costs can be capitalized.

Expenditures incurred for the asset include only those that have resulted in payments of cash, transfer of other assets or the assumption of interest-bearing liabilities, and are reduced by any progress payments and grants received for that asset.

(The principle in IAS 23 par. 17(a) is that borrowing costs are capitalized only when the entity requires funding for its expenditures on the qualifying asset. IAS 23 par. 18 states that expenditures on a qualifying asset include only those expenditures that have resulted in payments of cash, transfers of other assets or the assumption of interest-bearing liabilities (reduced by progress payments and certain grants). Accordingly, capitalization of borrowing costs is deferred until this condition is met).

Necessary activities are interpreted in a very broad manner. They start with the planning process and continue until the qualifying asset is substantially complete and ready to function as intended. These activities may include technical and administrative work prior to actual commencement of physical work, such as obtaining permits and approvals, and may continue after physical work has ceased. Brief, normal interruptions do not stop the capitalization of interest cost. However, if the entity intentionally suspends or delays the activities for some reason, interest costs should not be capitalized from the point of suspension or delay until substantial activities in regard to the asset resume.

If the asset is completed in a piecemeal fashion, the capitalization of interest cost stops for each part as it becomes ready to function as intended. An asset that must be entirely complete before the parts can be used as intended can continue to capitalize interest costs until the total asset becomes ready to function (Hrd).

Announcing a new IFRS Publication – 2010 IFRS Consolidated without early application

On Friday 22 January 2010 the IASC Foundation will launch a new publication, 'IFRS, Consolidated without early application'.

This new publication is different from our annual IFRS Bound Volume because it will consolidate only those IFRSs with an effective date no later than 1 January 2010.

The annual IFRS Bound Volume will follow the practice of previous years by consolidating all IFRSs issued at 1 January 2010, including those with an effective date later than 1 January 2010, and it will exclude IFRSs that are being superseded, even though they may still be applicable.

To distinguish the new publication from the annual Bound Volume, the cover will be blue, as shown below.

The annual Bound Volume will be published in two parts this year. Its cover will remain red (as in 2009) and our Education book, 'A Guide through IFRS' will remain green (as in 2009). Here at the IASC Foundation we are referring to our publications by colour - to the new publication as the 'Blue Book' and to the Bound Volume as the 'Red Book'. Please feel free to refer to the publications by the colour of their cover when corresponding with us.

The contents and timing of the annual Bound Volume (Red Book) will follow past practice

To give an example, in November 2009 the IASB issued IFRS 9 Financial Instruments with an effective date of 1 January 2013. This new IFRS, together with its copious amendments to other IFRSs, will be consolidated in the 2010 Bound Volume (the Red Book), because it was issued before 1 January 2010. It will not be included in the new Blue Book, because its effective date means that it is not required for annual reporting periods beginning on 1 January 2010.

The new Blue Book has been created as a direct response to comments from practitioners currently reporting under IFRSs. Those seeking a single volume obtaining all the requirements for the current year will value the Blue Book.

The annual IFRS Bound Volume (the Red Book) will, as in previous years, be available towards the end of the first quarter, but this year it will, for convenience, be presented in two parts.

The annual Bound Volume will continue to be the basis for IFRS Translation

Because the annual Red Book will contain the latest text of IFRSs issued by the IASB, it will continue to be the basis for IFRS translation. Translation for the purposes of IFRS adoption will necessarily require updated translations of the Red Book text. A need may also occur in some languages for translations of the Blue Book text, and we shall meet those needs as they arise.

Visit the shop to buy the Red Book in here, or the Blue Book in here, and the Green Book in here

Three New Standards on Financial Instruments

(New York/January 19, 2010) -  The International Public Sector Accounting Standards Board (IPSASB) has published three new standards that cover all aspects of the accounting for and disclosure of financial instruments: International Public Sector Accounting Standard (IPSAS) 28, Financial Instruments: Presentation; IPSAS 29, Financial Instruments: Recognition and Measurement; and IPSAS 30, Financial Instruments: Disclosures. They fill a significant gap in the IPSASB literature.

"These new IPSASs provide a coherent set of requirements that enhance accountability for financial instruments in the public sector; this need was reinforced by the global financial crisis, and the scale and range of interventions made by governments," states Andreas Bergmann, who became Chair of the IPSASB on January 1, 2010.

The three new IPSASs are primarily drawn from the International Accounting Standards Board's standards, but address a number of public sector-specific issues:

• IPSAS 28, Financial Instruments: Presentation, primarily draws on IAS 32 and establishes principles for presenting financial instruments as liabilities or equity, and for offsetting financial assets and financial liabilities.
• IPSAS 29, Financial Instruments: Recognition and Measurement, primarily draws on IAS 39, establishing principles for recognizing and measuring financial assets, financial liabilities, and some contracts to buy or sell non-financial items.
• IPSAS 30, Financial Instruments: Disclosures, draws on IFRS 7 and requires disclosures for the types of loans described in IPSAS 29. It enables users to evaluate: the significance of the financial instruments in the entity's financial position and performance; the nature and extent of risks arising from financial instruments to which the entity is exposed; and how those risks are managed.

These IPSASs address some key public sector issues, including financial guarantee contracts provided for nil or nominal consideration and concessionary loans.

• Financial guarantee contracts provided for nil or nominal consideration have been a feature of government interventions during the global crisis--often, they are for very large amounts and could not be provided by private sector guarantors. IPSAS 29 provides guidance on the accounting treatment of such guarantees, both at initial recognition and subsequently.
• Concessionary loans are granted or received at below market terms, often for social policy objectives. IPSAS 29 provides guidance on the determination of fair value. It also addresses the treatment of the difference between the fair value of a loan and the loan proceeds. IPSAS 30 requires disclosures relating to such loans.

"The IPSASB recognizes the need to closely monitor global developments in the accounting for financial instruments and to evaluate such changes promptly in a public sector context," says Mr. Bergmann, adding that, together with the soon-to-be-issued IPSAS on intangible assets, IPSASs 28-30 represent the substantial attainment of IPSAS convergence with IFRSs (dated December 2008).

IPSASs 28-30 are available to download free of charge from the IPSASB section of IFAC's Publications and Resources site (web.ifac.org/publications). The IPSASB encourages IFAC members, associates, regional accountancy bodies, and firms to use these materials and to promote their availability to members and employees.

Source : IFAC.org

IFRS for SMEs Training Material

The International Accounting Standards Committee Foundation (IASC Foundation) today published the first part of its comprehensive set of training materials for the IFRS for SMEs. The free-to-download training material forms part of a range of initiatives undertaken by the IASC Foundation and the International Accounting Standards Board (IASB) to support the widespread adoption of the IFRS for SMEs.

The IFRS for SMEs was published by the IASB in July 2009 following an extensive development programme, including widespread consultation with interested parties. The standard is designed for use by small and medium-sized entities (SMEs), which are estimated to constitute more than 95 per cent of all companies.

The training material is designed to assist companies and accounting practitioners in applying the standard. It will also assist educators in teaching how to apply the IFRS for SMEs. Once completed, the training material will comprise 35 separate modules—one for each section of the IFRS for SMEs. The first twelve modules are now available for download from the IASB website (http://www.iasb.org/IFRS+for+SMEs/Training+material.htm). The remaining modules will be published in the course of this year as they are completed. Each module guides the learner through the official text, develops the learner’s understanding of the requirements through the use of examples, and points out where significant judgements are required. It also includes questions designed to test the learner’s knowledge of the requirements as well as case studies to develop the learner’s ability to apply the IFRS for SMEs.

The training material is part of a range of measures taken by the IASC Foundation and the IASB to support and facilitate the implementation of the IFRS for SMEs around the world. In particular:

(a) The IASB developed implementation guidance to accompany the IFRS for SMEs, consisting of illustrative financial statements and a presentation and disclosure checklist.

(b) This year, in co operation with regional professional associations and the world’s development agencies, the IASC Foundation will begin a series of regional ‘train the trainers’ workshops. These workshops will focus on building capacity for the implementation of the IFRS for SMEs, particularly in developing and emerging economies. The first series of workshops, which has been organised jointly with the Confederation of Asian Pacific Accountants, will take place in India and Malaysia in January 2010. Further workshops are being planned jointly with regional professional associations in Africa, the Caribbean and elsewhere.

(c) The Trustees of the IASC Foundation will finalise, later this month, the terms of reference and operating procedures of the SME Implementation Group.

Source : www.iasb.org

2009 Russian translation of IFRS

I’ve just got an alerted email from IASB.org regarding on the publication of 2009 Russian translation of IFRS.

The IASC Foundation is pleased to announce the publication of the following:

2009 Russian translation of International Financial Reporting Standards

These Russian files correspond to the text used for the adoption of IFRSs into law, and do not include the accompanying material such as the Bases for Conclusions and Implementation Guidance.

Access the documents online

• The Russian translation can be accessed online via the "IFRS" section on www.iasb.org. You will need to be a registered user to access the translation - to register click here.
• eIFRS/Comprehensive subscribers can access the Russian translation in the secure eIFRS subscriber area after logging in with their username and password and then navigating to the Latest Additions section.

The IASB Latest Update on January 5, 2010

This IASB Update is a staff summary of the tentative decisions reached by the Board at a public meeting. As a project progresses, the Board can, and sometimes does, modify its earlier tentative decisions. Tentative decisions do not change existing requirements until those decisions are incorporated in a new or amended standard.

The International Accounting Standards Board met in London on 5 January 2010 for an additional Board meeting, when they discussed Leases and Insurance contracts. The US Financial Accounting Standards Board (FASB) participated via video conference.

• Leases
• Insurance contracts

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Leases

At their October 2009 joint meeting, the boards tentatively decided to exclude from the scope of the proposed new leases requirements contracts that represent the purchase or sale of the underlying asset. At this meeting, the boards discussed the situation when a contract is the purchase or sale of the underlying asset.

The boards tentatively decided that:

1. Contracts that transfer control of the underlying asset should be excluded from the scope of the proposed new leases requirements.

2. The proposed new leases requirements should provide indicators to help a reporting entity determine whether control has been transferred.

3. Management of the reporting entity should exercise judgement and consider all relevant facts and circumstances when determining whether control of the underlying asset has been transferred.

4. Situations in which control of the underlying asset has normally been transferred include:

    a. Contracts where the title to the underlying asset automatically transfers

    b. Contracts that include a bargain purchase option.

The boards instructed the staff to provide additional analysis on the definition of control, how control would be assessed, and other possible indicators of control in the context of a lease contract.

Go to the Leases project page

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Insurance contracts

The boards discussed:

• whether to account for insurance, investment and service components included in an insurance contract as if those components were separate contracts (unbundling).

• presentation of the performance statement.

• derivatives embedded within a host insurance contract.

Unbundling

The boards discussed whether to account for components of an insurance contract as if those components were separate contracts (ie unbundle those components). The IASB decided tentatively that, for recognition and measurement, an insurer should:

• unbundle a component of an insurance contract if it is not interdependent with other components of that contract.
• not unbundle a component that is interdependent.

The FASB tentatively decided that if unbundling is not required for recognition and measurement, it should not be a permitted option. The FASB asked staff to clarify further how unbundling for recognition and measurement relates to (a) the definition of an insurance contract and the scope of the proposed standard, (b) the presentation models for the performance statement, and (c) bifurcation of embedded derivatives.

Presentation of the statement of comprehensive income

The boards discussed five models for the presentation of the statement of comprehensive income for insurance contracts and:

• tentatively rejected a model that recognises revenue on the basis of written premiums (rather than recognising revenue as the insurer performs under the contract).
• asked the staff to clarify further the remaining models.

Embedded derivatives

The boards discussed two approaches to measuring derivatives embedded in insurance contracts:

• Measure at fair value (using existing guidance on when to bifurcate)
• Measure consistently with the measurement used for the host insurance contract

Views diverged and no clear consensus emerged. The boards will return to the topic of embedded derivatives at a future meeting.

Next steps

The boards will continue their discussion of this project at their joint meeting in January.

Go to the Insurance contracts project page

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Future Board meetings

The Board will meet in public session on the following dates in 2010. Meetings take place in London, UK, unless otherwise noted.

• 18 - 22 January
• 15 - 19 February
• 2 February (PM)
• 10 February (PM)
• 15 - 19 March
• 22 - 24 March
• 19 - 23 April
• 17 - 21 May
• 14 - 18 June
• 19 - 23 July
• 13 - 17 September
• 18 - 22 October
• 25-27 October (Norwalk)
• 15 - 19 November
• 13 - 17 December

Please note that we are likely to add some meeting dates. We will include any such additional dates in future issues of IASB Update.

Go to the meetings section of the IASB website

IASB re-exposes proposals on measuring liabilities for asset decommissioning, legal disputes and similar items

This is the Press Release from IASB on January 5, 2010, concerning the publication of ED of revised version of IAS 37.

The International Accounting Standards Board (IASB) today published for public comment an exposure draft of one section of a replacement for IAS 37 Provisions, Contingent Liabilities and Contingent Assets. The section contains revised proposals for measuring liabilities within the scope of IAS 37.

IAS 37 applies to liabilities not covered by other accounting standards, such as liabilities to decommission assets and liabilities arising from legal disputes. The IASB previously published proposals to amend IAS 37, including revised measurement requirements. In the light of the comments received the IASB identified a need to develop more guidance on one part of those proposals: the measurement of these liabilities. The proposals published today seek public comment on that draft guidance.

To enable interested parties to see the proposed measurement section in the context of the proposed standard as a whole, the IASB is preparing a working draft of the entire standard and aims to post a copy on its website in February 2010. Until that working draft becomes available, the Liabilities - Amendments to IAS 37 project page on http://go.iasb.org/Liabilities provides a link to a decision summary that contains both the measurement proposals and the other decisions that will appear in the new standard.

The IASB aims to complete the standard, including final guidance resulting from today’s proposals, in 2010.

An IASB ‘Snapshot’, a high level summary of the proposals, is available to download free of charge from the project section of the IASB website.

The IASB invites comments on the exposure draft, Measurement of Liabilities in IAS 37, by 12 April 2010. The exposure draft is available on the ‘Open for Comment’ section on www.iasb.org from today.

Read the original page in here