IFRSs and other news
IASB
exposure drafts and discussion papers
Recently issued exposure drafts and discussion papers¡@
| Document
type |
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Title |
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IASB's
comment deadline |
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HKICPA's
comment deadline |
| IASB
proposed amendments |
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IFRS 1 "First-time Adoption of International Financial Reporting Standards" and IAS 27 "Consolidated and Separate Financial Statements" ¡V Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate (see the article below) |
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26
February 2008 |
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28
January 2008 |
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| IASB
proposed amendments |
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IFRS 2 "Share-based Payment" and IFRIC 11 "IFRS 2 Group and Treasure Share Transactions" ¡V Group Cash-settled Share-based Payment Transactions (see the article below) |
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17
March 2008 |
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25
February 2008 |
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| IFRIC
Draft Interpretation |
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D24 Customer Contributions (see the article below) |
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25
April 2008 |
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31
March 2008 |
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| IFRIC
Draft Interpretation |
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D23 Distributions of Non-cash Assets to Owners (see the article below) |
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25
April 2008 |
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31
March 2008 |
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| IASB
Discussion paper |
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Financial Instruments with Characteristics of Equity (see the article below) |
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5
September 2008 |
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4
August 2008 |
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| IASB
Discussion paper |
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Reducing Complexity in Reporting Financial Instruments |
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19
September 2008 |
|
Invitation
to be issued |
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| IASB
Discussion paper |
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Preliminary Views on Amendments to IAS 19 Employee Benefits |
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26
September 2008 |
|
Invitation
to be issued |
IASB toughens up on IFRS 2 avoidance
The IASB has published an Exposure Draft of proposed amendments to IFRS 2 "Share-based Payment" and IFRIC 11 "IFRS 2 ¡V Group and Treasury Share Transactions" in an attempt to crack down on opportunities to structure share-based payment plans to fall outside IFRS 2¡¦s scope.
More specifically, the proposed amendments specify the accounting by an entity that receives goods or services from its suppliers (including employees) for which the parent (or another group entity) makes cash payments that are share-based. For example:
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Arrangement 1 ¡V the suppliers of the entity will receive cash payments from the parent that are |
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linked to the price of the equity instruments of the entity
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Arrangement 2 ¡V the suppliers of the entity will receive cash payments from the parent that are |
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linked to the price of the equity instruments of the parent of the entity. |
Under either arrangement, the parent of the entity has an obligation to make the required cash payments to the suppliers of the entity but the entity itself does not have any obligation to make such payments to its suppliers or provide them with equity instruments.
The proposed amendment to IFRS 2 clarifies that an entity that receives goods or services from its suppliers must apply IFRS 2 even though the entity has no obligation to make the required share-based cash payments. In other words, a share-based payment expense is not avoided by arranging for another group entity to settle the obligation.
Accounting for customer contributions
The IFRIC has published a draft Interpretation containing proposed guidance on how to account for customer contributions.
Customer contributions are transactions in which an entity receives an asset that is used to provide access to an ongoing supply of goods or services to customers. In some cases, the asset that is received is cash that is then used to buy or construct the asset. These arrangements are common in the utilities sector in many countries. For example, a property developer might be required by law to pay for new utility infrastructure associated with new housing developments and then donate the infrastructure assets to the utility supplier.
IFRIC D24 "Customer Contributions" addresses whether a customer contribution should be recognised as an asset and, if so, at what value. It then goes on to discuss how to account for the credit that would arise from the recognition of such an asset and how to account for a cash contribution.
Under the proposals, entities receiving contributions from customers will be required to recognise contributed assets and revenue over the period that the relevant access is provided. Some access providers that have not previously recognised contributed assets will recognise increased property, plant and equipment and revenue. The proposals would also mean that those access providers that have recognised revenue immediately on receipt of a contributed asset would need to in future defer it over a longer period. However, as the proposal is that the final interpretation would be applied prospectively there will be no need to restate prior periods for this change in approach.
Revised proposals for determining the cost of an investment
Proposed changes to
IFRS 1 !¡±First-time adoption of International Financial Reporting
Standards!¡L aim to address concerns over the difficulty of
retrospectively determining the cost of a subsidiary as defined in
IAS 27 on first time adoption of IFRS. This issue has been a
factor in discouraging entities from adopting IFRS in their
separate financial statements. The Exposure Draft is unusual in
that it was developed in response to comments received on an
earlier Exposure Draft published in January 2007. The IASB!|s
original proposals were not seen as doing enough to rectify the
problem they were intended to address.
The Exposure Draft proposes to
allow an entity, at its date of transition to IFRS in its separate
financial statements, to use a deemed cost to measure an
investment in a subsidiary, jointly controlled entity or
associate. Under the proposals an entity may choose either the
fair value or the previous GAAP carrying amount of the investment
as the deemed cost of such investments.
| A
pragmatic solution |
| While there is no clear principle behind these proposals, they do offer a pragmatic solution that will encourage more entities to use IFRS in their separate financial statements. Given that the issue arises only on first time adoption of IFRS, it seems to us to be a compromise worth living with. |
Distributing non-cash
assets to owners
The IFRIC has published a draft Interpretation containing proposed guidance on how an entity should measure distributions of assets other than cash to its owners (sometimes referred to as "in specie dividends" or "dividends in kind").
D23 "Distributions of Non-cash Assets to Owners" proposes that obligations to make non-cash distributions should in effect be measured based on the fair value of the assets distributed. When the distribution is made any difference between the obligation and the assets' carrying value would be recognised in profit or loss. The Interpretation would apply to all such distributions with the exception of distributions to another entity in the same group. The IFRIC proposes that the new rules should be applied prospectively, acknowledging the difficulty entities would have in recognising past distributions at their fair values.
IASB seeks a new approach
to debt-equity classification
The IASB has taken its first due process step towards a new Standard to replace IAS 32 "Financial Instruments: Presentation" by issuing a Discussion Paper entitled "Financial Instruments with Characteristics of Equity".
The Discussion Paper is part of a joint project between the IASB and the US Financial Accounting Standards Board (FASB). The FASB has led the research phase of this project, issuing its own paper which the IASB has published together with its own introduction.
The Discussion Paper has been issued in response to criticisms that the principles in IAS 32 are both difficult to apply and can result in inappropriate classification of some financial instruments. While the IASB has responded to some of these criticisms by issuing an amendment to IAS 32 for puttable instruments and obligations arising on liquidation (see the article "Amendment to IAS 32 departs from principles"
in this newsletter) it believes there is a case for a brand new model. The Discussion Paper discusses the advantages and disadvantages of three alternative approaches to the question of how to draw the line between equity instruments and financial liabilities.
At this early stage the FASB favours a more restrictive "basic-ownership instrument" view of equity. The IASB has not yet reached any view of its own but has issued the Discussion Paper to solicit views on whether the FASB's proposals are a suitable starting point for its deliberations.
The Discussion Paper can be downloaded from the IASB's website: www.iasb.org.
| Comment |
| As noted in our separate article
of this newsletter on the recently issued amendment to IAS 32 dealing with puttable financial instruments and obligations arising on liquidation, we do not wish to see the requirements on determining the classification of financial instruments degenerate into a list of complicated rules. We therefore encourage the IASB to ensure the development of any revised Standard is firmly based on strong principles. |
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