On The Horizon For IFRS - January 28, 2013

Author:Ms Grant Thornton's Audit Practice Group
Profession:Grant Thornton LLP

IASB / FASB joint meeting December 2012

IASB issues December 2012 joint IASB / FASB meeting highlights

Key issues

At the December 2012 joint IASB / FASB meeting the following issues were discussed:

Accounting for macro hedging: The IASB continued their discussions on the proposed revaluation approach for macro hedging activity and its application to risks other than interest rate risk. No decisions were made.

Bearer biological assets: The IASB tentatively decided that the scope of the amendment to IAS 41, Agriculture would be restricted to bearer biological assets that are plants and that plants would be defined as bearer biological assets if they have no consumable attributes. In addition, the IASB decided to develop a cost-based model for bearer biological assets within the scope of this project.

Conceptual Framework: The IASB held education sessions on the difference between a liability and equity and measurement concepts. No decisions were made. The Board also considered a staff plan for the project.

Financial instruments: impairment: The IASB discussed a sweep issue related to transition and due process considerations necessary before deciding to move to balloting the proposed three bucket impairment model. The IASB also agreed to publish an Exposure Draft on the proposed three bucket impairment model with a 120-day comment period.

Insurance contracts: The IASB continued its discussions of the proposed Standard on insurance contracts and specifically discussed unlocking the residual margin, the residual margin for participating contracts, and impairment of reinsurance contracts. The IASB reached certain tentative decisions.

Rate-regulated activities: The IASB considered a project plan proposal for the Discussion Paper and whether that plan should include the development of an interim Standard. The IASB tentatively decided that a formal consultative group would be formed for the project. The IASB also tentatively decided to develop an Exposure Draft for an interim Standard.

Recognition of deferred tax assets for unrealized losses: The IASB tentatively decided that the accounting for deferred tax assets for unrealized losses on debt instruments should be clarified by a separate narrow-scope amendment to IAS 12, Income Taxes.

Recoverable amount disclosures for non-financial assets: The IASB tentatively decided on a proposed narrow-scope amendment to IAS 36, Impairment of Assets, to require disclosure of information about the recoverable amount of impaired assets, particularly if the recoverable amount is based on fair value less costs of disposal.

Revenue recognition: The Boards continued redeliberating the revised Exposure Draft, Revenue from Contracts with Customers, and tentatively decided to retain, clarify, or amend some of the proposals for the following topics:

Allocating the transaction price

Contract costs

Effect of the revenue recognition model on some bundled arrangements

Constraining the cumulative amount of revenue recognized ‒ licenses

Work plan: The work plan as of December 19, 2012, reflecting decisions made at the December 2012 meeting is available on the IASB website.

All decisions reached at IASB meetings are tentative and may be changed or modified at future meetings. Board decisions become final only after completion of a formal ballot to issue a Standard or Interpretation or to publish an Exposure Draft.

The International Accounting Standards Board has issued an IASB Update, which summarizes the joint IASB / FASB meeting that was held on December 13-17, 2012. The IASB met alone for certain sessions.

Highlights of the meeting are discussed below.

Accounting for macro hedging

The IASB continued their discussions on the proposed revaluation approach for macro hedging activity. Previously the IASB has considered the revaluation approach within the context of financial institutions' dynamic management of interest rate risk. At this meeting the IASB discussed the application of the proposed revaluation approach to risks other than interest rate risk, including commodity risk and foreign exchange risk.

The IASB staff presented their initial findings on the outreach they have undertaken to identify instances in which macro hedging activity for open portfolios is undertaken for risks other than interest rate risk, and to consider the relevance of a revaluation approach to that activity.

The proposed revaluation approach may be appropriate in accounting for some macro hedging activity undertaken for foreign exchange and commodity price risk. However, additional outreach is necessary to fully understand the issues involved, in particular within the context of the application of the new hedging requirements of IFRS 9, Financial Instruments.

The IASB staff noted that they would use the comment period of the upcoming Discussion Paper to obtain a better understanding of the potential application of the model for other risks. It was noted that once the model is described in full, it would be easier to obtain such input.

No decisions were made.

Next steps

The staff will continue drafting the Discussion Paper, for which the initial focus will...

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