On The Horizon For IFRS - March 12, 2013

IASB / FASB JOINT MEETING FEBRUARY 2013

IASB issues February 2013 joint IASB / FASB meeting highlights

Key issues

At the February 2013 joint IASB / FASB meeting the following issues were discussed:

Annual Improvements 2010-2012: The IASB discussed the proposed Improvements to IFRSs from the Exposure Draft published in May 2012 and tentatively decided to finalize four of the proposed amendments. Conceptual Framework: The IASB discussed an early draft of the Discussion Paper on the Conceptual Framework and reached certain tentative decisions on the following issues: Purpose of the Conceptual Framework Definitions of the elements of financial statements: asset, liability, equity, income, and expense Recognition and derecognition Boundary between liabilities and equity Measurement Reporting entity Fair value measurement ‒ unit of account: The IASB discussed what the unit of account for an investment in a subsidiary, joint venture, or associate would be for fair value measurement. No decisions were made. Financial instruments ‒ hedge accounting: The IASB tentatively decided to make certain changes to a proposed amendment to provide an exception from the requirement to discontinue hedge accounting for changes to the counterparty required by law or regulation. The IASB recently issued the Exposure Draft, Novation of Derivatives and Continuation of Hedge Accounting (proposed amendments to IAS 39 and IFRS 9). Guide for micro-sized entities applying the IFRS for SMEs: The staff presented an update on the development of A Micro-sized Entity's Guide for Applying the IFRS for SMEs. The Guide is not a separate Standard, it is intended to accompany the IFRS for Small and Medium-sized Entities (IFRS for SMEs) and contains guidance to help micro-sized entities apply the requirements of the IFRS for SMEs. IAS 41, Agriculture ‒ bearer biological assets: The IASB discussed the remaining issues in the limited scope project on bearer biological assets and reached certain tentative decisions. The Board will ask the staff to prepare an Exposure Draft of proposed amendments to IAS 16, Property, Plant and Equipment and IAS 41 after discussing with the Due Process Oversight Committee the due process steps that have been undertaken. Insurance contracts: The IASB discussed the transition requirements for contracts acquired through a business combination and reached certain tentative decisions. The Board plans to publish the revised Exposure Draft in the second quarter of 2013. Leases: Tentative decisions were reached on the following topics: Transition for capital/finance leases (IASB and FASB) Right-of-use assets that meet the definition of investment property under IAS 40, Investment Property (IASB only) Transition for leveraged leases (FASB only) Matters arising from the IFRS Interpretations Committee: The IASB discussed two matters relating to the application of IAS 19, Employee Benefits, and one relating to disclosures for transfers of financial assets that arose from the Committee meeting in January 2013. Rate-regulated activities: The IASB discussed a number of issues related to the interaction of other IFRS with regulatory deferral account balances recognized under the interim IFRS to be proposed and made certain tentative decisions regarding the guidance to be included in the proposed interim IFRS for rate-regulated activities. The IASB also tentatively decided to publish a Request for Information to obtain additional information about different types of rate regulations. Revenue recognition: The Boards reached tentative decisions on disclosures, effective date, and transition and have completed their substantive redeliberations of the 2011 Exposure Draft, Revenue from Contracts with Customers. As a result, the staff will begin drafting the final revenue standard. Work plan: The work plan as of February 26, 2013, reflecting decisions made at the February 2013 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 February 18-22, 2013. The IASB met alone for certain sessions.

Highlights of the meeting are discussed below.

Annual Improvements 2010-2012

The IASB discussed the proposed Improvements to IFRSs from the Exposure Draft published in May 2012 and tentatively decided to finalize the following proposed amendments:

IFRS 2, Share-based Payment ‒ Definition of "vesting conditions" IFRS 8, Operating Segments ‒ Aggregation of operating segments IFRS 8, Operating Segments ‒ Reconciliation of the total of the reportable segments' assets to the entity's assets IFRS 13, Fair Value Measurement ‒ Short-term receivables and payables See the IASB project summary for more information on this project.

Conceptual Framework

The IASB discussed an early draft of a Discussion Paper on the Conceptual Framework, focusing on:

Purpose of the Conceptual Framework Definitions of the elements of financial statements: asset, liability, equity, income and expense Recognition and derecognition Boundary between liabilities and equity Measurement Reporting entity Purpose of the Conceptual Framework

The IASB discussed the purpose of the Conceptual Framework and reached the following tentative decisions:

The primary purpose of the Conceptual Framework is to assist the IASB in the development of future IFRS and in its review of existing IFRS. The Framework may also assist preparers of financial statements in developing accounting policies for transactions or events that are not covered by existing IFRS. The Conceptual Framework is not an IFRS and does not override IFRS (as is the case currently). The IASB could, in rare cases, issue a new or revised IFRS that conflicts with some aspect of the Conceptual Framework. The Board would do so only if necessary to meet the overall objective of financial reporting. Any such departure would be described and explained in the Basis for Conclusions of that IFRS. Definition of the elements of financial statements

Definitions of an asset and a liability

The IASB discussed the following possible changes to the definitions of an asset and a liability:

Emphasize that the asset is the resource and a liability is an obligation, rather than the economic benefits that may flow from the resource or obligation Remove the term "expected" from the definition. In the IASB's view, as long as an item is capable of producing an inflow or outflow of resources, it can meet the definition of an asset or liability, even if the probability of an inflow or outflow is very low (e.g. out of the money options). The reference to "expected" flows has caused confusion with the reference to probability in the recognition criteria. The IASB also discussed whether to make the following additional changes to the definitions:

Remove the reference to "past events." This would emphasize that an asset is a present resource and a liability is a present obligation. Remove the reference to "control" from the definition of an asset. Control would be addressed in the recognition criteria. Additional guidance on applying the definitions

The IASB discussed additional guidance to support the definitions of an asset and a liability. For liabilities, the IASB discussed three approaches for identifying present obligations. As no preliminary views were reached, a description of all three approaches will be included in the Discussion Paper.

Definitions of income and expense and other elements of the financial statements

The IASB noted that significant changes to the existing definitions of income and expense were probably unnecessary. In March 2013, the IASB will consider whether to provide additional definitions of elements to distinguish items presented in profit or loss from items presented in other comprehensive income. The IASB also noted that the Discussion...