Below you will find information about various IASB projects, which IASeminars staff will update as needed. Further information can be found directly on the IASB website
8 April 2013
Among the IASB’s stated objectives are developing high quality International Financial Reporting Standards (IFRSs) and promoting their use and acceptance globally. Since its formation in 2001 the Board has developed new (and revised some existing) standards and interpretations. Sometimes this work has been carried out by the IASB alone, but significant convergence and improvement projects have also been conducted jointly with the US Financial Accounting Standards Board (FASB).
The work plan of the IASB has been updated as of March 25, 2013. The plan continues to focus on four critical joint projects with the FASB: leases, financial instruments, revenue recognition and insurance contracts. These have taken longer to complete than was originally envisaged.
Follow these quick links to our article explaining where these projects currently stand:
Agenda Consultation: Three-yearly Public Consultation
In July 2011, the first formal public consultation on the IASB’s future agenda was launched. The IASB solicited input from interested parties on its strategic direction and the broad overall balance of its work plan, as well as receiving important input when considering possible agenda items.
On 18 December 2012, the IASB published a Feedback Statement, which summarises the feedback it received and how it has responded to that feedback.
IFRS 9 Financial Instruments: Replacement of IAS 39
The IASB’s project to replace IAS 39 Financial Instruments: Recognition and Measurement
is being carried out in stages. In 2009 and 2010 the Board issued chapters of the new standard, IFRS 9, on the classification, measurement and derecognition of financial assets and financial liabilities.
IAS 39 applies a so-called incurred loss model to determine impairment of financial instruments. Under that model, an impairment loss is only recognised after a loss event (e.g. a delinquency in payments of principal or interest) has already occurred (recognition threshold). During the financial crisis, this approach was criticised for resulting in recognising credit losses too late.
Following years of discussion and published proposals, the IASB has now published a revised Exposure Draft. The ED is based on a more forward-looking approach which also takes into account expected credit losses resulting from default events that are expected to occur in the future (expected loss model). Under that model, recognition of a credit loss no longer depends on the entity first identifying a loss event that occurred prior to the reporting date. The possibility of credit losses must be considered even if that probability is low. A more detailed summary of the ED can be found in our “Latest IASB Exposure Drafts: Expected Credit Losses and Novation of Derivatives” article.
The IASB is also reconsidering hedge accounting. In September 2012, it made available on its website a draft of the forthcoming general hedge accounting requirements (Review Draft). The Draft relaxes the requirements for assessing hedge effectiveness and relaxes the rules for determining what can be designated as a hedging instrument or as a hedged item. A final version of the new general hedge accounting requirements will be published in the second (or third) quarter of 2013. Moreover, the IASB plans to issue a Discussion Paper on macro hedge accounting in the second (or third) quarter of 2013.
On 28 November 2012, the IASB published the Exposure Draft of limited amendments to the classification and measurement requirements of IFRS 9. This has been done in order to align IFRS 9 more closely with the approach being developed by the US Financial Accounting Standards Board (FASB). The Board also addressed specific application issues and considered the interaction between the accounting for insurance contract liabilities and the accounting for financial assets. Redeliberations regarding these proposals will take place in the second and third quarters of this year. A summary of the key amendments proposed in the exposure draft can be found in our “Latest IASB Exposure Drafts
IFRS 9 will be mandatory for annual periods beginning on or after January 1, 2015. If you would like to find out more information about this project, please note that IASeminars offers the following events:
In August 2010 the IASB and the FASB published joint Exposure Drafts proposing new accounting models for lessees and lessors. In July 2011, following redeliberations, the decision was made to re-expose revised proposals. The second Exposure Draft on leases is due in the second quarter of 2013.
Under the new model, the lessee would recognise a right-of-use asset representing its right to use the underlying asset during the lease term and at the same time recognise a liability to make the lease payments. However, lessees need not apply this approach to short-term leases. This means that short-term leases need not be recognised in the lessee’s balance sheet. A short-term lease is a lease that, at the date of commencement, has a maximum possible lease term, including any options to renew or extend, of 12 months or less. Non-recognition in the balance sheet corresponds with the off-balance-sheet approach of IAS 17 for operating leases.
The lessor would generally apply the so-called “receivable and residual approach”. Under that approach, the lessor would recognise a lease receivable and initially measure it at the present value of the lease payments. The residual asset would initially be measured by an allocation of the carrying amount of the underlying asset. The initial measurement of the residual asset would consist of the following amounts:
- the gross residual asset (which is the present value of the estimated residual value at the end of the lease term) net of
- the deferred profit (which is the difference between the gross residual asset and the allocation of the carrying amount of the underlying asset)
A different accounting treatment is planned for lessors in the case of short-term leases and leases in which the lessor is not deemed to have sold more than insignificant portion of the underlying asset to the lessee. In such situations, the lessor would neither recognise assets or liabilities from the lease in the balance sheet, nor derecognise any portion of the underlying asset. Hence, the lessor would depreciate the underlying asset and recognise lease income over the lease term generally on a straight-line basis, similar to the current treatment of operating leases by lessors under IAS 17.If you would like to find out more information about this project, please note that IASeminars offers the following events:
In November 2011, the IASB and the FASB published a revised Exposure Draft to improve and converge the requirements of IFRSs and US GAAP for revenue from contracts with customers. The objective is to create a single, principles-based revenue recognition standard that would apply to all industries and all types of revenue-generating transactions and which will replace IAS 11 Construction Contracts
and IAS 18 Revenue
The core principle of the revised Exposure Draft is that a company should recognize revenue in an amount which reflects the consideration to which it expects to be entitled in exchange for the transfer of goods or services to a customer. Lease contracts, insurance contracts and financial instruments are excluded from the scope of the draft. According to the exposure draft, revenue recognition is based on a five step approach:
- Step 1: Identify the contracts with customers (i.e. identify the bundle of contractual rights and obligations to which the entity has to apply the revenue recognition rules). For example, it may be necessary to combine some contracts and to treat them as one contract for accounting purposes.
- Step 2: Identify the separate performance obligation(s) (i.e. identify the promised goods or services that should be accounted for separately). Performance obligations represent promises in a contract to transfer goods or services to a customer.
- Step 3: Determine the transaction price (i.e. determine the amount of consideration to which the entity expects to be entitled in exchange for the promised goods or services).
- Step 4: Allocate the transaction price: If there is more than one performance obligation, the transaction price (i.e. the revenue to be recognized) has to be allocated to these obligations.
- Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation by transferring a promised good or service to the customer. This means that, according to the draft standard, it is necessary to determine whether revenue has to be recognised over time or at a point of time. When the consideration is variable, the cumulative amount of revenue recognised is limited to the amount to which the entity is reasonably assured to be entitled.
The IASB intends that the new standard will be published in the second quarter of 2013. In February 2013 a tentative decision was made to apply the new standard for annual periods beginning on or after January 1, 2017. Early adoption will not be permitted. If you would like to find out more information about this project, please note that IASeminars offers the following events:
Accounting for insurance contracts is currently dealt with in IFRS 4. This is an interim standard which permits insurers to continue with their existing accounting policies for insurance contracts that they issue (and reinsurance contracts that they hold), if those policies meet certain minimum criteria. The intention has always been to replace IFRS 4.
The objective of the IASB’s current project on insurance contracts is to provide a principles-based approach for all types of insurance contracts. In July 2010, the Board issued an Exposure Draft. The proposals were intended to eliminate inconsistencies and weaknesses in existing practices. The IASB continues to debate many of the issues jointly with the FASB.
The Exposure Draft proposed a comprehensive measurement approach for all types of insurance contracts issued (and reinsurance contracts held). An insurer would have to apply a measurement approach which uses the following building blocks:
- Current estimate of the future cash flows
- Discount rate to take account of the time value of money
- Explicit risk adjustment
- Residual margin
However, for most short-duration contracts, a modified version of the measurement approach would apply.
Since publication of the first Exposure draft, redeliberations have taken place and the IASB will publish a revised exposure draft including the results of these redeliberations in the second quarter of 2013.If you would like to find out more information about this project, please note that IASeminars offers the following events: