International Accounting
Standard-Setting
IASB
Priorities for beyond 2005
1
IASB
IASB Structure
19 Trustees
Standards
Advisory
Council
IASB
IFRIC
National Standard Setters
2
5
IASB
IFRS Around the World
IFRSs permitted
Now
22
2005
-1
Total
21
39
27
66
5
66
26
5
92
IFRSs required
(for all domestic companies)
IFRS required
(for some domestic companies)
3
Beyond the Stable Platform
• Convergence
• Tackling conceptual issues and
maintaining a principle based approach
– Performance reporting, insurance, financial
instruments, among others
4
IASB
International Convergence
Goal and Tactics
IASB
Goal—A single set of high-quality accounting
standards used internationally
Tactics:
• Jointly develop a common conceptual framework
• Jointly develop any new standards on major topics
• Eliminate narrow differences through short-term
convergence projects
• Coordinate interpretative activity
5
International Convergence
Progress Achieved
IASB
IASB
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Completed improvements project
Issuance of IAS 32 and IAS 39, revised
Issuance of IFRS 3, Business Combinations
Issuance of IFRS 5, Non-current Assets held for Sale and
Discontinued Operations
• ED of amendments to IAS 37 expected soon
FASB
• Issued ED on share-based payment
• Issued four EDs relating to the short-term convergence project (final
Statements expected by year end)
6
International Convergence
Work in Progress
• Active Joint Projects
– Purchase Method Procedures
– Revenue Recognition
– Reporting on Financial Performance
• Short-term convergence
– Income taxes
– Research and development costs
– Interim reporting
• Agenda Alignment
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Insurance (FASB to consider adding to its agenda)
Liabilities and Equity (IASB to consider adding to its agenda)
Liability Extinguishment (IASB to consider adding to its agenda)
Consolidations (work separately to common standard)
7
IASB
International Activities
Potential Future Projects
IASB
• Accounting for Employee Benefits (including pensions and
other post-employment benefits)
• Accounting for Leases
• Accounting for Internally Developed Intangible Assets
• Financial Instruments (initial focus—shorter term convergence
and improvement projects)
• Continued Work on “Short-Term Convergence”
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–
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Joint ventures
Property plant and equipment
Investment properties
Segment reporting
8
Convergence and the IASB Strategy
• Objective
– A single set of global accounting
standards
– High quality financial reporting
• Strategy
– International convergence
– Accentuating principles over rules
– Working with national standard setters
9
IASB
Challenges to Convergence
IASB
• Starting from Very Different Places (IASB, FASB, ASB,
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ASBJ)
Significant Cultural Differences
Getting Boards to Agree
Some fear US dominance or IASB-FASB alliance
Constituent Reactions/Willingness to
Change/Change Management
Institutional/Legal Barriers to Change
Politics??
10
Convergence - Summary
• FASB and IASB Are Committed to Working
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Towards Convergence
Not Just Convergence for Sake of
Convergence—Better Reporting
Convergence Considerations Embedded
in our Processes
Achieving Goal will Require Continued
Vision, Determination, and Perseverance
11
IASB
Major Projects on
the IASB’s Agenda
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Share-based Payment
Business Combinations
Performance Reporting
Financial Instruments
12
IASB
Share-based Payment
Objective
• To specify the accounting treatment of
SBP transactions
• In particular, to require recognition of
SBP transactions - including expenses
associated with employee share options
13
IASB
General overview
• Recognise goods or services when
received, and
• Corresponding increase in equity or
liabilities
• Recognise an expense when goods or
services consumed
• Measure at fair value
14
IASB
Employee SBP overview
• Estimate fair value of shares or share
options at grant date
• Estimate number expected to vest
• Recognise over vesting period
• Cumulative expense = grant date FV of
shares/options × number vested
15
IASB
Transactions with non- employees
• Measure at fair value of goods or
services received
• If that fair value cannot be estimated
reliably, then measure at fair value of
equity instruments
• FV measured at date the goods or
services received
16
IASB
Business Combinations Phase I
• IFRS 3 Business Combinations
• Amendments to IAS 38 Intangible
Assets
• Amendments to IAS 36 Impairment of
Assets
17
IASB
Reasons for Issuing
• IAS 22 permitted 2 methods of
accounting for business combinations
18
IASB
Reasons for Issuing
• Also differences across jurisdictions in
accounting for
– goodwill
– negative goodwill
– intangible assets acquired in business
combinations
– provisions for terminating or reducing
acquiree’s activities (restructuring
provisions)
19
IASB
IFRS 3: Method
• All business combinations accounted
for using purchase method
– Pooling of interests method prohibited
• Identify an acquirer for all combinations
– Entity that obtains control of other
combining entities or businesses
20
IASB
IFRS 3: Goodwill
• Recognise as an asset
• Initially measure at excess of cost over
acquirer’s interest in net fair value of
identifiable assets, liabilities and
contingent liabilities satisfying
recognition criteria
• Subsequently measure at cost less
accumulated impairment losses –
DON’T AMORTISE
21
IASB
IFRS 3: Negative Goodwill
• Reassess identification and
measurement of:
– cost
– acquiree’s identifiable assets,
liabilities and contingent liabilities
• Recognise remaining excess as
income
22
IASB
IAS 36: Goodwill impairments
• Allocate goodwill to CGUs
• Measure recoverable amount of CGU
and compare with carrying amount
• If RA < carrying amount, allocate loss
first to goodwill, then to other assets
based on relative carrying values
23
IASB
Business Combinations - II
4 parts
1. Purchase method procedures
2. Applying purchase method to combinations
involving 2 or more mutuals, and
combinations solely by contract (eg DLCs)
3. Formation of joint ventures and possible
applications for ‘fresh start’ method
4. Combinations of entities under common
control
24
IASB
Performance Reporting – Which
statements?
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Income statement
Other comprehensive income
Cash flow
Statement of changes in equity
MD&A?
25
IASB
Background
IASB
• Income statement presentations vary greatly
•
among and within countries
It would be helpful, to users and preparers alike, to
present clearly items that differ in nature, e.g.
– sales, cost of sales, operating expenses
– vs. impairment of goodwill, revaluations of PPE, fair
value changes in financial instruments
26
Context
• IASB joint project with FASB, ASBJ and
ASB, and working closely with all
national standard setters
• IASB has conducted a project review
– International advisory group being formed
– Discussion paper due in 2005
27
IASB
Principles-based approach possible project objective
IASB
• The objective is to categorise and display
all income and expenses for the period in
a way that enhances users’ understanding
of the entity’s financial results and that
assists users in forming expectations of
future income, expenses and profit or loss.
28
Some practical issues on which the IASB
will seek guidance
• Should income statement categories be standardised?
– Under the ‘Management approach’ the preparing entity has
IASB
discretion
– Under the ‘Standardised approach’ the accounting standard
defines categories and requires consistent presentation across
entities
– To date the FASB has leaned towards the management approach
and the IASB to the standardised approach
• Are users’ information needs best served by having some income
and expenses reported initially outside the income statement?
• Should financial services entities be treated as a special case?
29
Classification criteria on which the IASB
will seek guidance
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Operating vs. non-operating
Core vs. non-core
Recurring vs. one-off
Within vs. outside management control
Realised vs. unrealised
Initial recognition vs. subsequent
remeasurement
Historical cost vs. fair value
30
IASB
Some ‘problem items’
IASB
• Property, Plant and
Equipment
– Depreciation
• Impairment
• Revaluation
• Disposal gains/losses
• Financial
• Fair value changes
Instruments
– Interest
income/expense
31
Possible formats – (1)
IASB
BUSINESS/OPERATING
xx
x
FINANCIAL
xx
TAX
(x)
DISCONTINUING
NET INCOME
OTHER COMPREHENSIVE INCOME
x
X
X
COMPREHENSIVE INCOME
X
32
Possible formats – (2)
TOTAL
BUSINESS
Remeasurements
xxx
xx
xx
xxx
xx
x
xx
x
x
FINANCING
(xx)
(x)
(x)
TAX
(x)
x
x
DISCONTINUED
CASH FLOW
HEDGES
COMP.
INCOME
Operating
Other
business
Financial
Before
remeasurements
IASB
x
x
x
x
33
Summary
• The IASB (ASBJ and ASB) has entered
a joint working relationship with the
FASB
• Nothing is decided, and all possible
schemes are under consideration
• An international advisory group is being
formed
34
IASB
Financial Instruments
• IASB inherited IAS 39
• Efforts to date have focussed on 2005
implementation
35
IASB
IAS 39 : Going Forward
• A fresh look at financial instruments
accounting
• Desire to simplify complex rules
• Want to converge requirements with
similar standards (US, Japanese,
Canadian GAAP)
• Introduce improvements as soon as
possible
36
IASB
IAS 39 : Next Steps
• International Working Group being
established (similar to insurance)
• Subgroup to examine interest rate
margin hedging
37
IASB
IASB
38