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Plenary Session IASB@AFRAC 2007
Monday, 26 November 2007 1
®
International Accounting Standards
Board
Technical UpdateTechnical UpdateIASB Progress & PlansIASB Progress & Plans
IASB IASB RoadshowRoadshow –– Vienna 26 November 2007Vienna 26 November 2007Philippe DANJOU Member of Philippe DANJOU Member of IASBIASB
The views expressed in this presentation are those of the presenThe views expressed in this presentation are those of the presenters, ters, not necessarily those of the IASBnot necessarily those of the IASB
Agenda for Agenda for todaytoday
Part I : IASB Part I : IASB –– WhyWhy ? ? WhatWhat isis itit ? ? WhichWhichimpact ?impact ?Part II Part II –– TechnicalTechnical plan and plan and recentrecent textstexts
Plenary Session IASB@AFRAC 2007
Monday, 26 November 2007 2
The The towertower of Babelof Babel
PART I PART I -- IASBIASB
Structures and Structures and processesprocessesInfluence Influence todaytodayConvergence, adoption, etc.Convergence, adoption, etc.
Plenary Session IASB@AFRAC 2007
Monday, 26 November 2007 3
HistoryHistory19731973 International Accounting Standards International Accounting Standards
Committee (IASC) founded by 10 Committee (IASC) founded by 10 national accountancy organisations. national accountancy organisations.
19811981 All members of IFAC became All members of IFAC became members of IASC.members of IASC.
19991999 100+ countries. Structure reviewed.100+ countries. Structure reviewed.20012001 International Accounting Standards International Accounting Standards
Board (IASB) began operations.Board (IASB) began operations.20042004 Constitutional reviewConstitutional review20052005 EU adoptionEU adoption20072007 US lifts reconciliationUS lifts reconciliation
IASB’sIASB’s missionmission
IASBIASB… is committed to developing, in the … is committed to developing, in the public interest, a single set of high public interest, a single set of high quality, global accounting standards quality, global accounting standards that require transparent and that require transparent and comparable information in financial comparable information in financial statements … statements …
Plenary Session IASB@AFRAC 2007
Monday, 26 November 2007 4
Working groups
ARG, GPG…
Standards Advisory Council
IASC Foundation
(22 Trustees)
StructureStructure
(14) International Accounting
Standards Board
Staff
(12+) IFRIC
The standard setting operation
IFRS
IFRIC
International regulators
Members of the Board Members of the Board
Tatsumi YamadaTatsumi YamadaGilbert Gilbert GélardGélardPhilippe DanjouPhilippe DanjouRobert GarnettRobert GarnettJohn SmithJohn SmithJan Jan EngströmEngström
Warren McGregorWarren McGregorxx
WeiWei--Guo ZhangGuo ZhangStephen CooperStephen Cooper
James LeisenringJames LeisenringMary BarthMary BarthThomas Jones, Vice ChairmanThomas Jones, Vice Chairman
Sir David Tweedie, Chairman Sir David Tweedie, Chairman
Plenary Session IASB@AFRAC 2007
Monday, 26 November 2007 5
IASB CompositionIASB Composition
131333United StatesUnited States33United KingdomUnited Kingdom11SwedenSweden
131311South AfricaSouth Africa22OtherOther11JapanJapan22AcademicAcademic11Analyst/UserAnalyst/User22FranceFrance33PreparerPreparer11ChinaChina55AuditorAuditor11Australia / NZAustralia / NZ
Elements ofElements of due processdue process
Research
StandardSetter/ EFRAG
DiscussionPaper
Exposure Draft
Others
Comment analysis
9-15 months 9-15 months
Comment analysis
EffectiveDate
12-18 months
FeedbackstatementsRoundtables
>01/01/2009>01/01/2009
Standard
2 years Postimplementation
review
Plenary Session IASB@AFRAC 2007
Monday, 26 November 2007 6
Tracking the processTracking the process
WebsiteWebsitewww.iasb.orgwww.iasb.org
Meetings:Meetings:Observer notes Observer notes Web cast of IASB meetingWeb cast of IASB meetingDecision summaries / UpdateDecision summaries / Update
12
INFLUENCE OF ACCOUNTING INFLUENCE OF ACCOUNTING STANDARDS IN THE WORLD (2007)STANDARDS IN THE WORLD (2007)
MarketMarket capitalizationscapitalizations by by accountingaccounting normnorm
0
10
20
30
40
50
60
trillion $
IFRS in force:Euronext,DeutscheBorse, LSE…IFRS convergent
US GAAP
Total world 58trn
31% 26% 43%
100%
1815 25
58
44% of the world’s Fortune 500 Companiesreport under IFRS and 18% are injurisdictions that converge to IFRS
Source : Azieres Conseil
Plenary Session IASB@AFRAC 2007
Monday, 26 November 2007 7
Adoption or Convergence Adoption or Convergence
IFRS
USA2007 FPIs
JAPAN2011
AUSNZ, SA2005-2007
CANADA2011
ADOPTION,CONVERGENCE,EQUIVALENCE...ACCELERATION OF MOMENTUM
CHINAEnd 2009
KOREAFrom 2009-2011
INDIAFrom 2011
EU2005-2007
BRAZILFrom 2010
CHILEFrom 2009
Plenary Session IASB@AFRAC 2007
Monday, 26 November 2007 8
SECSEC-- RoadmapRoadmapWashington, D.C., Washington, D.C., April 21, 2005April 21, 2005 —— SEC Chairman William Donaldson and SEC Chairman William Donaldson and EU Internal Market Commissioner Charles EU Internal Market Commissioner Charles McCreevyMcCreevy met today to discuss met today to discuss a range of topics of mutual interest between the Commission and a range of topics of mutual interest between the Commission and the the European Union, including the importance of compatible approacheEuropean Union, including the importance of compatible approaches to s to furthering investor protection, and expanding the use of highfurthering investor protection, and expanding the use of high--quality quality global accounting standards. global accounting standards. Chairman Donaldson reaffirmed his support for the convergenChairman Donaldson reaffirmed his support for the convergence program ce program being undertaken jointly by the International Accounting Standarbeing undertaken jointly by the International Accounting Standards Board ds Board (IASB) and the U.S. Financial Accounting Standards Board (FASB).(IASB) and the U.S. Financial Accounting Standards Board (FASB).
Washington, D.C., Washington, D.C., Feb. 8, 2006Feb. 8, 2006 —— On the occasion of the visit of EU On the occasion of the visit of EU Internal Markets Commissioner Charlie Internal Markets Commissioner Charlie McCreevyMcCreevy to Washington DC, SEC to Washington DC, SEC Chairman Christopher Cox and Commissioner Chairman Christopher Cox and Commissioner McCreevyMcCreevy took stock of took stock of progress on and affirmed their commitment to eliminating the neeprogress on and affirmed their commitment to eliminating the need for d for reconciliation between International Financial Reporting Standarreconciliation between International Financial Reporting Standards (IFRS) ds (IFRS) and US Generally Accepted Accounting Principles (GAAP).and US Generally Accepted Accounting Principles (GAAP).
SECSEC-- RoadmapRoadmapWashington, D.C., Washington, D.C., July 3, 2007July 3, 2007 -- The Securities and The Securities and Exchange Commission has published for public Exchange Commission has published for public comment a proposal to eliminate the current comment a proposal to eliminate the current requirement that foreign private issuers filing their requirement that foreign private issuers filing their financial statements using International Financial financial statements using International Financial Reporting Standards (IFRS) Reporting Standards (IFRS) as published by the as published by the International Accounting Standards Board (IASB) International Accounting Standards Board (IASB) also file a reconciliation of those financial also file a reconciliation of those financial statements to U.S. Generally Accepted Accounting statements to U.S. Generally Accepted Accounting Principles (U.S. GAAP). The Commission voted Principles (U.S. GAAP). The Commission voted unanimously on June 20, 2007, to issue the proposal unanimously on June 20, 2007, to issue the proposal for public comment.for public comment.
Plenary Session IASB@AFRAC 2007
Monday, 26 November 2007 9
Washington, D.C., Washington, D.C., November 15, 2007November 15, 2007 -- …the …the Commission today approved…financial statements from Commission today approved…financial statements from foreign private issuers in the U.S. will be foreign private issuers in the U.S. will be accepted accepted without reconciliationwithout reconciliation to U.S. Generally Accepted to U.S. Generally Accepted Accounting Principles Accounting Principles only if they are prepared using only if they are prepared using International Financial Reporting Standards (IFRS) as International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards issued by the International Accounting Standards BoardBoard...apply to financial statements covering years ...apply to financial statements covering years ended after Nov. 15, 2007…the SEC will convene two ended after Nov. 15, 2007…the SEC will convene two roundtables, on December 13 and December 17, to collect roundtables, on December 13 and December 17, to collect more feedback from the public on the issue of giving U.S. more feedback from the public on the issue of giving U.S. domestic issuers the same option that foreign issuers domestic issuers the same option that foreign issuers have in our markets to use either IFRS or U.S. GAAP. have in our markets to use either IFRS or U.S. GAAP. http://www.sec.gov/news/press/2007/2007http://www.sec.gov/news/press/2007/2007--235.htm235.htm
SECSEC-- RoadmapRoadmap
FASB/IASB AgreementFASB/IASB Agreement
Remove differencesRemove differencesAlign AgendasAlign AgendasInterpretationInterpretation
Plenary Session IASB@AFRAC 2007
Monday, 26 November 2007 10
RoadmapRoadmap1.1. Align conceptual frameworkAlign conceptual framework
2.2. Short termShort term-- remove major differences remove major differences
3.3. Medium termMedium term-- new joint standards where significant new joint standards where significant improvement requiredimprovement required
Plenary Session IASB@AFRAC 2007
Monday, 26 November 2007 11
MoUMoU between FASB & IASBbetween FASB & IASBShortShort--term Projectsterm Projects
FASBFASBFair value optionFair value option
SFAS 159 issuedSFAS 159 issuedInvestment propertiesInvestment properties
Expect ED in Q1 2008Expect ED in Q1 2008R&DR&D
Part addressed in SFAS 141RPart addressed in SFAS 141RAnother part to followAnother part to follow
Subsequent eventsSubsequent eventsExpect ED in Q1 2008Expect ED in Q1 2008
MoUMoU between FASB & IASBbetween FASB & IASBShortShort--term Projectsterm Projects
IASBIASBBorrowing costsBorrowing costs
IAS 23 revisedIAS 23 revisedJoint ventures Joint ventures
ED 9 publishedED 9 publishedSegments Segments
IFRS 8 issuedIFRS 8 issuedGovernment grants Government grants
deferred pending outcome of other deferred pending outcome of other projectsprojects
Plenary Session IASB@AFRAC 2007
Monday, 26 November 2007 12
MoUMoU between FASB & IASBbetween FASB & IASBShortShort--term Projectsterm Projects
JointJointImpairment Impairment
agenda decision by end of 2007agenda decision by end of 2007Income taxes Income taxes
expect ED in Q1 2008expect ED in Q1 2008
MoU MoU –– MilestonesMilestones
MilestoneMilestone——Due process documentDue process documenton all topics to be issued on all topics to be issued Work doneWork done——IAS 1 revised, Q3 2007 IAS 1 revised, Q3 2007 ExpectExpect——PVD & DP in Q1 2008PVD & DP in Q1 2008
Financial Statement Financial Statement PresentationPresentation
MilestoneMilestone——Converged Converged guidanceguidance to to be issuedbe issuedWork doneWork done——SFAS 157 and DP SFAS 157 and DP Fair Fair Value MeasurementsValue Measurements issuedissued
Fair Value Measurement Fair Value Measurement guidanceguidance
AchievedAchieved——SFAS 141, IFRS 3 and SFAS 141, IFRS 3 and IAS 27 revised and SFAS 160 issuedIAS 27 revised and SFAS 160 issued
Business CombinationsBusiness Combinations
2008 Milestone2008 MilestoneProjectProject
Plenary Session IASB@AFRAC 2007
Monday, 26 November 2007 13
MoU MoU –– MilestonesMilestones
MilestoneMilestone——Due process documentDue process documentto be issued to be issued Work doneWork done——SFAS 158 issuedSFAS 158 issuedExpectExpect——DP in Q1 2008DP in Q1 2008
PostPost--employment Benefitsemployment Benefits
MilestoneMilestone——Due process documentDue process documentto be issuedto be issuedExpectExpect——PVD & DP in Q4 2007PVD & DP in Q4 2007
Liabilities and EquityLiabilities and Equity
MilestoneMilestone——Due process documentDue process documentfor comprehensive standard to be for comprehensive standard to be issued issued ExpectExpect——PVD & DP in H1 2008PVD & DP in H1 2008
Revenue RecognitionRevenue Recognition
2008 Milestone2008 MilestoneProjectProject
MoU MoU –– MilestonesMilestones
MilestoneMilestone——Implement work to Implement work to complete development of converged complete development of converged standards standards ExpectExpect——ITC & DP in H1 2008ITC & DP in H1 2008
Consolidations and Consolidations and SPEsSPEs
MilestoneMilestone——Due process documentDue process document to to be issued be issued ExpectExpect——PVD & DP in Q1 2008PVD & DP in Q1 2008
Financial InstrumentsFinancial Instruments
MilestoneMilestone——Due process documentDue process document to to be issued on results of staff research be issued on results of staff research ExpectExpect——staff research report in Q4 staff research report in Q4 20072007
DerecognitionDerecognition
2008 Milestone2008 MilestoneProjectProject
Plenary Session IASB@AFRAC 2007
Monday, 26 November 2007 14
MoU MoU –– MilestonesMilestones
MilestoneMilestone——Consider results of Consider results of research and research and decide on scope and decide on scope and timing of potential agenda projectstiming of potential agenda projectsCommitmentCommitment——both Boards to both Boards to consider agenda proposal in Q4 2007consider agenda proposal in Q4 2007
Intangible AssetsIntangible Assets
AchievedAchieved——scope of the project scope of the project determined and placed on the Active determined and placed on the Active Agenda of both BoardsAgenda of both Boards
LeasesLeases
2008 Milestone2008 MilestoneProjectProject
Outcome of RoadmapOutcome of Roadmap
Not identical statements in short termNot identical statements in short termReconciliation to US GAAP removedReconciliation to US GAAP removedClose alignmentClose alignmentComparable trendsComparable trendsContinued coContinued co--operation operation same resultssame results
Plenary Session IASB@AFRAC 2007
Monday, 26 November 2007 15
PART IIPART II
TECH PLANTECH PLANPROJECTSPROJECTS
Plenary Session IASB@AFRAC 2007
Monday, 26 November 2007 16
Remaining Research Remaining Research AgendaAgenda
Extractive industriesExtractive industriesJoint venturesJoint venturesMD&AMD&AHyperinflationHyperinflationInvestment entitiesInvestment entities
Agenda Decision in December 2007Agenda Decision in December 2007
Plenary Session IASB@AFRAC 2007
Monday, 26 November 2007 17
Conceptual FrameworkConceptual FrameworkOverviewOverview
Foundation for all standardsFoundation for all standardsCurrent versionsCurrent versions nneed an overhauleed an overhaul
Refine, update, complete, convergeRefine, update, complete, convergeBeing done in phasesBeing done in phasesPlan to finalise in phasesPlan to finalise in phasesJoint project with FASBJoint project with FASB
Conceptual FrameworkConceptual FrameworkWork planWork plan
Q4 2007Q4 2007
H2 2008H2 2008TBDTBDQ4 2007Q4 2007TBDTBDTBDTBDTBDTBDTBDTBD
EDED
DPDPDPDPDPDPDPDPDPDPDPDPTBDTBD
A: Objective and qualitative A: Objective and qualitative characteristicscharacteristics
B: Elements and recognitionB: Elements and recognitionC: MeasurementC: MeasurementD: Reporting entityD: Reporting entityE: Presentation and disclosureE: Presentation and disclosureF: Purpose and statusF: Purpose and statusG: NotG: Not--forfor--profit entitiesprofit entitiesH: Remaining issuesH: Remaining issues
Timing Timing estimateestimate
Next step / Next step / current statuscurrent status
PhasesPhases
Plenary Session IASB@AFRAC 2007
Monday, 26 November 2007 18
Phase A: Objective of general Phase A: Objective of general purpose external financial reportingpurpose external financial reporting
to provide information about the reporting to provide information about the reporting entity that is useful to present & potential entity that is useful to present & potential investors, lenders and other creditors in investors, lenders and other creditors in making the decisions that they make in their making the decisions that they make in their capacity as capital providers to the reporting capacity as capital providers to the reporting entityentity
NotesNotesScopeScope——wider than financial statementswider than financial statementsAudienceAudience——capital providerscapital providersPurposePurpose——information for capital providers’ information for capital providers’ decisions (includes stewardship)decisions (includes stewardship)
Phase A Phase A Qualitative CharacteristicsQualitative Characteristics
‘‘Necessary’ QCsNecessary’ QCsRelevanceRelevanceFaithful representationFaithful representation
‘‘Enhancing’ QCsEnhancing’ QCsVerifiabilityVerifiabilityComparabilityComparabilityUnderstandabilityUnderstandabilityTimeliness Timeliness
Pervasive constraintsPervasive constraintsMaterialityMaterialityCost versus benefitsCost versus benefits
Plenary Session IASB@AFRAC 2007
Monday, 26 November 2007 19
Phase BPhase BElements and RecognitionElements and Recognition
Definition of elements:Definition of elements:AssetAssetLiabilityLiabilityLiabilities/equityLiabilities/equityIncomeIncome
ExpenseExpenseOthers (eg cash Others (eg cash flow, flow, comprehensive comprehensive income)income)
Recognition and derecognitionRecognition and derecognitionUnit of accountUnit of account
Phase CPhase CMeasurementMeasurement
Divided into 3 milestones:I. Define and describe potential
measurement basesII. Evaluate measurement bases using
criteria that includes the qualitative characteristics
III. Derive conceptual conclusions from Milestones I and II and address practical implications
Plenary Session IASB@AFRAC 2007
Monday, 26 November 2007 20
Phase CPhase C——Milestone I Milestone I Measurement Basis CandidatesMeasurement Basis Candidates
Past Past ----Entry priceEntry priceModified entry Modified entry amountamountExit priceExit price
Present Present ----Entry priceEntry priceExit priceExit priceEquilibrium priceEquilibrium priceValue in useValue in use
Future Future ----Entry priceEntry priceExit priceExit price
Phase DPhase DThe Reporting EntityThe Reporting Entity
The current frameworks do not include The current frameworks do not include a reporting entity concepta reporting entity conceptWhat is an individual reporting entity?What is an individual reporting entity?What is a group reporting entity?What is a group reporting entity?Should parentShould parent--only financial only financial statements be required?statements be required?
Plenary Session IASB@AFRAC 2007
Monday, 26 November 2007 21
ProjectsProjectsIASB/FASB IASB/FASB MoUMoU
H1 2009H1 2009EDEDFair value measurement Fair value measurement guidanceguidance
Q1 2008Q1 2008Phase B: DPPhase B: DPFinancial statement Financial statement presentationpresentation
Q1 2008Q1 2008DPDPConsolidationConsolidationCurrentCurrentH2 2008H2 2008
ED 9 ED 9 IFRSIFRS
Joint arrangementsJoint arrangements
Q1 2008Q1 2008DPDPRevenue recognitionRevenue recognitionH2 2008H2 2008DPDPLeasesLeases
Next step/Timing Next step/Timing estimateestimate
Next step / Next step / current statuscurrent status
ProjectProject
ProjectsProjectsIASB/FASB IASB/FASB MoUMoU
Q1 2008Q1 2008Phase A: DPPhase A: DPPostPost--employment employment benefitsbenefits
Q1 2008Q1 2008EDEDIncome taxesIncome taxes
Timing estimateTiming estimateNext step / Next step / current statuscurrent status
ProjectProject
Plenary Session IASB@AFRAC 2007
Monday, 26 November 2007 22
Revenue RecognitionRevenue RecognitionOverviewOverview
Project objectives:Project objectives:Single conceptual model to apply to all industries Single conceptual model to apply to all industries and all transaction types and all transaction types
Why:Why:Eliminate weaknesses in existing standardsEliminate weaknesses in existing standards
US GAAP: over 200 pieces of literatureUS GAAP: over 200 pieces of literature
IFRSs: insufficient guidance IFRSs: insufficient guidance egeg multiplemultiple--componentscomponentsConverge IFRSs and US GAAPConverge IFRSs and US GAAP
Revenue RecognitionRevenue RecognitionConceptual modelConceptual model
Revenue arises from changes in assets and Revenue arises from changes in assets and liabilities, not overridden by earnings notionliabilities, not overridden by earnings notionBut what changes in what assets and liabilities?But what changes in what assets and liabilities?Exploring a model in which revenue arises from Exploring a model in which revenue arises from satisfying contractual obligations (‘performance satisfying contractual obligations (‘performance obligations’), obligations’), egeg
obligation to deliver goodsobligation to deliver goodswarranty obligationwarranty obligationobligation to accept returnsobligation to accept returns
Amount of revenue recognised depends on Amount of revenue recognised depends on measurement of remaining obligationsmeasurement of remaining obligations
Plenary Session IASB@AFRAC 2007
Monday, 26 November 2007 23
Revenue RecognitionRevenue Recognition2 implementations of model2 implementations of modelFair value modelFair value model
Measure performance obligations at fair valueMeasure performance obligations at fair valueFair value = price would have to pay another party to Fair value = price would have to pay another party to take over remaining obligations to customer (lay off take over remaining obligations to customer (lay off notion)notion)
Customer consideration modelCustomer consideration modelMeasure performance obligations at customer Measure performance obligations at customer consideration amountconsideration amount
Total contract price allocated among performance Total contract price allocated among performance obligations (no revenue on contract formation)obligations (no revenue on contract formation)
LeasesLeasesAdded to agenda in July 2006Added to agenda in July 2006Fundamental reconsideration of lease Fundamental reconsideration of lease accountingaccounting
lessees and lessorslessees and lessorsequipment and real estateequipment and real estate
Agreed to develop further a ‘right of Agreed to develop further a ‘right of use approach’use approach’
Lessee’s right to use = AssetLessee’s right to use = AssetLessee’s obligation to pay = LiabilityLessee’s obligation to pay = Liability
Plenary Session IASB@AFRAC 2007
Monday, 26 November 2007 24
Financial Statement PresentationFinancial Statement PresentationPhase A: DecisionsPhase A: Decisions
A complete set of financial statements A complete set of financial statements consists of: consists of:
Statement of financial position Statement of financial position Statement of comprehensive incomeStatement of comprehensive incomeStatement of cash flowsStatement of cash flowsStatement of changes in equityStatement of changes in equity
Permits comprehensive income to be Permits comprehensive income to be presented in either one or two statementspresented in either one or two statementsAll shown with equal prominenceAll shown with equal prominenceA minimum of two annual periods of A minimum of two annual periods of complete financial statementscomplete financial statements
Financial Statement PresentationFinancial Statement PresentationPhase B: Working PrinciplesPhase B: Working Principles
Portray cohesive financial picturePortray cohesive financial pictureConsistent categorisation between statementsConsistent categorisation between statements
Separate financing from business activitiesSeparate financing from business activitiesHelp users understand Help users understand
Measurement attributes Measurement attributes Measurement uncertaintiesMeasurement uncertaintiesCauses of changes in recognised amountsCauses of changes in recognised amounts
Plenary Session IASB@AFRAC 2007
Monday, 26 November 2007 25
Financial Statement PresentationFinancial Statement PresentationPhase B: Working PrinciplesPhase B: Working Principles
Help users assessHelp users assessAbility to generate future cash flowsAbility to generate future cash flowsAbility to meet its obligations, its ability Ability to meet its obligations, its ability to pay dividends, and its need for to pay dividends, and its need for external financingexternal financing
Help users Help users differentiate cash differentiate cash transactions and accrualstransactions and accruals
Tentative Views: Tentative Views: Working FormatWorking Format
FinancingFinancingFinancing asset cash flowsFinancing asset cash flowsFinancing liability cash flowsFinancing liability cash flows
FinancingFinancingFinancing incomeFinancing incomeFinancing expensesFinancing expenses
FinancingFinancingFinancing assetsFinancing assetsFinancing liabilitiesFinancing liabilities
EquityEquityEquityEquity
Statement of Changes in Statement of Changes in EquityEquity
Income taxesIncome taxesIncome taxesIncome taxesIncome taxesIncome taxes
Discontinued operationsDiscontinued operationsDiscontinued operationsDiscontinued operationsDiscontinued operationsDiscontinued operations
BusinessBusinessOperating cash flowsOperating cash flowsInvesting cash flowsInvesting cash flows
BusinessBusinessOperating incomeOperating incomeInvesting incomeInvesting income
BusinessBusinessOperating assets and Operating assets and
liabilitiesliabilitiesInvesting assets and Investing assets and
liabilitiesliabilities
Statement of Statement of Cash FlowsCash Flows
Statement of Statement of Comprehensive IncomeComprehensive Income
Statement of Statement of Financial PositionFinancial Position
Plenary Session IASB@AFRAC 2007
Monday, 26 November 2007 26
Financial Statement PresentationFinancial Statement PresentationPhase B: Remaining TopicsPhase B: Remaining Topics
Defining totals and subtotalsDefining totals and subtotalsDP will include alternative statements DP will include alternative statements of comprehensive incomeof comprehensive incomeRecycling?Recycling?Direct or indirect cash flow?Direct or indirect cash flow?Tax allocations or one tax line?Tax allocations or one tax line?
Project onProject onFair Value MeasurementsFair Value Measurements
Project objectivesProject objectivesClarify the fair value measurement Clarify the fair value measurement objectiveobjectiveDevelop a single source of guidance for all Develop a single source of guidance for all fair value measurementsfair value measurementsEliminate dispersed and inconsistent fair Eliminate dispersed and inconsistent fair value measurement guidance from IFRSsvalue measurement guidance from IFRSs
Plenary Session IASB@AFRAC 2007
Monday, 26 November 2007 27
Project on Project on Fair Value MeasurementsFair Value Measurements
This projectThis projectdeals only with measuring fair value when deals only with measuring fair value when fair value is required by another standardfair value is required by another standardwill will notnot result in the recognition of result in the recognition of additional items at fair valueadditional items at fair valuewill will notnot reconsider previous decisions by reconsider previous decisions by the IASB or its predecessor to require fair the IASB or its predecessor to require fair value in current IFRSsvalue in current IFRSs
Project on Project on Fair Value MeasurementsFair Value Measurements
Next stepsNext stepsAnalyse comment letters on DPAnalyse comment letters on DPRoundRound--table meetings (timing?)table meetings (timing?)ReRe--deliberate:deliberate:
Definition of fair value and related guidanceDefinition of fair value and related guidanceAssess whether each use of ‘fair value’ in IFRSs Assess whether each use of ‘fair value’ in IFRSs has the same measurement objective as the has the same measurement objective as the revised definitionrevised definitionDevelop an exposure draftDevelop an exposure draft
Convergence discussion if different viewsConvergence discussion if different viewsConsolidate/replace existing FVM guidanceConsolidate/replace existing FVM guidance
Plenary Session IASB@AFRAC 2007
Monday, 26 November 2007 28
Joint ArrangementsJoint Arrangements
ED 9 issued September 2007ED 9 issued September 2007Remove option for proportionate Remove option for proportionate consolidationconsolidationClarify definitionClarify definitionMore extensive guidanceMore extensive guidance
ConsolidationsConsolidations
Concept of control as the basis for Concept of control as the basis for consolidationconsolidationDeveloping a single approach to all Developing a single approach to all entities, including SPEsentities, including SPEsIASB and FASB working separately IASB and FASB working separately but projects must be combined laterbut projects must be combined later
Plenary Session IASB@AFRAC 2007
Monday, 26 November 2007 29
Income TaxesIncome TaxesShortShort--term term convergenceconvergenceCurrent IFRS and US GAAPCurrent IFRS and US GAAP
basically same underlying standard with different basically same underlying standard with different exceptions to fundamental principleexceptions to fundamental principle
ProposalProposal——IFRS and US GAAP same IFRS and US GAAP same fundamental principle with same exceptionsfundamental principle with same exceptions
goodwillgoodwillforeign subsidiaries and joint venturesforeign subsidiaries and joint ventures
Tax uncertaintiesTax uncertaintiesFIN 48 FIN 48 vsvs IAS 37 approachIAS 37 approach
PostPost--employment Benefitsemployment BenefitsPhase 1: by 2010Phase 1: by 2010
Definition of defined benefit and Definition of defined benefit and defined contribution arrangements and defined contribution arrangements and accounting for cash balance plans accounting for cash balance plans Smoothing and deferral mechanisms Smoothing and deferral mechanisms Treatment of settlements and Treatment of settlements and curtailments curtailments PresentationPresentationDP expected Q1 2008DP expected Q1 2008
Plenary Session IASB@AFRAC 2007
Monday, 26 November 2007 30
PostPost--employment Benefitsemployment BenefitsPhase 2Phase 2
Comprehensive review of postComprehensive review of post--employment benefitsemployment benefitsInternational convergenceInternational convergence
Major Projects Major Projects continuedcontinuedFinancial InstrumentsFinancial Instruments
Q1 2008Q1 2008IFRSIFRSPuttablePuttable instrumentsinstruments
Q1 2008Q1 2008DPDPReplacing existing Replacing existing standardsstandards
EDED
RRRR
DPDP
Next stepsNext steps
Q4 2007Q4 2007DerecognitionDerecognition
Q3 2007Q3 2007Exposures qualifying for Exposures qualifying for hedginghedging
ShortShort--term projects term projects outside outside MoUMoU
Q4 2007Q4 2007Liabilities and equityLiabilities and equity
Timing Timing estimateestimate
LongerLonger--term projects term projects in IASB/FASB in IASB/FASB MoUMoU
Plenary Session IASB@AFRAC 2007
Monday, 26 November 2007 31
Financial InstrumentsFinancial InstrumentsReplace existing standardsReplace existing standards
DP document will discuss:DP document will discuss:longlong--term objectivesterm objectivesways to achieve longways to achieve long--term objectivesterm objectives
AimAimprinciple based standardprinciple based standardfew exceptionsfew exceptions
This will reduce complexityThis will reduce complexity
Financial InstrumentsFinancial InstrumentsLiabilities and EquityLiabilities and Equity
Modified joint projectModified joint projectIASB to publish a DP including the IASB to publish a DP including the FASB’s preliminary views documentFASB’s preliminary views documentFASB 3 distinct modelsFASB 3 distinct models
OwnershipOwnership--settlementsettlementOwnershipOwnershipReassessed Expected OutcomesReassessed Expected Outcomes
Plenary Session IASB@AFRAC 2007
Monday, 26 November 2007 32
Financial InstrumentsFinancial InstrumentsDerecognitionDerecognition
Initial focusInitial focus——financial assets at fair valuefinancial assets at fair valueFI are divisible into individual rights & obligationsFI are divisible into individual rights & obligationsFA have complicated derecognition issuesFA have complicated derecognition issuesFA at FV separates derecognition from revenueFA at FV separates derecognition from revenue
We consideredWe consideredChanges to asset definitionChanges to asset definitionOther factors, such as balance sheet displayOther factors, such as balance sheet display
Currently testing whether Currently testing whether derecognitionderecognitionprinciples for financial assets can be principles for financial assets can be extended to other assets and liabilitiesextended to other assets and liabilities
Financial InstrumentsFinancial InstrumentsPuttable instrumentsPuttable instruments
Exposure draft published in 2006Exposure draft published in 200687 comment letters analysed and 87 comment letters analysed and discusseddiscussedReRe--deliberations have led to:deliberations have led to:
Final amendment to be released Q1 2008 Final amendment to be released Q1 2008 using principles of subordination and using principles of subordination and participation to identify equity instrumentsparticipation to identify equity instrumentsSeparately, research other instruments Separately, research other instruments with similar issues as raised in the with similar issues as raised in the comment letterscomment letters
Plenary Session IASB@AFRAC 2007
Monday, 26 November 2007 33
Exposures Qualifying for Exposures Qualifying for Hedge AccountingHedge Accounting
Specify the risks that qualify for Specify the risks that qualify for designation as a hedged risk (proposed designation as a hedged risk (proposed IAS39.80Z)IAS39.80Z)Provide additional guidance on what Provide additional guidance on what can be designated as a hedged portion can be designated as a hedged portion in a hedging relationship (proposed in a hedging relationship (proposed IAS39.AG99BA/BB/E)IAS39.AG99BA/BB/E)
Identification Of Identification Of ‘Other Portions’ Of Cash Flows‘Other Portions’ Of Cash Flows
Part of time period to maturityPart of time period to maturityProportion or percentageProportion or percentageOneOne--sided risksided riskContractually specified & independent Contractually specified & independent RiskRisk--free interest ratefree interest rateQuoted interbank rateQuoted interbank rate
Plenary Session IASB@AFRAC 2007
Monday, 26 November 2007 34
Active Agenda ProjectsActive Agenda ProjectsOutside IASB/FASB Outside IASB/FASB MoUMoU
variousvariousvariousvariousAmendments to Amendments to IASsIASs 24 24 & 33 and & 33 and IFRSsIFRSs 1 & 21 & 2
YTBDYTBDIFRSIFRSLiabilitiesLiabilities
CurrentCurrent20092009
DPDPEDED
Insurance contractsInsurance contracts
CurrentCurrentH2 2008H2 2008
EDEDIFRSIFRS
IFRS for IFRS for SMEsSMEs
Q4 2007Q4 2007Q2 2008Q2 2008
EDEDIFRSIFRS
Annual improvementsAnnual improvements
Timing estimateTiming estimateNext step / Next step / current statuscurrent status
ProjectProject
LiabilitiesLiabilities
Scope Scope Apply to all liabilities not within scope of Apply to all liabilities not within scope of another standardanother standard
Except executory contracts, unless onerousExcept executory contracts, unless onerous
Eliminate ‘contingent’ liabilitiesEliminate ‘contingent’ liabilitiesCurrently describes two different ideasCurrently describes two different ideas
Unrecognised present obligationUnrecognised present obligationPossible obligation (business risks)Possible obligation (business risks)
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LiabilitiesLiabilities
Present obligations Present obligations areare liabilitiesliabilitiesNonNon--recognition inconsistent with Framework and recognition inconsistent with Framework and other standardsother standards
Business risks Business risks are notare not liabilitiesliabilitiesRecognition inconsistent with FrameworkRecognition inconsistent with Framework
Recognise liabilities that can be measured Recognise liabilities that can be measured reliablyreliably
Uncertainty about outflow affects measurement Uncertainty about outflow affects measurement not recognitionnot recognitionUse expected value to measure all liabilitiesUse expected value to measure all liabilities
LiabilitiesLiabilitiesKey issues from roundKey issues from round--tablestables
Distinguish liabilities from business Distinguish liabilities from business risksrisksExistence of a present obligationExistence of a present obligationReflecting uncertainty in measurementReflecting uncertainty in measurementBuilding blocks of an expected valueBuilding blocks of an expected valueLawsuitsLawsuitsDisclosure of business risksDisclosure of business risks
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Insurance ContractsInsurance Contracts
Preliminary views documentPreliminary views documentBuilding a new universal prospective Building a new universal prospective modelmodel3 basic building blocks3 basic building blocks
Estimates of future cash flowsEstimates of future cash flowsTime value of moneyTime value of moneyA margin for riskA margin for risk
ChallengesChallenges
MarginsMarginsPolicyholder behaviour and future Policyholder behaviour and future premiumspremiumsPolicyholder participationPolicyholder participationReporting changes in insurance Reporting changes in insurance liabilities (reporting performance)liabilities (reporting performance)
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IFRS for IFRS for SMEsSMEs
IASB’sIASB’s approachapproach::Based on full IFRSs, which are developed for Based on full IFRSs, which are developed for public capital marketspublic capital marketsModifications based on user needs and costModifications based on user needs and cost--benefitbenefitEnables investors, lenders, others to compare Enables investors, lenders, others to compare SMEs’ financial performance, financial SMEs’ financial performance, financial condition, and cash flowscondition, and cash flows
WhichWhich EntitiesEntities
IASB’sIASB’s view: view: IFRS for SMEs is appropriate for the IFRS for SMEs is appropriate for the general purpose financial statements of general purpose financial statements of an entity with no public accountability:an entity with no public accountability:
not publicly traded; and not publicly traded; and not a financial institutionnot a financial institution
Jurisdiction decides which entities will useJurisdiction decides which entities will useJurisdiction could add a size testJurisdiction could add a size test
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Finding an AnswerFinding an Answer
SME must try to find answers in the IFRS for SME must try to find answers in the IFRS for SMEs:SMEs:
by analogy, and by analogy, and
by using pervasive principles in first section of IFRS by using pervasive principles in first section of IFRS for for SMEsSMEs
MayMay look to full IFRSs if answer cannot be found look to full IFRSs if answer cannot be found in IFRS for in IFRS for SMEsSMEsBut, But, no mandatory fallbackno mandatory fallback to full to full IFRSsIFRSs
Types of simplifications Types of simplifications ~ user needs & cost~ user needs & cost--benefitbenefit
1. Some topics in IFRSs not included if irrelevant to SME1. Some topics in IFRSs not included if irrelevant to SME
2. Where IFRS has options, include only simpler option2. Where IFRS has options, include only simpler option
3. Recognition and measurement simplifications3. Recognition and measurement simplifications
4. Reduced disclosures <400 (full IFRS >3,000)4. Reduced disclosures <400 (full IFRS >3,000)
5. Simplified drafting5. Simplified drafting
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Monday, 26 November 2007 39
Annual ImprovementsAnnual ImprovementsFor nonFor non--urgent, minor amendmentsurgent, minor amendmentsPurposePurpose——practical expedientpractical expedient
resolve inconsistencies between standardsresolve inconsistencies between standardsclarify unclear wordingclarify unclear wording
ProcessProcessAnnual EDAnnual ED90 day exposure90 day exposure12 month effective date12 month effective date
BenefitsBenefitsImproved use of IASB timeImproved use of IASB timeLess burdensome for constituentsLess burdensome for constituents
Some IssuesSome Issues
IFRSsIFRSs::IFRSsIFRSs as adopted by …as adopted by …
Possibly we would need to strengthen IAS1 Possibly we would need to strengthen IAS1 requirementsrequirements
Consistent application?Consistent application?Combined role of IFRIC, Audit Firms, RegulatorsCombined role of IFRIC, Audit Firms, Regulators
US GAAP:US GAAP:Level of detail?Level of detail?Specialized industry standards?Specialized industry standards?
Plenary Session IASB@AFRAC 2007
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We are only one pieceWe are only one pieceof the puzzleof the puzzle
Auditing
EnforcementAccounting Standards
Corporategovernance
Preparers Users
AFTER 2007:AFTER 2007:
ConvergenceConvergenceImprovementsImprovementsSimplificationSimplification
One world standardOne world standard
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Questions?Questions?Comments?Comments?
EXPRESSIONS OF INDIVIDUAL VIEWS BY MEMBERS OF THE IASB AND ITS STAFF ARE ENCOURAGED. THE VIEWS EXPRESSED IN THIS PRESENTATION ARE THOSE OF Mr DANJOU. OFFICIAL POSITIONS OF THE IASB ON ACCOUNTING MATTERS ARE DETERMINED ONLY AFTER EXTENSIVE DUE PROCESS AND DELIBERATION.