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The EFRAG delegation, which included the chairmen or senior representatives of three European standard-setters (France, Germany and the UK), discussed with IASB members aspects of the IASB/FASB convergence projects on Revenue Recognition, Equity-Liability, Constructive Obligations, Business Combinations, Conceptual Framework, Fair Value Measurement Guidance, Post-retirement Benefits and Income Taxes. The two parties also discussed briefly user needs and their interaction with standard-setters.
- Revenue Recognition: The EFRAG delegation updated the IASB representatives on the Pro-active Accounting Activities in Europe (PAAinE) project on Revenue Recognition, and explained that it is envisaged that a discussion paper will be issued in the near future. Hopefully, the paper will stimulate the debate on revenue recognition in Europe ahead of the IASB’s discussion paper, which is expected in Quarter 4 2007.
The IASB representatives updated the EFRAG delegation on the joint IASB/FASB project on the subject. They observed that there were differences of view between Board members as to when exactly revenue arises. They also noted that there were two fundamental issues to debate: when to record a credit in the income statement and how best to display that credit. The EFRAG delegation noted that its project was focusing on the recognition of credits in the top line of the income statement.
- Equity-Liability Accounting: The EFRAG delegation emphasised during the meeting the importance to Europe of the work being carried out on equity-liability classification. It also reminded the IASB of its concerns about the existing IFRS literature on the subject. In particular it noted that it appears that the existing classification requirements in IAS 32 are consistent neither with the Framework nor with other IFRS and are thought by many not to faithfully represent the economics involved. It was noted that some proposals developed in the PAAinE Equity/Liability project will be presented to the IASB and FASB at their joint meeting later in the month.
The IASB representatives explained that the IASB intended to leverage from the FASB Preliminary Views paper that was expected to be issued soon. There would though be no quick solution to this issue. How the linkage between the equity/liability project and the Framework project would be managed was also discussed.
- Constructive Obligations: The EFRAG delegation noted that the IASB and FASB both have projects on liabilities and, although the projects are not part of the convergence agenda, it has seemed likely that the projects would achieve convergence on constructive obligations. They wondered whether that was likely to remain the case in view of the discussions on the subject that had taken place in the Insurance project. Linkage between projects would always be an issue, but it was nevertheless important to try to ensure that changes made to standards were not reversed soon afterwards as a result of linked projects. This concern was discussed, with the IASB representatives explaining that it was difficult to take into account in one project something that is more advanced but not finalised in another. It was also pointed out that the IASB had not started to re-deliberate the definition of constructive obligation as set out in the exposure draft of proposed amendments to IAS 37.
- Business Combinations: The EFRAG delegation and IASB representatives discussed the current position on the IASB’s Business Combinations Phase 2 project. The EFRAG delegation expressed particular interest in understanding the arguments that some Board members had found persuasive in concluding that, as a matter of principle, non-controlling interests should be fair valued. The IASB representatives thought that conceptually that was the direction the existing Framework pointed in, although the messages they were getting from users were more mixed. The Board’s debate was still continuing.
The IASB representatives explained that the Board’s current, very tentative, position was that non-controlling interests should be fair valued unless that would involve undue cost and effort. This tentative position was discussed at the meeting, with a number of arguments for and against the position being mentioned.
The implications of the IASB and FASB not agreeing on this issue were also discussed. In this connection the EFRAG’s Chairman said, in response to a question from the IASB representatives, that, although convergence is an important goal, the IASB needed to act as a global standard-setter and therefore needed to ensure that the best accounting solution was reached, even if that meant there might be differences from US GAAP.
The IASB representatives also explained that the staff would be developing an agenda proposal to carry out a further phase of the project, on common control transactions. Whether that proposal would result in an actual project would depend on a number of factors, including on what other agenda proposals had been made.
- Conceptual Framework: The EFRAG delegation drew the IASB representatives’ attention to the recent PAAinE Discussion Paper on the Framework. They also discussed concerns that Europe has about the IASB’s tentative decision to push on and issue an exposure draft on chapters 1 and 2 of the Framework and to finalise parts of the Framework in advance of other parts. The EFRAG delegation also repeated European concerns about stewardship not being included as a separate objective of financial reporting. The Framework should represent a shared vision of accounting, and that could be difficult to achieve were concerns of this type not properly resolved.
The IASB representatives explained that stewardship is an issue that the IASB was in fact already doing ‘outreach work’ on, with some meetings due to take place on the subject later that week. They also explained the thinking behind the tentative decisions the Boards had taken on process.
- Fair Value Measurement: The EFRAG delegation thanked the IASB for issuing a discussion paper, rather than an exposure draft, on Fair Value Measurements, and also for starting the comprehensive debate on measurement. The IASB Chairman explained that very few people wanted everything to be measured at fair value and very few wanted everything to be measured at historical cost. A mixed measurement model seemed to be the answer.
The EFRAG delegation suggested that, in order to reach conclusions on measurement, there needed to be a clearer understanding of what was meant by ‘relevance’ and ‘reliability’ (or ‘faithful representation’). For example, EFRAG had suggested in the past that it was difficult to know what relevance meant until one knew what view of financial position and financial performance the financial statements should be trying to portray. Similarly, some of the examples in the recent Framework Discussion Paper seemed to imply that the IASB had a specific view of what ‘faithful representation’ meant.
The EFRAG delegation and IASB representatives also discussed the process for completing the Fair Value Measurements project and the linkage between that project and the Measurement project. The IASB representatives noted that the IASB was very interested in hearing views of constituents on the Fair Value Measurements paper, particularly on whether the way fair value was being defined was appropriate in each of the contexts in which existing IFRS refer to fair value. The IASB was also hoping for some input on which standards might be problematic.
- Post-retirement Benefits: The EFRAG delegation reminded the IASB representatives that the PAAinE discussion paper that is being prepared on this topic would include a full review of all aspects surrounding that topic. There was also some discussion at the meeting about why the IASB and FASB were each carrying out their own separate projects. The EFRAG delegation noted the importance of trying to avoid the situation where there was a whole series of changes, or where changes made are subsequently reversed. The IASB representatives confirmed that the ultimate objective was a converged standard. However, there might be some ‘leap-frogging’ as each of the Boards improved their own standards and moved towards that converged position.
- Income Taxes: The current position of the Income Taxes project was briefly discussed.
During the discussion, the importance of being aware of users’ information needs was mentioned. The IASB representatives explained the sources of the input the IASB is getting from users, and the EFRAG delegation offered the IASB access to the EFRAG User Panel.
Finally, the EFRAG delegation offered Europe’s help in progressing the convergence agenda.
The next convergence meeting is expected to be held in October 2007. |
