Smaller Entities

Respondents to the FRSSE Discussion Paper published in March overwhelmingly supported the concept of a one-stop shop standard for smaller entities. Most preferred the requirements of companies legislation to be included in the text. Views were mixed regarding the proposed restrictions to both the use of formats for the financial statements and its applicability to consolidated accounts.

The Board, assisted by CASE, is now analysing the results of the consultation in detail. It hopes to publish in the Autumn an exposure draft for the FRSSE which incorporates both the 'one-stop shop' requirements and its usual update to reflect recent accounting standards.

Meanwhile,the IASB has recently published a Discussion Paper 'Preliminary Views on Accounting Standards for Small and Medium Sized Entities (SMEs)' which proposes that modifications to the recognition and measurement
principles in IFRS could be justified only on the basis of user needs or cost benefit analyses.

The IASB's proposals would result in standards for SMEs which differ from the ASB's FRSSE in a number of ways:

• The test for determining whether an entity might be eligible to use the standards for SMEs would be lack of public accountability, unlike the FRSSE which focuses on smaller entities.
• Each IFRS and interpretation would have its SME equivalent. Entities would use a series of separate standards rather than one special standard for smaller entities.
• For any accounting or measurement issue that is not
  addressed in the SME standards, the IASB proposes mandatory fallback to IFRS. The FRSSE encourages such reference only as a possible means of establishing generally accepted practice.
• The IASB proposes a 'pick and mix' approach from full IFRS and IFRS for SMEs. Eligible entities could choose to follow full IFRS in some areas and IFRS for SMEs in others. No such provision exists in the FRSSE.

The IASB Discussion Paper is available from the IASCF Publications Department. The comment period closes on 24 September.

Leases

ASB staff presented papers at IASB meetings in April and June that explored a conceptual approach to lease accounting based on contractual rights and obligations. The April meeting discussed assets and liabilities that would be considered for initial recognition in cases of leases with rentals contingent on price changes, usage or the lessee's revenues. The June meeting considered how assets and liabilities recognised by lessees might change over the lease period and how those changes might be presented in an income statement in the cases of straightforward leases, leases with contingent rentals, and leases with renewal options.

The ASB expects to present further papers to IASB and to the meeting of world standard setters later in the year.

IASB's Business Combinations Project

The IASB continues to work on its business combinations project. At the end of April the IASB issued an Exposure Draft of Proposed Amendments to IFRS 3 Business Combinations 'Combinations by Contract Alone or Involving Mutual Entities'. The proposals would amend the scope of IFRS 3 to include such transactions. Comments are requested by 31 July. The ASB would be pleased to receive copies of constituents' comments to IASB.

Work also continues on Phase II of the project, and it is expected that an Exposure Draft will be issued later this year, along with proposals to amend other standards including IAS 37 'Provisions, Contingent Liabilities and Contingent Assets'. The Exposure Draft is expected to include radical proposals to implement the 'full goodwill method', which recognises the value of the goodwill held by minority interests. It will also propose changes in the accounting for transactions with the minority shareholders.

Reporting Comprehensive Income

As reported in Inside Track 39, the ASB is working with the IASB and the US FASB in partnership on this priority project. Steps are now being taken to recruit members of an international advisory group to assist the joint staffs in their development of the project.