Life Assurance update

Inside Track 40 reported that the ASB issued FRED 34 ‘Life Assurance’ on 21 July, setting out proposals intended to result in substantial improvements in the clarity and transparency of the financial statements of entities with life assurance business, for the benefit of both policyholders and shareholders. The comment period for FRED 34 closed on 8 October. The Board has received some 33 responses and the comments are currently being analysed.

As well as taking forward work on FRED 34, the Board is continuing to develop its views on the direction in which insurance accounting more generally should develop over the next few years and on the key issues that will need to be addressed in securing the changes necessary. The Board’s intention is to progress this work by the end of 2004.

In the meantime, the IASB is taking a fresh look at financial reporting by insurers and has recently announced the membership of a working group formed to help it in its work.

Convergence

In March 2004 the Board issued a Discussion Paper ‘UK Accounting Standards: A Strategy for Convergence with IFRS’. Comments were invited by 30 June and subsequently the Board has been discussing the feedback received.

Overall respondents supported a strategy that will lead to convergence between UK accounting standards and IFRS. The Board continues to share the view that there can be no case for the use in the UK of two sets of wholly different accounting standards in the medium term, and will pursue convergence between UK accounting standards and IFRS. Indeed the Board has already issued two converged standards (FRS 20 ‘Share-based Payment’ and FRS 21 ‘Events After the Balance Sheet Date’) with five more standards to be issued shortly, as reported elsewhere in this edition of Inside Track.

However, a number of respondents queried the pace of convergence that the Board proposed, suggesting that it might be possible to achieve convergence more quickly. The Board has considered these comments and will be revisiting its convergence programme to see what opportunities there are to adopt a more rapid timetable than envisaged in the Discussion Paper.

However, more fundamentally the Board has been discussing its own activities and the objectives and values that underlie them, building on the comments made in the Discussion Paper. As a result the Board is preparing a Policy Statement outlining its role, activities and technical plan.

Operating and Financial Review (OFR)

As reported in Inside Track 40, the Board is working towards the issue of an exposure draft of the first reporting standard on the OFR by the end of 2004, to be finalised in 2005. The DTI’s consultation on its ‘Draft Regulations on the Operating and Financial Review and Directors’ Report’ closed on 6 August, since when the department has been considering the responses and what changes, if any, should be made to the draft Regulations. The DTI plans to lay the proposed final Regulations before Parliament next month.

The Board is also participating in the work of a group of national standard-setters, led by New Zealand, with Canada and Germany also involved, on a project on ‘management commentary’. The group is working to develop a discussion document, whichthe IASB intends to publish with its preliminary views for public comment.

Leases

As reported on page 7, ASB staff presented a paper at the IASB’s meeting with world standard setters in September, providing an overview of the issues discussed to date with the IASB in the research project on leases. The meeting considered a number of issues during break-out sessions. Most participants supported development of a conceptual approach, which would provide a basis for recognising assets and liabilities that are representative of the contractual rights and obligations of lessees and lessors. Participants also discussed case studies addressing the accounting treatment of renewal options and contingent rentals under the contractual rights and obligations approach.