Purchases and Sales of Own Shares

At its meeting in September, the UITF considered responses to the revised exposure draft of an abstract on accounting for purchases and sales of own shares (published on 30 July in Information Sheet 62). The UITF’s proposals are consistent with international accounting standards and would require holdings of an entity’s own shares to be accounted for as a deduction in arriving at shareholders’ funds, rather than to be recorded as assets.

The exposure draft had been revised from the earlier proposed abstract on treasury shares (published on 8 May in Information Sheet 59) in order to reflect respondents’ requests for the scope of the proposed abstract to be clarified. The revised draft proposed that the scope should cover all interests in own shares. It would therefore apply to a company’s holding of treasury shares under new legislation that comes into effect from December 2003. It would also apply, in consolidated financial statements, where the holding company’s shares are held by subsidiaries.

The UITF considered whether financial institutions should be permitted to account for some holdings of own shares as assets. The UITF decided, in line with international accounting standards, not to make any exceptions to the general accounting principles and agreed to proceed to publish an abstract applicable for periods ending on or after 23 December 2003, in line with the draft in Information Sheet 62.

Accounting for ESOP Trusts -Proposed Revision to UITF 13 and UITF 17

In May the UITF issued parallel proposals (in Information Sheet 60) to change UITF Abstract 13 from requiring shares in an ESOP trust to be held as assets to requiring them to be deducted in arriving at shareholders’ funds. Most respondents agreed that Abstract 13 should be changed to make it consistent with the proposals for accounting for purchases and sales of own shares.

The UITF also proposed, in May, a related amendment to Abstract 17 ‘Employee share schemes’.

At its meeting in September, the UITF reconsidered how Abstract 17 might be amended. It was concerned that the proposed basis for recognising a charge for share options would prove unsatisfactory and that expenses might not be measured consistently. The UITF was also mindful that the IASB has announced a delay in completion of its project on share-based payment, with the result that the revised Abstract 17 might need to be in place for rather longer than had been envisaged in May 2003. The UITF therefore changed its proposal, to require an ‘intrinsic value’ approach for all share awards.

The UITF decided that it should take account of views specifically on the amendment to Abstract 17 before finalising the revisions to Abstracts 13 and 17. A consultation note was published on 3 October in Information Sheet 63. Comments are requested by 5 November.

Emission Rights

A draft abstract on accounting for emission rights was published on 19 May in Information Sheet 61. It addresses the accounting by participants in an emissions trading scheme that applies a ‘cap and trade’ model. The UK’s Emissions Trading Scheme, launched in 2002, is an example of such a scheme. Participants accept a cap on their carbon dioxide emissions and receive tradable emission allowances corresponding to the amount of the cap. An EU-wide scheme will start in 2005.

The proposed abstract presents the text of a draft Interpretation from the IASB’s International Financial Reporting Interpretations Committee (IFRIC), together with the changes that the UITF proposed to reflect accounting requirements in the UK where they differed from international accounting standards. It proposes that a participant should recognise separately an asset (for emissions allowances held), a liability (for the obligation to deliver allowances for emissions that have been made) and a government grant (where allowances are allocated by government for less than fair value).

The UITF discussed the responses at its meeting in September. Respondents expressed various concerns about the proposed model, particularly the lack of symmetry in measuring and reporting changes in the component assets and liabilities. The UITF began to explore a modified model where each of the components is measured by reference to the fair value of allowances, with changes in value reported in the profit and loss account. No decisions were taken.

ASB staff have provided papers summarising the UITF’s discussion on a ‘fair value’ approach to the staff of IFRIC. The UITF will monitor IFRIC’s progress before deciding on the next steps.