ASB's future role

As reported in the last edition of Inside Track, the ASB has published an Exposure Draft of its Policy Statement 'Accounting Standard-setting in a Changing Environment: The Role of the Accounting Standards Board'. Comments on the draft Policy Statement are requested by 15 September. Copies can be downloaded, free of charge, from the ASB's website.

The latest version of the ASB's Technical Plan is available from the ASB's website at www.frc.org.uk/asb/technical/techplan.cfm.

Financial Instruments

The IASB is issuing a new standard IFRS 7 'Financial Instruments: Disclosures', replacing the disclosure requirements of IAS 32 'Financial Instruments: Disclosure and Presentation' from 2007 (with earlier adoption permitted). It has also issued an amendment to IAS 39 'Financial Instruments: Recognition and Measurement' - The Fair Value Option, which introduces restrictions on the circumstances under which a financial asset or financial liability may be designated as at fair value through profit and loss.

The EU Accounting Regulatory Committee (ARC) has voted unanimously in favour of adoption in the EU of the Fair Value Option. A draft Regulation is currently with the European Parliament. The Commission intends to formally adopt the amended standard as soon as possible, provided the Parliament raises no objections. This will remove one of the 'carve-outs' in the EU-adopted version of IAS 39.

The ASB has issued a statement on its proposals for implementation in the UK of the standards on financial instruments. The ASB has been consulting on plans to issue a new UK standard implementing IFRS 7, and to make amendments to FRS 25 and FRS 26 to keep these in line with the IASB standards. A copy of the statement is available on the ASB website.

Public benefit entities—Further development of the interpretation of the principles for financial reporting

The ASB has been working on an Interpretation of the Statement of Principles (the Statement) to provide a coherent frame of reference to be used in the development of SORPs or other sector specific guidance for public benefit entitles and to assist preparers and auditors faced with new or emerging issues.

The 2003 Discussion Paper on the topic was generally well received. In particular, it is gratifying to note that the term 'public benefit entity' that it introduced has taken on some currency in financial reporting circles. However, unsurprisingly, a variety of views were received on some difficult issues, and we have been working hard to improve the proposals. The ASB has now approved the publication of an Exposure Draft, which will be published shortly.

The Exposure Draft will focus on a number of main issues, including:

Defining class of user

The Discussion Paper suggested that the defining class of user for the financial statements of a public benefit entity should be based on funders and financial supporters. The ASB proposes to retain this in the Exposure Draft, but with some additional explanation.

Liabilities

The interpretation of the definition of a liability for public benefit entities is widely acknowledged as a challenging area insofar as determining the point at which a commitment to provide public benefits gives rise to a liability.

In relation to such commitments the Exposure Draft, consistently with the Discussion Paper, is expected to identify different characteristics of commitments and what these mean for when a liability arises. However, the Exposure Draft will more clearly distinguish those types of commitments that have the substance of a contract for the performance of services and consider executory contracts further.

Other areas the Exposure Draft will cover include:

• Business combinations;
• Contributions that are additions to residual interest;
• Recognising capital grants as gains;
• Notional transactions; and
• Voluntary gifts of assets and services.