Operating segments

As anticipated in Inside Track 46, the IASB in January published its proposals to replace the existing IAS 14 'Segment Reporting', adopting instead the US standard SFAS 131 'Disclosure about Segments of an Enterprise and Related Information', with only minimal amendments. SFAS 131 adopts a 'managerial approach', whereas IAS 14 focuses more on disaggregation of consolidated financial statements. The IASB is seeking comments by 19 May.

The ASB is not proposing the introduction of IAS 14 into UK standards at the present time, but will review this decision once the ASB's strategy for convergence with IFRS has been finalised. For the present time, the current UK standard on segment reporting, SSAP 25, will remain applicable for the larger UK companies that are within its scope and do not adopt IFRS.

Conceptual framework

The IASB and FASB are continuing with their joint project to revisit their conceptual frameworks for financial accounting and reporting. The goal of the project is to develop a common conceptual framework that both Boards can use in developing new and revised accounting standards. As reported previously, the ASB continues to monitor closely the project and we will report on developments.

The first output is to be an Exposure Draft on Phase A of the project, dealing with the objectives and qualitative characteristics of financial reporting. This is scheduled to be issued by the end of June 2006. As reported in Inside Track 46, at least some of the proposals are likely to be controversial, notably that stewardship should not be a specific objective of financial reporting, and that reliability should be dropped as a qualitative characteristic in the converged framework, to be replaced by "faithful representation". The ASB will raise awareness of the Exposure Draft when it is issued and we plan to host a roundtable during the consultation period to discuss the issues that arise.

ASB developments will be notified to those registered on our website.

In the meantime, the Boards have started discussions on a number of the later phases of the project, considering the elements of financial statements (in particular the definitions of assets and liabilities) and the reporting entity concept.

The ASB is also working with a number of other national standard-setters, and IPSASB, to consider the implications for public benefit entities of the conceptual frameworks project.

Leases

The IASB is considering adding a project on lease accounting to its agenda, building on the work carried out in the recent joint ASB/IASB project to replace the distinction between finance and operating leases with a single model that recognised as an asset the lessee's right of use of the physical asset over the period of the lease (and which itself developed ideas set out in G4+1 discussion papers in 1996 and 1999). The IASB is discussing with the FASB whether this should be a joint project between the two Boards, and an agenda decision is likely following the IASB's Standards Advisory Council meeting in June.

Performance reporting/financial statement presentation

The IASB has issued an exposure draft of the first stage of its performance reporting project. This would require all gains and losses to be presented in either a single statement of performance, or in a separate income statement and statement of recognised income and expenditure. The twostatement option is very similar to the profit and loss account/statement of total recognised gains and losses presentation required under FRS 3 'Reporting Financial Performance'. The exposure draft also specifies what constitutes a full set of set of financial statements, and would require two comparative periods, rather than the present one, for the statement of financial position (the new term proposed for the balance sheet).

The ASB does not propose any changes to UK standards in the light of this exposure draft.

The scope of the second phase of the performance reporting project has been widened to encompass the presentation of information in each of the financial statements, not restricted to performance reporting, and the project title changed accordingly.

Puttable instruments at fair value

The IASB is considering proposals to amend IAS 32 'Financial Instruments: Disclosure and Presentation' so that certain shares that are currently classified as debt by the issuer because the holder has the right to require repayment from the issuer - puttable shares - would be classified as equity if they meet specified criteria. In particular the shares must be both issued and repayable at an amount that represents a pro-rata share of the fair value of the issuing entity.

Borrowing costs

The IASB is continuing to work towards an exposure draft of proposals to require capitalisation of borrowing costs as part of the cost of a constructed item of plant, property or equipment, amending IAS 23 'Borrowing Costs' to remove the current choice between capitalisation and non-capitalisation of borrowing costs.

Insurance contracts

The IASB is continuing to debate proposals for both life and general insurance accounting. It is considering approaches based on a current measurement of insurance liabilities, under which the current best estimate of the expected future cash outflows would be discounted at current interest rates, taking into account an explicit margin to reflect the risks associated with the cash flows. Investments held by insurers would continue to be accounted for under the requirements of IAS 39 'Financial Instruments: Recognition and Measurement'.

The IASB's conclusions would be presented in a discussion paper, possibly later in 2006, before the development of an exposure draft and eventual standard.