Heritage Assets

This project aims to address concerns about the current accounting requirements for heritage assets. Following strong support for the proposals set out in a Discussion Paper 'Heritage Assets - Can Accounting do Better?', the Board is finalising work on an exposure draft which it expects to publish around the end of November. In taking this work forward, the Board remains firmly of the view that the best financial reporting requires heritage assets to be reported as assets at current value.

The Board is keen for the standard to emphasise that, where valuations are available and these provide useful and relevant information to assist in an assessment of the value of heritage assets held by an entity, a valuation approach should be required. The Board is also exploring whether the accounting policy should be applied at the level of an individual collection rather than at the level of an entity's total holding of heritage assets.

The International Public Sector Accounting Standards Board (IPSASB) has also published their own Consultation Paper on Accounting for Heritage Assets which includes the ASB Discussion Paper. IPSASB requested comments by 30 June 2006, which will be considered at the IPSASB meeting in November 2006.

Interpretation of the Statement of Principles for Public Benefit Entities

As reported previously in Inside Track, ASB staff are continuing to work on the proposed Interpretation.

The 'Statement of Principles for Financial Reporting' focuses on the profit-oriented sector. It recognises that its principles are broadly relevant to not-for-profit entities, but acknowledges they may need some re-expression or change of emphasis in order to make them most relevant and useful to these entities.

Both the Board and the Committee on Accounting for public Benefit Entities (CAPE) considered in July responses to the Exposure Draft of the proposed Interpretation. As a result, further work has been carried out, mainly in the areas of liabilities and capital grants. Other areas such as business combinations and donated goods and services have also been reviewed with the aim of expressing the underlying principles more clearly.

It is hoped that a revised draft will be submitted for the Board to consider in the near future.

On the international front, IPSASB - at its meeting in November - will be discussing a brief on how to take forward its collaborative project with National Standard-Setters (including the ASB) and other bodies to develop a conceptual framework for public sector entities.

Financial Reporting Standard for Smaller Entities (FRSSE)

The latest version of the FRSSE, which covers both the accounting and company law requirements for smaller entities, was published on 22 April 2005 and is effective for accounting periods beginning 1 January 2005.

An Exposure Draft of an amendment to the FRSSE was published on 28 April 2006 with a comment period until 31 July. The main issue in the consultation was whether the FRSSE should reflect the key principles of FRS 20 'Share-based Payment'. Some respondents supported a simplified approach, particularly in terms of disclosure only requirements for equity settled share-based payments. However, the Board's preference is to broadly retain the approach proposed in the Exposure Draft and require smaller entities to apply the key principles of FRS 20. Where the fair value of equity-settled share-based payment transactions cannot be reliably determined, intrinsic value should be used.

It is expected that the updated FRSSE will be published in December and apply for accounting periods starting on or after 1 January 2007. Early adoption will be permitted. In addition to FRS 20, the updated FRSSE will also reflect recent changes in company law and provide updated guidance on the disclosures required for defined benefit pension schemes and the classification of preference shares as debt or equity.

Amendment to FRS 25 'Financial Instruments: Presentation'

In July the ASB issued a proposed amendment to FRS 25 'Financial Instruments: Presentation' addressing the classification of instruments puttable at fair value. This followed the IASB's similar proposed amendment to IAS 32. The comment period closed in October.

The ASB has responded to the IASB's proposals. A copy of the response is available on the website via the attached link: http://www.frc.org.uk/asb/publications/ other.cfm.

The ASB has made clear that it does not support the implementation of the proposals in the ED on the following grounds:

• the ASB agrees with the alternative view to the proposed amendment that the shares puttable at fair value clearly meet the definition of a liability in the Framework;
• the exception is not based on a clear principle but instead comprises detailed rules put together to achieve a preset accounting result. As such it will lead to confusion by users, give rise to inconsistencies where very similar instruments are treated differently, and has the potential to provide structuring opportunities; and
• that it is likely that there will be further changes in the classification of instruments of this kind after the completion of the longer-term project addressing the distinction between liabilities and equity that the IASB is working on with the US FASB. The ASB is participating in an EFRAG working group on the topic.

The IASB is expected in the near future to start redeliberating the proposals in the light of comments received, and the ASB will then consider whether to proceed with the amendment.

Borrowing costs

The IASB recently issued a proposed amendment to IAS 23 'Borrowing Costs' that would remove the option for expensing all borrowing costs and require the capitalisation of those costs that related to the period of production of an asset. The ASB does not intend to amend the UK standard, FRS 15 'Tangible fixed Assets' as this is not a converged standard; FRS 15 will therefore continue to permit entities to choose between capitalisation and expense of borrowing costs.

Leases

The IASB is commencing to form an advisory working group on leases, following the decision to add the project to its agenda in July. The membership of the working group is expected to be announced shortly, but it is unlikely to meet until 2007.

Insurance contracts

The IASB is continuing to work towards a discussion paper setting out its preliminary views on a comprehensive proposal for accounting for insurance contracts, expected to be issued in the first quarter of 2007.

Financial Statement Presentation

The IASB has started to consider further proposals for a revised presentation of items within the performance statement and other financial statements, and will shortly be considering comments received on the exposure draft of the first stage of this project.

Amendment to FRS 20 'Share-based Payment'

In March 2006 the ASB issued an exposure draft proposing clarification of the FRS 20 treatment of cancellation of share options by the holder (such as the decision by a participant in an Save-As-You-Earn, SAYE, scheme to cease contributions). This was based on equivalent proposals from IASB to amend IFRS 2. The IASB is completing its redeliberations of the proposals and is expected to issue a final amendment shortly. As reported previously in Inside Track, the ASB will then consider the need to keep FRS 20 converged with IFRS 2.

Earnings per share

As reported in Inside Track 48, the IASB is still expected to issue shortly an exposure draft of a limited amendment of IAS 33 'Earnings per Share' proposing modifications to the treasury stock method of calculating diluted earnings per share, to include in the assumed proceeds resulting from the exercise of options and warrants the carrying amount of the instrument in liabilities. The ASB will consider proposing a similar amendment to FRS 22 so that the standard remains converged with the international standard.