EU Endorsement of IFRS

Over the few months, an issue has arisen on the proposed adoption of IFRS 8 Operating Segments for use in the EU. The European Parliament's (EP) Economic and Monetary Affairs Committee has drafted a Motion for a Resolution calling for IFRS 8 not to be adopted until a full impact assessment of the standard has been carried out. The European Commission is now carrying out such an analysis in advance of a Parliamentary vote scheduled for September. As part of that assessment, the Commission has issued a questionnaire for public consultation on the potential impact of IFRS 8, to which the ASB - together with some 200 other parties - has responded.

EP interest in IFRS 8 has been stirred by some user groups expressing concerns about the standard. Following a meeting the ASB convened of representatives of some of the major UK constituents (preparers, users, the major accounting firms and the profession) to discuss views as to how this situation could best be resolved, ASB Chairman Ian Mackintosh wrote to the Commission and the EP in June to suggest that the standard should be adopted, but proposing that a postimplementation review of IFRS 8 be carried out for the IASB which it could use as evidence to consider whether or not the standard should be changed. A number of other constituents signalled their support for this approach in the letter. The ABI did not, but wrote separately to the Commission with a similar suggestion. The IMA has also written stating that it has no objection to the endorsement of IFRS 8, providing guidance is given to clarify that the chief operating decision maker in the EU context is the board of directors, and that the true and fair override should be used if necessary to ensure that the information reported reflects the performance of the underlying segments.

Pro-active Accounting Activities in Europe (PAAinE)

In 2005, EFRAG and European National Standard-Setters (NSS) agreed to work more closely together on a number of projects under the PAAinE initiative. Details of the PAAinE projects on stewardship and pensions are reported elsewhere in this edition of Inside Track.

At the time of going to press, a PAAinE Discussion Paper on revenue recognition, developed by EFRAG and the German standard-setter (the DRSC) is due for publication. The DP considers and seeks views on two broad approaches to revenue recognition:

• 'critical event' approaches that involve recognising no revenue under a contract until a particular event or threshold in the contract (the critical event) has been reached; and
• the 'continuous' approach, where revenue is recognised continuously over the course of the contract as the contract as the contract progresses and the entity performs.