Heritage Assets

The ASB returned to its project on heritage assets at its meeting on 10 January and re-affirmed its conclusions that improved disclosures should be required for holdings of heritage assets. It also noted that heritage assets should conceptually be reported in the balance sheet.

The Board asked for further research on specific aspects and will consider the results of this research at a future meeting.

Business Combinations

In January 2008 the IASB issued revised IFRS 3 'Business Combinations' and IAS 27 'Consolidated and Separate Financial Statements' to complete phase II of the business combinations project.

Significant changes to existing IFRSs are:

• Partial acquisitions: In response to concerns with the exposure draft proposals, IFRS 3 now permits the option of measuring non-controlling interests either at their proportionate interest in the net identifiable assets (which is the original IFRS 3 requirement) or at fair value (which is the new requirement in US GAAP).
• Step acquisitions: The requirement to measure at fair value every asset and liability at each step for the purposes of calculating a portion of goodwill has been removed. Instead, goodwill is measured as the difference at acquisition date between the fair value of any investment in the business held before the acquisition, the consideration transferred and the net assets acquired.
• Acquisition-related costs: Acquisition-related costs are generally recognised as expenses (rather than included in goodwill).
• Contingent consideration: Contingent consideration must be recognised and measured at fair value at the acquisition date. Subsequent changes in fair value are recognised in accordance with other IFRSs, usually in profit or loss (rather than by adjusting goodwill).
• Transactions with non-controlling interests: Changes in a parent's ownership interest in a subsidiary that do not result in the loss of control are accounted for as equity transactions.

The revised IFRS will become effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009.

Joint Arrangements

In September 2007 the IASB published for comment a proposal to improve the accounting for joint arrangements - ED 9 'Joint Arrangements'. It is proposed that ED 9 replaces the existing standard IAS 31 'Interests in Joint Ventures'.

In developing its proposals the IASB aimed to address two problems it perceives with regard to IAS 31; these are the choice of accounting that is offered by IAS 31 and the fact that the most significant factor in determining the accounting is based on the form of the arrangement.

The IASB has concluded that proportionate consolidation is not an appropriate method of accounting for jointly controlled entities as it leads to the recognition of assets and liabilities not in accordance with the definitions in the Framework.

The IASB also proposes changing the definition of a joint arrangement and description of a joint venture. A joint arrangement will be accounted for as a joint venture where it is jointly controlled by the venturers. The venturers do not have rights to individual assets or obligations for expenses of the venture, but to a share of the outcome (eg profit or loss) of the activities of the joint venture. The joint venture controls the assets, incurs liabilities and expenses and earns revenue.

In its comment letter, available on its website, the ASB is supportive of the IASB's proposals.

Share-based payment

In December the IASB issues a limited amendment to IFRS 2 Sharebased Payment extending its scope to cover certain transactions where one company in a group received goods or services and another company in the group made a cash payment based on the value of equity shares. Consequential amendments to IFRIC 11 IFRS 2 – Group and Treasury Share Transactions were also proposed. This exposure draft is open for comment until 17 March. The ASB has now issued an exposure draft proposing similar amendments to FRS 20 and UITF Abstract 44, with a comment deadline of 31 March.

Puttable Financial Instruments

During the first quarter of 2008 the IASB is due to issue a limited scope amendment to IAS 32 'Financial Instruments: Presentation' that would require some financial instruments that currently meet the definition of a financial liability to be classified as equity.

The proposals were originally contained in an Exposure Draft of proposed amendments to IAS 32 and IAS 1 issued in June 2006. Over recent months, the IASB has consulted extensively with constituents on these proposals and as a result the text of the final amendment is likely to be different to that proposed in the ED. FRS 25 'Financial Instruments: Presentation' is the UK equivalent to IAS 32 and is a fully converged standard. Once the IASB has issued its final amendment, the ASB will consider whether to make the corresponding changes to the UK standard.

Annual Improvements

In October 2007 the IASB issued an exposure draft of proposed Annual Improvements to International Financial Reporting Standards (IFRS). The ASB, after consultation, has issued a comment letter to the IASB. A copy of the ASB's comment letter can be downloaded from the ASB website (www.frc.org.uk/asb/technical/projects/project0075.html).

The ASB supports the IASB in introducing the annual improvements process as a way of enabling matters of clarification or conflicts between IFRSs to be resolved in a quick and efficient manner.

The IASB is proposing 41 minor amendments to 25 IFRSs. In its comment letter the ASB suggests two of the proposed improvements be removed and be subject to separate due process as, although the proposed amendments to the text of the standard are minor, the potential effect of the amendment could be significant. These are:

• The proposed amendment to IAS 39 'Definition of a derivative', which the ASB considers could have unintended consequences and needs further research into the possible implications; and
• the proposed amendment to IAS 38 'Intangible Assets', where the change could have a significant effect and it is difficult to determine how the Framework is being applied.

Revenue Recognition

ASB responds to PAAine Discussion Paper

The ASB has responded formally to the Discussion Paper ' Revenue Recognition—A European Contribution' which published in July 2007. The paper was developed by EFRAG and the German standard-setter (the DRSC) and issued by them and the French standard-setter (CNC). The paper considered two types of approaches to revenue recognition:

• 'critical event' approaches that involve recognising revenue under a contract only when a particular event has taken place or a threshold has been reached (the critical event); and
• 'continuous event' approaches under which revenue is recognised continuously over the course of the contract as it progresses and the entity performs.

In response, the ASB states that it believes that the Discussion Paper makes a valuable contribution in highlighting areas and issues that require further consideration, but does not point clearly to a particular appropriate conceptual basis. The ASB is supportive of further work on the subject, which it suggests would be most fruitful if it addresses what are the appropriate points at which both profit and turnover should be reflected in income and assets and liabilities, and how these might be measured and reported. The ASB response may be downloaded from http://www.frc.org.uk/images/uploaded/documents/ASBPAAinERevRecResponse.pdf

Narrative Reporting

The ASB has considered the impact on its Reporting Statement 'The Operating and Financial Review of the business review reporting requirements in section 417 of the Companies Act 2006, which companies have to apply for financial years beginning on or after 1 October 2007.

The ASB believes that the new requirements, detailed in Inside Track 53, are already covered by its Reporting Statement on the OFR and that this statement continues to provide applicable best practice guidance for UK companies required to prepare a business review.

In response to requests to make the link between the best practice guidance in its reporting statement and legislative requirement clearer, the ASB has prepared a table to assist UK companies in preparing their business review, linking the Companies Act requirements with the OFR reporting statement. A copy of this table is available on the website at http://www.frc.org.uk/asb/press/pub1480.html.

Meanwhile, at its meeting in December 2007, the IASB decided to add a project on management commentary to its active agenda. The work on the project should result in the production of a non-mandatory guidance document based on the Management Commentary discussion paper issued in October 2005. The ASB will continue to keep the area of narrative reporting, and the IASB proposals, under review.