Financial Instruments
In 2002, the IASB issued an exposure draft proposing various changes to its two financial instruments standards (IAS 32 on disclosure and presentation and IAS 39 on recognition and measurement). At the same time, the ASB issued FRED 30, which proposed (a) adoption of the revised IAS 32 in the UK for all entities with effect from 1 January 2004 and (b) that any UK entity choosing to adopt fair value accounting should, from 1 January 2004, be required to comply in full with the revised IAS 39's measurement and hedge accounting provisions.
In the last few months, the IASB has made rapid progress on the comments of respondents and roundtable participants on the proposed revisions.
- For IAS 32, the IASB’s discussions appear to be nearly at an end; in the main, the changes proposed in the exposure draft are to be retained. The IASB has also decided tentatively to issue the revised IAS 32 as soon as it is ready, which could mean a final international standard before the end of 2003.
- For IAS 39, the IASB has taken a tentative decision to re-expose revised proposals on one or two issues. As a result, the final version of the revised IAS 39 is not likely to be published until Easter 2004, although an interim version, incorporating the changes agreed on issues not being re-exposed, may be available before the end of 2003.
Later this year, the ASB will consider the implications of this revised IASB timetable for both FRED 30 and FRED 23 ‘Financial instruments: Hedge accounting’.
Share-based Payment
Last year the IASB proposed, in ED 2 ‘Share-based Payment’, that an expense, measured by reference to fair value, should be recognised in the profit and loss account in respect of all share-based payment transactions. There were to be no exemptions for unlisted entities or for all-employee schemes.
The IASB has now started considering issues raised by respondents. It has reaffirmed its view that share-based payment transactions do give rise to an expense, and that the expense should be measured by reference to fair value and recognised in the profit and loss account. On the other hand, it has also tentatively decided that the final standard should not be based on the unit of service method of allocating the expense that was proposed in ED 2; instead, the standard should adopt the allocation method set out in the US standard, which involves ‘truing up’ the total expense to reflect the number of options that vest.
The IASB is now considering various valuation issues and, in the autumn, will consider the possible need for exemptions for unlisted entities and/or for some or all all-employee schemes, as well as its proposal that the standard should come into effect from 1 January 2004. The current timetable envisages the publication of a final standard in December 2003.
The ASB issued the IASB’s proposals in FRED 31. That FRED also proposed that the standard should apply to all UK listed and unlisted entities from the IFRS’ effective date. The ASB has not yet re-considered this proposal, but will do so in the autumn.
Reporting Financial Performance
An outline of the proposals in this project was included in Inside Track 35 and the topic is also covered in the ASB and IASB websites.
Over the course of the second quarter, consultations were held by project staff and Board members of the IASB and ASB with upwards of sixty companies, user institutions and representative bodies. The results were reported to the June meetings of the Boards and a start was made on reviewing the proposals in the light of comments received. This process continues in July with a view to issuing an exposure draft at the end of this year.
Revenue Recognition
In February, the ASB published a draft Application Note to FRS 5 on revenue recognition. This was an interim step pending the development of a replacement for the international standard on revenue IAS 18, which is currently being reviewed by the IASB as a joint project with the US Financial Accounting Standards Board.
The deadline for responses to the UK exposure draft was 30 May, and the ASB is now considering the comments received.
IASB Project on Short-term Convergence
The aim of this project is to reduce differences between IFRS and US GAAP. The IASB has recently discussed three main areas where it is expected convergence can be achieved:
- government grants;
- disposal of non-current assets and reporting discontinued operations; and
- provisions, contingent liabilities and contingent assets.
On government grants the IASB has signalled its intention to withdraw IAS 20 (which is similar to SSAP 4) and replace it with a new standard. Further work is expected to be undertaken on this in due course.
It is expected that exposure drafts of the IASB’s proposals on the other two topics will be issued in July and September respectively.
In particular the proposals on disposal of non-current assets contain differences from current UK GAAP such as the presentation of a separate category of asset that is ‘held for sale’ (subject to certain criteria being met) and possible changes to the measurement of these assets.
Leases
The ASB presented a plan for a project on leasing to IASB at its meeting in May. The project’s objective is to develop a single method of accounting for leases that is consistent with IASB’s Framework. The single method would not rely on a distinction between operating and finance leases.
The paper presented to IASB outlined a proposal for commencing the IASB’s leasing project, including:
- a summary of the fundamental issues to be addressed in developing a lease accounting model;
- required interaction with other IASB projects; and
- an indicative project timetable.
The IASB expressed interest in undertaking a project on leasing and agreed that it should take account of other IASB projects where similar issues arise including revenue recognition, measurement, derecognition and consolidation.
Public Benefit Entities
In May, the ASB published a Discussion paper on the Interpretation for Public Benefit Entities of the UK Statement of Principles.
