Taking account of the comments received in response to the ASB consultation document and FREDs 24-29 (inclusive) issued in May 2002, the ASB has written to the IASB setting out its views on the IASB's proposed improvements to certain IASs. The following summarises the main points the ASB has made.

Materiality
The final version of the IASB’s Preface to International Financial Reporting Standards does not include the statement that was in the exposure draft that ‘IFRS need not be applied to immaterial items’. This principle should be clearly stated in IASB literature, preferably in the Preface or in the rubric to each standard.

IAS 1 Presentation of Financial Statements
The retention of the override in order to achieve a fair presentation is strongly supported. However, the proposal that the availability of the override should be dependent on whether or not the override is permitted by the relevant regulatory framework is questionable.

The requirements in relation to the classification of long-term liabilities should be made more rigorous. Only an agreement to refinance with the same lender and on substantially the same terms should result in a short-term liability being reported as a non-current liability.

IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
The exposure draft proposes that all errors be dealt with retrospectively. This creates a risk of a large number of restatements and may increase the risk of manipulation.

IAS 16 Property, Plant and Equipment
The standard should clarify that it would not be appropriate to recognise gains or losses on an exchange of property, plant and equipment if the transaction is artificial or lacks substance.

The residual values used in the calculation of depreciation should not reflect estimates of current prices where assets are carried at historical cost.

The revaluation debate should be a priority for the IASB and should be concluded before the revised standard is issued. ‘Existing use value’ is, in general, an appropriate basis for the valuation of property, plant and equipment that is held for continuing use in the business rather than for resale.

IAS 17 Leases
The proposal to separate leases of properties into a land element and a buildings element is inappropriate and will add a considerable burden in countries such as the UK where many properties are held on leases.

The proposed basis for allocating the minimum lease payments between land and buildings may not result in an allocation that reflects economic reality.

IAS 21 The Effects of Changes in Foreign Exchange Rates
The recycling of previously recognised cumulative exchange differences on the disposal of a foreign operation reduces the transparency of financial information and should not be permitted.

The currency in which funds from financing activities are generated and the currency in which receipts from operating activities are retained is not particularly relevant to the determination of the functional currency.

The proposed standard allows an unrestricted choice of presentation currency for an entity’s primary financial statements. Guidance on the choice of a presentation currency is required.

IAS 24 Related Parties
In the light of current interest in governance and transparency, accounting standards should seek to ensure that there is full disclosure of any relationships that may affect the way in which the business is conducted. The proposed standard should be strengthened to require disclosure of the identity of any controlling parties and, in some circumstances, of the names of transacting related parties.

IAS 28 Accounting for Investments in Associates
In applying the equity method, the investor’s interest should not include items such as long-term receivables. When a debt is impaired, it should be written down to reflect economic circumstances prevailing at the balance sheet date.

IAS 33 Earnings per Share
When calculating the year to date diluted EPS, the number and fair value of the shares used should be based on the figures for the year to date rather than an average of those used in each interim period.

There is a lack of clarity regarding how diluted EPS is calculated in respect of a loss-making entity. The detailed requirements would benefit from a reconsideration with a view to ensuring that they are clear, consistent and, if appropriate, compliant with the principles underlying FAS 128.

IAS 40 Investment Property
The ASB strongly supports the recognition that an interest in a property that is held under an operating lease may qualify as an investment property. However, the proposal that such leases be accounted for as a finance lease requires some clarification particularly where the rental payable is variable or contingent.

The full text of the ASB’s letters may be downloaded from: www.asb.org.uk/public/downloads.cfm