IASB June 2009

The Board discussed five topics for possible inclusion in the exposure draft of proposed Improvements to IFRSs expected to be published in August 2009.

IFRS 1 First-time Adoption of International Financial Reporting Standards

Revaluation basis as deemed cost

The Board decided tentatively to clarify the scope of the exemption in paragraph D8 of IFRS 1 that permits a first-time adopter to use a revaluation basis as ‘deemed cost’ when an event such as a privatisation triggered a revaluation at or before the date of transition to IFRSs.

The Board concluded that its reasons for granting that exemption were equally valid for similar revaluations that occurred after the date of transition to IFRSs but during the periods covered by the first IFRS financial statements. Therefore, the Board decided tentatively:

• to propose an amendment to paragraph D8 to reflect that conclusion; 
• to require a first-time adopter to establish deemed cost at the date of revaluation and to present historical cost or previous GAAP amounts when so permitted by paragraphs D5-D7 for the periods before the revaluation date; and
• to permit an entity that had first applied IFRSs in an earlier period to apply this proposed amendment in the first reporting period after its effective date as if it had been available in that earlier period.

Accounting policy changes in the year of adoption

The Board decided tentatively to clarify the requirements that apply if an entity changes its accounting policies, or the IFRS 1 exemptions it chooses to apply, between the first interim financial reports it presents in accordance with IFRSs and the first annual financial statements. The Board decided tentatively that:

• IAS 8 does not apply both to the entity’s selection of accounting policies at the date of transition to IFRSs and to any changes to those policies made before the date of the first annual IFRS financial statements, and
• if, during the period covered by its first IFRS financial statements, an entity changes its accounting policies or its use of the IFRS 1 exemptions, it must explain the changes and update the reconciliations of comprehensive income and equity required by IFRS 1.

IFRS 3 Business Combinations – Contingent consideration of an acquiree

The Board discussed the treatment of contingent consideration arising from a prior business combination of an acquiree that an acquirer assumes in its subsequent acquisition of the acquiree (‘pre-existing contingent consideration’). The Board clarified that pre-existing contingent consideration does not meet the definition of contingent consideration in the acquirer’s business combination. It is one of the identifiable liabilities assumed in the subsequent acquisition. Therefore, the Board decided tentatively not to add this topic to the annual improvements project.

IAS 28 Investments in Associate

Venture capital consolidations and partial use of fair value through profit or loss
The Board decided tentatively to clarify that different measurement bases can be applied to portions of an investment in an associate when part of the investment is designated at initial recognition as at fair value through profit or loss in accordance with the scope exception in paragraph 1 of IAS 28.

The Board decided tentatively that an entity first determines in accordance with paragraphs 6-10 of IAS 28 whether it has significant influence over an associate. The entity measures the portion of the investment to which the scope exclusion applies at fair value through profit or loss. The remaining investment in the associate is accounted for in accordance with IAS 28.

Impairment of investments in associates

The Board decided tentatively that in its separate financial statements the investor should determine impairment of its investment in an associate in accordance with IAS 39. The Board reaffirmed its view that in separate statements, the focus is on the performance of the assets as investments. Therefore, for investments in associates accounted for either at cost or fair value through profit or loss an investor should apply IAS 39 in determining and measuring an impairment.