The Board continued to discuss responses received to its exposure draft Financial Instruments: Classification and Measurement (the ED), published in July 2009.
Classification and measurement - phase 1
Gains or losses related to Level 3 fair value measurements
The Board discussed whether entities should be required to present on the face of the statement of comprehensive income total gains or losses on financial instruments for the period for fair value measurements in Level 3 of the fair value hierarchy. Such amounts are already required to be disclosed IFRS 7, but not on the face of the statement of comprehensive income. The Board tentatively decided that the forthcoming IFRS on classification and measurement should not include a requirement to disclosure this information on the face of the statement of comprehensive income. However, there was support to discuss this matter again at the joint meeting with the FASB in the week beginning 26 October as part of the Financial Statement Presentation project.
Scope of the IFRS
The Board tentatively decided to exclude financial liabilities from the scope of the forthcoming IFRS. In the short term, the requirements of IAS 39 would continue to apply to financial liabilities. The Board asked the staff to further consider the accounting for financial liabilities and will address this issue in the near future.
Effective date and transition
The Board tentatively decided:
- that the effective date will be 1 January 2013 for the finalised guidance on classification and measurement of financial instruments.
- to permit early adoption of the final IFRS. In addition, the Board tentatively decided to require transition disclosures by all entities adopting the new IFRS, as proposed in the ED.
- to clarify the guidance in the ED on the 'date of initial application'.
- to permit, but not require, restatement of comparative periods by entities that implement the standard in 2009 or 2010. Comparative information will be required if an entity adopts the final guidance after 2010.
- to finalise the guidance on impracticability of retrospective application, as proposed in the ED. Accordingly, if it is impracticable for an entity to apply retrospectively the effective interest method or the impairment requirements for a financial instrument, the entity shall determine the amortised cost of the financial instrument, or any impairment on a financial asset, in each period, determined by using its fair value at the end of each comparative period.
- not to permit the continuation of separate accounting (bifurcation) for those hybrid contracts embedded in financial hosts that were bifurcated in accordance with the existing IAS 39.
- to remove the specific transition provisions on hedge accounting from the ED.
- that if an entity adopts the IFRS resulting from any phase of this project before its effective date, the entity (a) shall adopt all earlier phases before then, but (b) need not adopt later phases before their effective date.
- to finalise all other transition provisions as proposed in the ED.
Transitional insurance issues
The Board noted that insurers may face particular problems if they apply the new IFRS on classification and measurement of financial instruments before they apply the IFRS resulting from phase 2 of the project on insurance contracts. The Board tentatively decided:
- not to create a temporary exception permitting insurers to maintain the available-for-sale category temporarily until the phase 2 IFRS is available.
- to consider, in developing the transitional requirements for the phase 2 IFRS, whether to create a transitional option for an insurer to revisit the classification of financial assets when the insurer adopts the phase 2 IFRS. The Board noted that it had included such an option in IFRS 4 Insurance Contracts for reasons that are likely to be equally valid for phase 2.
- not to make any consequential amendments to IFRS 4 relating to shadow accounting for insurance contracts or for financial instruments containing a discretionary participation feature.
The Board expects to publish a final IFRS in November 2009.