IASB October 2012

IASB-only session

The IASB met to discuss financial instruments with discretionary participation features and transition requirements.

Financial instruments with discretionary participation features

The IASB tentatively decided to adapt the contract boundary criteria and recognition criteria for a financial instrument with a discretionary participation feature as follows:

1. The contract boundary for a financial instrument with a discretionary participation feature is the point at which the contract no longer confers substantive rights on the contract holder. A contract no longer confers substantive rights on the contract holder when:
   1. the contract holder no longer has a contractual right to receive benefits arising from the discretionary participation feature in that contract; or
   2. the premiums charged confer upon the contract holder substantially the same benefits as those that are available, on the same terms, to those that are not yet contract holders.
2. An entity shall recognise a financial instrument with a discretionary participation feature only when the entity becomes a party to the contractual provisions of the instrument, eg when the entity is contractually obliged to deliver cash.

All IASB members present agreed with these decisions. One IASB member was absent from this session.

Transition requirements

The IASB made the following tentative decisions related to transition to the proposed new Insurance Contracts Standard:

1. An insurer shall follow the reclassification guidance in IFRS 9 Financial Instruments except that an insurer should be:
   1. permitted to designate eligible financial assets under the fair value option where new accounting mismatches are created by the application of the proposed new Insurance Contracts Standard;
   2. required to revoke previous designations under the fair value option where the accounting mismatch no longer exists because of the application of the proposed new Insurance Contracts Standard;
   3. following earlier application of IFRS 9, permitted to newly elect to use other comprehensive income for the presentation of changes in the fair value of some or all equity instruments that are not held for trading, or revoke a previous election if applicable.
2. An insurer shall determine the residual margin on transition, assuming that all changes in estimates of cash flows between initial recognition and the beginning of the earliest period presented were already known at initial recognition.

In addition, the IASB tentatively decided that:

1. the proposed transition requirements for insurers that already apply IFRS should also apply to first-time adopters of IFRS; and
2. it would not include explicit guidance on redesignation of property, plant and equipment and investment property on transition.

All IASB members present agreed with these decisions. One IASB member was absent from this session.

Effective date, comparative financial statements and early application

The IASB stated its intention to allow approximately three years between the date of publication of the final Insurance Contracts Standard and the mandatory effective date. In addition: the IASB tentatively decided:

1. to permit entities to apply the final Insurance Contracts Standard before the mandatory effective date; and
2. to require entities to restate comparative financial statements on first application of the final Insurance Contracts Standard.

Twelve IASB members present agreed with these decisions. One IASB member was absent from this session.

Next steps

The IASB will continue its joint discussions with the FASB on the Insurance Contracts project at their joint meeting in November 2012..