The Board continued its discussion of issues relating to the exposure draft (ED) of a proposed IFRS for SMEs and reached the following tentative decisions.
Title of the standard. The name of the final standard should be International Financial Reporting Standard for Non-publicly Accountable Entities, or IFRS for NPAEs.
Complex accounting policy options. In May 2008 the Board tentatively decided that, in general, all accounting policy options in full IFRSs should be available to NPAEs. As in the ED, the body of the standard should include the simpler option. The more complex options would be in a separate appendix rather than cross-referenced to full IFRSs. At this meeting, the Board made the following tentative decisions:
- Investment property. Measurement should be circumstance-driven rather than allowing NPAEs an accounting policy choice between the cost and fair value models. If an NPAE can the measure fair value of an item of investment property reliably without undue cost or effort, it must use the fair value model. Otherwise, it must use the cost model.
- Property, plant and equipment. The revaluation model should not be an option.
- Intangible assets. The revaluation model should not be an option.
- Borrowing costs. All borrowing costs should be recognised as an expense. The capitalisation model should not be an option.
- Presenting operating cash flows. NPAEs could use either the indirect method or the direct method to present operating cash flows in the cash flow statement.
- Development costs. All research and development costs should be recognised as an expense. Capitalisation of development costs should not be an option.
- Financial instruments. An NPAE could apply either Section 11 of the IFRS for NPAEs or all requirements of full IFRSs � the three financial instrument standards (IAS 32 Financial Instruments: Presentation, IAS 39 Financial Instruments:
- Recognition and Measurement, IFRS 7 Financial Instruments: Disclosures), and related interpretations. The option to use full IFRSs will be available by cross-reference. This will be the only cross-reference to full IFRSs.
- Associates. The options proposed in the ED (cost method, equity method, and fair value through profit or loss) should all be allowed.
Jointly controlled entities. The options in the ED should all be allowed with the exception of proportionate consolidation. Therefore NPAEs could choose the cost method, equity method, or fair value through profit or loss.
Consolidation. Consolidated financial statements should be required for all NPAE groups, with limited exceptions, as proposed in the ED.
Goodwill and other indefinite-life intangible assets. For cost-benefit reasons, rather than conceptual reasons, goodwill and other indefinite-life intangible assets should be considered to have finite lives. Therefore, such assets should be amortised over their estimated useful lives, with a maximum amortisation period of 10 years. The assets must also be assessed for impairment using the �indicator approach� proposed in the ED.
Financial instruments. The staff presented a full redraft of Section 11 Financial Assets and Financial Liabilities reflecting tentative decisions made by the Board in June 2008 and December 2008.
In June 2008 the Board decided to restructure Section 11 into two parts. Section 11A deals with simple payables and receivables and other basic financial instruments. Section 11B deals with more complex instruments and transactions. In December, the Board considered the first draft of Section 11A. At this meeting the staff presented an updated version of Section 11A along with a first draft of Section 11B.
The Board was supportive of the rewrite of Section 11A. However, the Board made a few amendments, including:
- A commitment to make a loan should be addressed in Section 11B, not 11A.
- Some of the draft criteria to establish whether a debt instrument is in Section 11A need to be clarified.
- Regarding initial measurement, Section 11A would require that if payment is deferred the instrument must be measured at the present value of payments discounted at a market rate of interest. The standard should be clear that the market rate of interest is a rate applicable to the risks and terms of the instrument in question.
- If short-term financial instruments have no stated interest rate, their initial measurement should be consistent with the requirements in full IFRSs.
- The effective interest method should use the weighted average amount of the receivable or payable outstanding during the period, not the carrying amount at the beginning of the period.
- The proposed guidance on factoring of receivables should be replaced by examples of applying the general derecognition principles to factoring transactions.
The Board was supportive of the rewrite of Section 11B. A few minor drafting issues were highlighted.
Special purpose entities. The principles in SIC-12 should be incorporated into Section 9 Consolidated and Separate Financial Statements.
Measurement of post-acquisition income. An investor choosing to apply the cost model to its investments in associates or joint ventures would not separate pre- and post-acquisition retained earnings of the investee. Instead, all dividends received will be recognised in profit or loss.
Outstanding issue. In February, the Board will discuss the only substantial issue outstanding: simplification of defined benefit pension accounting.