Associates . The cost model, equity method, and fair value through profit or loss model should be accounting policy options for investments in associates, as proposed in the ED, with one exception. The cost model would not be permitted for an investment in an associate that has a published price quotation, for example if it is a listed entity. The investor may still apply the cost model to its other investments in associates.
In addition, the Board tentatively decided to replace the requirement (for both the equity method and proportionate consolidation) that the difference between the reporting date of the financial statements of the associate/jointly controlled entity and those of the investor must not be greater than three months. Instead, there would be a general statement that the most current information should be used.
Jointly controlled entities (JCEs) . If an IFRS developed from ED 9 Joint Arrangements is finalised before the IFRS for Private Entities is issued, the new requirements for joint ventures should be considered for inclusion in the IFRS for Private Entities. If ED 9 is not finalised, the IFRS for Private Entities should allow the cost model, fair value through profit or loss model, equity method and proportionate consolidation as accounting policy options for investments in JCEs, as proposed in the ED, with one exception. The cost model would not be permitted for an investment in a JCE that has a published price quotation.
Investment property . Both the cost model and the fair value through profit or loss model should be options. The option to classify property held under an operating lease as investment property if specified criteria are met should be retained. Mixed use property should be separated between investment property and property, plant and equipment (PPE) unless the entity applies the cost model to all its investment property and the applicable class of PPE.
PPE . Both the cost model and the revaluation model should be options. The cost of an item of PPE should be allocated to its significant parts, with each part depreciated separately (component depreciation) only when the parts have significantly different patterns of benefit consumption. The IFRS for Private Entities should also clarify that a private entity should reassess residual value, useful life and depreciation method for an asset only if there is an indication of change since the last reporting date. Section 16 should provide examples of indicators that could trigger such a reassessment.
Intangible assets other than goodwill . The Board considered but rejected an amortisation approach for indefinite life intangibles. Therefore, an entity should assess whether the useful life of an intangible asset is finite or indefinite. Indefinite life assets will not be amortised. Many of the Board�s tentative decisions for PPE also apply to intangible assets (excluding goodwill), for example retaining an option to use the revaluation model and reassessing the amortisation period, method and residual value only when there is an indication of change. Both the expense model and the capitalisation model should be options for development costs.
Business combinations . The Board considered but rejected an amortisation approach for goodwill. Intangible assets and contingent liabilities acquired in a business combination should be separately recognised if their fair value can be measured reliably (an �undue cost or effort� exemption should not be added). Specific requirements should be added on how to account for a business combination in which the initial accounting can be determined only provisionally due to
uncertainties about the cost of the combination or the fair values of some acquired assets or liabilities. Pooling of interests accounting should not be permitted for business combinations ( IFRS for Private Entities does not address combinations of entities under common control).
Leases . Criteria similar to those used in IAS 17 Leases should be retained to classify leases as either operating or financing according to their substance. The Board did not support accounting for all leases as operating leases. Additional guidance should be added to assist entities in applying the criterion �major part of the economic life of the asset� in paragraph 19.4(d) of the ED. The Board discussed a staff proposal to modify the application of the straight-line method for operating leases if payments to the lessor are structured to compensate for expected inflation. The Board asked the staff to refine its recommendation for consideration at a future meeting.
Provisions and contingencies . The requirements proposed in the ED for accounting for provisions do not need to be simplified. However, more examples should be provided as implementation guidance for provisions commonly encountered by private entities.
Equity . An entity that issues a compound financial instrument should classify its components separately as financial liabilities, financial assets or equity instruments (sometimes known as split accounting). Examples should be added as implementation guidance to assist entities in accounting for compound instruments. The staff will present a recommendation for the distinction between debt and equity at a future Board meeting.
Revenue . The percentage of completion method should be applied when recognising revenue from services and construction contracts, as proposed in the ED. Further examples will be added as implementation guidance.
Government grants . The �IFRS for SMEs� model (as described in paragraphs 23.4 and 23.5 of the ED) will be required for all government grants. The option in the ED to apply IAS 20 Accounting for Government Grants and Disclosure of Government Assistance for those government grants not related to assets measured at fair value through profit or loss (paragraph 23.3(b) of the ED) will be removed.
Borrowing costs . Both the expense model and the capitalisation model should be options.
Share-based payment (SBP) . The staff are researching measurement of equity-settled SBPs by private entities and will present a recommendation at a future Board meeting. No decisions were made at this meeting.
Impairment of non-financial assets . An entity will perform an impairment test only if there is an indication that an asset may be impaired, as proposed in the ED. However, the approach for determining the impairment loss once an impairment is indicated should be similar to IAS 36 Impairment of Assets and hence the standard should include the concepts of �recoverable amount�, �value in use� and �cash-generating units�. It should be clarified, in a way similar to IAS 36, that if it is not possible to determine fair value less costs to sell for an asset because there is no basis for making a reliable estimate of that amount, then the entity may use the asset�s value in use as its recoverable amount.
The Board discussed the requirements for allocating goodwill to components of the entity, with a view to providing relief for entities that do not manage their business on the basis of cash-
generating units. The Board asked the staff to rewrite paragraph 26.22 of the ED on the basis of the discussion and present a recommendation at a future Board meeting.
Post-employment benefits . All actuarial gains and losses and past service cost should be recognised immediately in profit or loss as proposed in the ED. The Board discussed whether, and in what circumstances, private entities might be allowed to measure the defined benefit obligation at a current liquidation amount, eg if information to apply the projected unit method as proposed in the ED was not available. No decision was made. The Board asked the staff to present a proposal at a future meeting that specifically sets out when a current liquidation amount might be used and exactly how it would be calculated, because current practice varies.
Discussion of the remaining sections of the ED, as well as disclosure issues, is expected to continue in September 2008.