The Board resumed its redeliberation of the proposals in the exposure draft (ED) of a proposed IFRS for SMEs. At this meeting the Board discussed issues relating to Sections 28─38 of the ED and made the following tentative decisions:
Income taxes. The Board considered but rejected a taxes payable with disclosure approach for deferred tax. The Board then discussed possible ways to simplify deferred tax recognition and measurement that take into account the needs of users of private entity financial statements and cost-benefit considerations. The Board asked the staff to develop the following two approaches for discussion at a future meeting:
- Recognising deferred taxes only for those differences between accounting and tax treatment of items of income or expense that are expected to reverse (and therefore affect an entity�s cash flows) in a relatively short term.
- Starting from the temporary difference approach in IAS 12, but making simplifications in areas considered particularly complex.
The Board expects to publish an exposure draft on income taxes later in 2008. One aim of that exposure draft is to enhance understandability by substantially rewriting IAS 12, without changing greatly the overall approach in IAS 12. The staff will take this redrafting into account when rewriting Section 28.
Hyperinflationary economies. All characteristics that indicate hyperinflation as listed in paragraph 3 of IAS 29 Financial Reporting in Hyperinflationary Economies should be added to the final IFRS for Private Entities.
Foreign currency translation. Private entities should be prohibited from recycling through profit or loss any cumulative exchange differences that were previously recognised in equity on disposal of a foreign operation. Private entities should not be allowed simply to elect to deem their local currency as their functional currency even if the law requires financial statements to be presented in the local currency.
Related parties. The final standard should reflect the final amendments to IAS 24 Related Party Disclosures, currently in exposure draft phase.
Agriculture. The cost model should not be added as an accounting policy choice for private entities since the addition of an �undue cost or effort� exception to the requirement to apply fair value measurement, as proposed in the ED, is considered a sufficient simplification.
Held for sale. There should be no �held for sale� classification for non-financial assets, or groups of assets and liabilities, as is required by IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, and the proposed requirements for assets held for sale in Section 36 should be dropped from the final standard. Instead, the decision to sell an asset should be added as an impairment indicator.
Discontinued operations. Private entities should be required to identify and segregate amounts for discontinued operations in the statement of comprehensive income for the current period and all prior periods presented in the financial statements, unless impracticable. To reflect the Board�s decision directly above, the definition of a discontinued operation will no longer refer to components of an entity that are classified as held for sale.
First-time adoption. All of the optional exemptions for first time adopters in IFRS 1 First-time Adoption of International Financial Reporting Standards (eg parent and subsidiary adopt at different times, and deemed cost for investment property and intangible assets) should be added to Section 38 so they are available to private entities adopting the IFRS for Private Entities for the first time. An entity should not be allowed to benefit more than once from the special measurement and restatement exemptions available under Section 38, for example if the entity stops using the IFRS for Private Entities for a time and then is required, or chooses, to adopt it again later.
Disclosures. The Board considered a report on the views and recommendations of members of the Private Entities Working Group on disclosure issues, as well as staff recommendations on each. Nearly all of those recommendations were for further disclosure simplifications, although in a few cases the staff recommended additional disclosures. The staff�s recommendations were generally consistent with the recommendations of the Working Group and are set out in the attachment to Agenda Paper 6B for the meeting, available on the IASB�s Website. The Board agreed with most, but not all, of the staff recommendations. The Board�s decisions on disclosures are too numerous and too detailed to be reported individually in Update.
Outstanding issues. The Board will discuss outstanding issues in October and November. Some of the main outstanding issues relate to restructuring the financial instruments section, concepts and pervasive principles, classification of equity and debt, measurement of equity-settled share-based payments, accounting for defined benefit plans, impairment of goodwill, and lessee recognition of rent expense under an operating lease. In addition, at the meeting in September 2008 some Board members suggested that the Board should revisit, at a future meeting, several of the tentative decisions made during redeliberations, including the name of the standard, consolidation, amortisation of indefinite-life intangibles, and recognition of actuarial gains and losses.