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15 November 2010

Summary of EFRAG/IASB joint meeting held on 12 November 2010


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EFRAG hat eine Zusammenfassung der wichtigsten Standpunkte seitens seiner Delegation veröffentlicht. Das Treffen galt als Fortsetzung des konstruktiven Dialog zwischen EFRAG und des IASB und ihrer vorherigen gemeinsamen Sitzung vom 26. August 2010.


The EFRAG delegation and the IASB representatives discussed the following main topics:

1. Quality and timing – EFRAG has reaffirmed its support for the IASB’s efforts to achieve convergence but continues to see high quality IFRSs as first priority. In EFRAG’s view, projects should not be subject to rigid deadlines, rather the schedule for their completion should allow for careful redeliberation, proper due process and field-testing to ensure the quality and relevance of the resulting financial reporting. The need for field-testing has been identified particularly for the revenue recognition, leases and consolidation projects.

2. Revenue recognition – While the IASB’s proposals have the potential to help bring greater consistency in revenue recognition, the model as defined would be difficult to apply to contracts for services and to long-term contracts, and eventually not result in relevant revenue information for the industries affected. EFRAG supports efforts to develop one single model for revenue recognition insofar as the model fits all industries without exception. In addition, several proposals would raise significant implementation difficulties in some industries. EFRAG therefore recommends that IASB undertake field-testing in those industries and for those activities where comment letters and outreach have signalled that difficulties are likely to be encountered. As a result, it may be necessary to adjust the proposals in the final standard.

3. Leases – The scope of application of the right-of-use model is a critical aspect of the leasing proposals. EFRAG is concerned that the IASB proposals do not set the dividing line between services and leases appropriately. In addition to being essential to the relevance of the right-of-use model in lessee accounting, getting this boundary right will help, in EFRAG’s view, solving the difficulties encountered in lessor accounting. EFRAG therefore strongly favours simultaneous completion of the guidance for lessees and lessors. Moreover, EFRAG shares IASB’s Board member Stephen Cooper’s analysis in the treatment of options and contingent rentals. EFRAG further notes that implementing the Board’s proposals could be very costly, beyond the satisfaction of a reasonable cost/benefit trade-off. Field-testing would be, in EFRAG’s view, a necessary next step to guide the IASB’s redeliberations.

4. Hedge accounting– EFRAG supports that the objective of hedge accounting should be to reflect the extent of an entity’s hedging activities pursuant to its risk management strategy and recommends that the Board affirm this objective in each of its decisions. Participants also discussed the IASB’s approach and time line for completing the revised hedge accounting model. In EFRAG’s view, the general hedging and macro hedging models are inextricably linked. While it would be possible to consult on these elements sequentially, it would not be advisable to finalise the one before the other.

5. Financial instruments– EFRAG noted that the IASB had started to address how the basic loan feature test in IFRS 9 should be interpreted in practice (i.e. the extent to which maturity and interest rate should match) and the accounting for non-recourse loans under that standard. Participants also discussed the completion of the financial instruments project and the need to assess the package as a whole, with each individual phase of the project also being assessed for its own merit. EFRAG reiterated recommendations made in response to the request for input on the FASB proposals, more particularly in the area of classification and measurement of financial assets.

6. Consolidation– EFRAG provided comments on the time line for completing the consolidation standard and following a first review of the staff draft issued by the IASB. EFRAG recommended that the consolidation standard be finalised in one single phase, i.e. after the full due process on the possible exemption for investment companies. EFRAG also noted that although the staff draft reflected significant improvement from the ED proposals, it still looked uncertain whether the standard could be implemented on a consistent basis and whether it would always trigger the appropriate consolidation decision. EFRAG suggested that field-testing be undertaken to ensure that the scope of consolidation would remain appropriate in all circumstances. EFRAG stressed that a comprehensive feedback statement would serve an important role in explaining why concerns expressed at the exposure draft stage would not arise in practice.

7. Insurance contracts– EFRAG referred to its preliminary views on the Board’s proposals on accounting for insurance contracts. EFRAG noted that the interrelationships between IFRS 9 and the Board’s proposals, and more generally the issue of accounting and economic mismatches, had generated significant debate in the past months. EFRAG was interested in being updated on the outcome of the Board’s outreach activities in this respect. In addition, EFRAG noted that the extent of the debate seemed to suggest that June 2011 would no longer be a feasible deadline for the project.

8. Other issues – EFRAG followed up on its latest comments on the Fair Value Measurement staff draft in relation to non-financial assets and liabilities. EFRAG also discussed the revised schedule for the Financial Statement Presentation project and how it should impact EFRAG’s own schedule for bringing input to the IASB prior to redeliberations. While it welcomed the postponement of the Financial Statement project and of the Financial Instruments with Characteristics of Equity project, EFRAG signalled the disappointment of cooperatives in Europe who have been expecting amendments to IAS 32 for many years and asked whether the IASB would consider a short-term amendment. Finally, EFRAG commented on the results of its public consultation on its proactive agenda, and discussed more particularly how best to coordinate with the IASB progress on the disclosure framework project and early work on post-implementation reviews.

Full paper


© EFRAG - European Financial Reporting Advisory Group

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