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Beyond the GAAP no.57 - June 2012
For some months, the Leases project seemed to have reached deadlock, largely due to the difficulties encountered by the two Boards in deciding how to account for the result. Some observers were wondering whether it would ever see the light of day. Regardless of whether they will be pleased or upset, the two Boards have not thrown in the towel. They have just reached agreement on the profit or loss pattern in lessee accounting, and confirm that a new exposure draft will be published in 2012 (Q4), but remain guarded on the publication date for the final standard. This prudence is necessary given what is at stake, especially in view of the number of topics still to be addressed in the revenue recognition project in the light of the comments letters received.
There are not very many new standards for mandatory application to the 2012 reporting period, which is welcome news at the time when half-yearly accounts are under preparation. Only the IFRS 7 amendment on disclosures on financial assets may prove complex to apply.
This is only a temporary respite, however, and now is the time to prepare for tomorrow’s changes. The Accounting Regulatory Committee (ARC) has recently voted to endorse the new standards on consolidation. These will most probably come into force on 1 January 2014. As to the accounting for the subsequent liability recognised for NCI puts, the stranglehold is tightening with the publication of a draft interpretation proposing that all changes in the measurement of NCI puts must be recognised in profit or loss.
Financial instruments were in the spotlight in April! The two Boards continued their progress on the proposed “expected loss” impairment model for financial assets (Phase II of IFRS 9/Impairment), and in particular clarified how the expected loss estimate should be determined. The Boards also reached an agreement on the definition of a business model which would permit measuring financial assets at amortised cost, and on bifurcation of embedded derivatives (Reopening of Phase I of IFRS 9/ Classification and measurement).
At the beginning of May, the IASB published an exposure draft of proposed amendments to eleven IFRSs under its Annual Improvements project (cycle 2010-2012). The comment period is open until 5 September 2012.
At the end of March, the IASB updated its work plan, once again postponing the publication of documents relating to the joint projects on Financial Instruments and Leases.
In the case of Financial Instruments, publication of the Review Draft on hedge accounting and the Discussion Paper (or exposure draft, depending on the IASB's final decision) on macro-hedging have been put back to the second quarter and second half of 2012, respectively.
More surprisingly, the publication of the second exposure draft on Leases has also been postponed to the second half of 2012. This new delay has led some observers to question the IASB's ability to win acceptance for its new model and to lead this project to a conclusion within a reasonable time.
At the time of writing this editorial, the IASB Update - the official publication reporting on Board meetings - had not yet been published, as the IASB's last meeting spanned the end of February and the beginning of March. As a result, it is difficult for us to report on the Board's provisional decisions, given that the subjects discussed were particularly complex and open to interpretation.
We have decided to use this limbo period as an ideal opportunity to re-examine one of the IASB's major projects, namely the Insurance Contracts project. A lot of water has passed under the bridge since the project was launched in 2002.
It is already clear that 2012 will be a crucial year for the IASB. During the course of this year, the final texts of the joint projects on financial instruments, revenue recognition, leases and insurance contracts should all be published. Much is thus expected of the IASB.
Nevertheless, the new year has not started in top gear. January has been relatively quiet, and few important decisions have been taken at the Board