Accounting for insurance contracts is one of the longest outstanding projects in the history of the International Financial Reporting Standards (IFRS). The IASC (predecessor to IASB) set up a steering committee in 1997 for the initial work on this project. As an interim measure, the IASB completed phase I of this project in March 2004 by issuing IFRS 4 Insurance Contracts. The IASB's objectives for phase I were: to make limited improvements to accounting for insurance contracts; and to require entities issuing insurance contracts to disclose information about those contracts. The IASB is still working on a comprehensive standard for insurance contracts. It issued an exposure draft (ED) of proposed IFRS in July 2010. It received comment letters from 247 respondents. It is expected to issue the revised ED of proposed IFRS in the second half of 2012. Currently, the target dates for the issue of final IFRS and its implementation are not known.

Financial instruments remain thorny

Accounting for financial instruments, including derivatives and hedges, has been a difficult and controversial subject. In the US, the Financial Accounting Standards Board (FASB) took 12 years, from 1986 to 1998, to issue its standard on derivative and hedge accounting. To develop an ED and discuss possible issues and approaches, FASB held 100 public meetings, including 74 board meetings, 10 meetings with members of FAS Advisory Council, seven meetings with members of the Financial Instruments Task Force and its subgroup, and nine meetings with outside representatives. In addition, FASB members and staff visited numerous companies and participated in meetings with different representational groups. The FASB received 450-plus comment letters on the ED at two stages and these comments were discussed at 31 public meetings, before issuance of the final standard in 1998. Further issues continue to arise, requiring changes in the standard and/ or additional guidance. To simplify accounting for financial instruments, IASB and FASB are working on a joint project since 2005.

IFRS – a moving target

Companies reporting under IFRS continue to face a steady flow of new standards and interpretations. This trend is likely to continue in the foreseeable future. The changes range from significant amendments of fundamental principles to minor alterations in the annual improvements process. The International Accounting Standards Board (IASB) recently issued revised standards on fair value measurement, consolidated financial statement and joint arrangements that are applicable for accounting from January 1, 2013. The key IFRS standards that are currently under revision include financial instruments, revenue and leases. Some of the changes have implications that go beyond matters of accounting, potentially also impacting the IT systems of many companies. Furthermore, these changes may impact business decisions, such as the design of joint arrangements or the structuring of transactions. The challenge is in understanding what lies ahead.

Guidance note on emission rights

Institute of Chartered Accountants of India recently issued a guidance note on accounting for self-generated Certified Emission Rights (CER). According to the note, if the CER meets the recognition criteria, it should be accounted for as inventory. It further explains that only the cost incurred for certification of CERs is the cost of inventories. In the absence of specific guidance, many companies in India were accounting for CER as an intangible asset at fair value. Application of this guidance will require these companies to reclassify CER as inventory and recognise it at cost or net realisable value, whichever is lower. While this will bring uniformity in accounting for these assets, it can impact the profit and loss of some companies.

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