G4+1 affirms commitment to convergence

The G4+1 met in Australia on October 11–13, 2000, and issued a communiqué on its proceedings and preliminary agenda for its meeting in London on January 30 to February 1. The G4+1 comprises members of national standards-setting bodies from Australia, Canada, New Zealand, the United Kingdom, and the United States, and observer representatives of the International Accounting Standards Committee (IASC).

New basis measurement. The G4+1 continues to explore an approach that would require that the carrying amounts of assets and liabilities of controlled entities (e.g., subsidiaries of a parent company) be adjusted to reflect the controlling entity’s carrying amounts for the assets and liabilities at the date the parent acquires control. The group discussed applying the approach to situations involving the sale of a subsidiary’s shares and combinations of entities under common control (reorganization transactions). At its London meeting, the group will explore whether use of the controlling entity’s basis would be limited to circumstances involving a change in control at the ultimate parent level and will focus on situations involving step-acquisition transactions.

Measurement alternatives for nonfinancial items. The discussion to date has focused on existing requirements for remeasuring assets pursuant to a revaluation or the recognition of an impairment loss.

Intangibles. The group’s discussion of definitional aspects of intangible (primarily acquired) assets focused on the requirement that an entity control the service potential or the future economic benefits associated with an item. Satisfying the control criterion is based on the contractual or legal rights to the future economic benefits and the separability of the intangible from other assets. The group also discussed recognition criteria for assets and whether an intangible item meeting the definition and the recognition criteria for assets must be recognized at cost or could be recognized at another reliably determined value.

Convergence of accounting standards. What are the prospects for the convergence of accounting standards in key areas for joint national and international standards-setting efforts? The G4+1 may express support for certain topics to be specifically considered by the IASC. Group members reaffirmed their commitment to the convergence of national standards toward high-quality international solutions and the restructured IASC. The group has made progress on its comparison of members’ conceptual frameworks and discussed similarities and differences in the areas of financial reporting objectives and definitions of elements (e.g., assets and liabilities) and their recognition criteria.

Liability recognition. The group’s discussion of liability recognition focused on the circumstances in which the settlement of an obligation would maintain or enhance the fair value or service potential of an existing asset. One approach that has been discussed would permit recognition of a liability only to the extent that an entity was presently obligated and the settlement transaction would result in a net decrease in the fair value of the obligated entity’s net asset position.

Financial instruments. The Financial Instruments Joint Working Group (JWG) reported it has almost completed a final draft of a proposed comprehensive accounting standard on the recognition and measurement of financial instruments using fair value as the basis of measurement. The JWG document and additional explanatory material will be released for comment in members’ respective jurisdictions.

Revenue recognition. The group discussed the revenue recognition issues that FASB’s Emerging Issues Task Force (EITF) has been considering, including accounting for barter transactions, shipping and handling fees, sales incentives, and multiple-element revenue arrangements. The group will discuss whether existing guidance would resolve the issues or if alternative approaches should be explored.

Project updates. The group discussed the status of a U.K. project on leasing, including issues raised in comments from constituents and certain residual value guarantee arrangements in the G4+1 discussion paper, “Leases: Implementation of a New Approach.”

Also discussed was FASB’s project on accounting for liabilities and equity and the IASC’s IAS 39 Implementation Group Committee progress on guidance for implementing “Financial Instruments: Recognition and Measurement.”

Forthcoming publication. G4+1 expects to publish a paper on the equity method of accounting in each member’s jurisdiction during 2001.

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