Amendment to IAS 19 issued

In December, the IASB issued an 'Amendment to IAS 19 Employee Benefits: Actuarial Gains and Losses, Group Plans and Disclosures'. The ASB welcomes this amendment, which modifies three aspects of IAS 19, making it more convergent with the UK standard FRS 17. FRS 17 itself came into full effect from 1 January 2005 for UK entities not subject to IFRSs.

The amendment introduces an option allowing companies to bring the full actuarial gain or loss into their financial statements in the period it arises by recognising it outside profit and loss in a new statement entitled the 'statement of recognised income and expense'. For those using the option, the new statement would operate in exactly the same way and include the same items as the UK's statement of total recognised gains and losses. Previously, IAS 19 required such gains and losses to be recognised within profit and loss, whilst permitting a wide range of options regarding the period in which they had to be brought to account; in consequence, nearly all companies chose to spread the gain or loss rather than swamp their reporting of current trading with potentially large and volatile amounts.

In addition, the amendment requires improved disclosures, including many also required by FRS 17, and slightly eases the methods whereby the amounts recognised in the consolidated financial statements have to be allocated to individual group companies for the purposes of their own reporting under IFRSs.

IAS 39 - transition and initial recognition

In December the IASB issued an amendment to IAS 39 'Financial Instruments: Recognition and Measurement' introducing an additional transitional relief that applies on adoption of one aspect of the revised version of this standard issued in December 2003. Under the standard, the fair value of a financial instrument at the date of its acquisition is taken to be the transaction price unless a different value is available based on observable market prices - so in the absence of such prices, no immediate profit ('day one profit') can arise. The new amendment means that no restatement of earlier transactions is required on first applying this prohibition on recognising day one profits; the date from which transactions are restated can be either 1 January 2004, or 25 October 2002 (the effective date of similar requirements in US GAAP, thus allowing entities who also report under US GAAP to adopt the new requirements consistently).

The ASB will consider a corresponding amendment to FRS 26 (IAS 39) 'Financial Instruments: Measurement'; this was issued for exposure in Part 2 of FRED 30 Third Supplement 'Further amendments to the proposed standards on financial instruments' in July 2004.

IASB standard on Extractive Activities

Also in December, the IASB issued IFRS 6 'Exploration for and Evaluation of Mineral Resources' as the first step of a project to achieve the convergence of widely varying accounting practices for extractive activities around the world. IFRS 6 exempts from certain requirements of IFRSs and the IASB 'Framework for the Preparation and Presentation of Financial Statements' entities that are engaged in the exploration for and evaluation of mineral resources. Thus, an entity adopting IFRS 6 may continue to use the accounting policies applied immediately before adopting the IFRS. This includes continuing to use recognition and measurement practices that are part of those accounting policies.

IFRS 6 requires entities recognising exploration and evaluation assets to perform an impairment test on those assets when facts and circumstances suggest that the carrying amount of the assets may exceed their recoverable amount. The standard also seeks to improve transparency by requiring improved disclosures for exploration and evaluation assets.

IFRS 6 is effective for annual periods ending on or after 1 January 2006. In the UK, guidance on accounting for exploration and evaluation costs is provided for the oil and gas industry in the SORP 'Accounting for Oil and Gas Exploration, Development, Production and Decommissioning Activities' prepared by the Oil and Gas Accounting Committee (OIAC). UK entities adopting IFRSs in 2005 and using the IASB's exemption election will continue to use the accounting policies recommended by the OIAC SORP.