Chronology
Timetable
Background
Each year the Board considers minor amendments to IFRSs in an annual improvements project. The amendments are proposed in an omnibus Exposure Draft.
Discussion at the October 2007 IASB Meeting
IAS 18 – Determining whether an entity is acting as a principal or as an agent
At its September 2007 meeting, the IFRIC decided not to develop an Interpretation of IAS 18 determining whether an entity is acting as a principal or as an agent, agreeing instead to remove the issue from its agenda. The IFRIC also decided to recommend to the Board that implementation guidance should be added to the Appendix to IAS 18 to help constituents to determine whether an entity is acting as a principal or as an agent.
The Board tentatively agreed with the IFRIC recommendation and, subject to editorial corrections, agreed that the following proposed implementation guidance should be included in the Appendix to IAS 18 as part of the Annual Improvements 2008 project:
Paragraph 8 states that 'in an agency relationship, the gross inflows of economic benefits include amounts collected on behalf of the principal and which do not result in increases in equity for the entity. The amounts collected on behalf of the principal are not revenue. Instead, revenue is the amount of commission.'
Determining whether an entity is acting as a principal or an agent depends on facts and circumstances and requires judgement. An entity is acting as a principal when it has exposure to the significant risks and rewards associated with the sale of goods or the rendering of services. Features that, individually or in combination, may indicate that an entity is acting as a principal include:
- (a) the entity has the primary responsibility for providing the goods or services desired by the customer or for fulfilling the order, for example by being responsible for the acceptability of the products or services ordered or purchased by the customer;
- (b) the entity has inventory risk before or after the customer order, during shipping or on return;
- (c) the entity has discretion in establishing prices directly or indirectly, such as by providing additional goods or services;
- (d) the entity has credit risk.
An entity is acting as an agent when it does not have exposure to the significant risks and rewards associated with the sale of goods or the rendering of services. One feature that may indicate that an entity is acting as an agent is that the amount the entity earns is predetermined, being either a fixed fee per transaction or a stated percentage of the amount billed to the customer.
Disclosures required for non-current assets (or disposal groups) classified as held for sale or discontinued operations under IFRS 5
At its September 2007 meeting, the IFRIC considered a request to clarify whether the disclosure requirements of other standards, in the absence of specific exclusion, would apply to non-current assets (or disposal groups) classified as held for sale or discontinued operations in accordance with IFRS 5. The IFRIC concluded that this issue could be resolved efficiently through an amendment to clarify IFRS 5 and decided to draw the issue to the attention of the Board rather than taking the item on to its own agenda.
The Board considered two potential alternative approaches to addressing this issue:
- View A: IFRS 5 and other standards that specifically relate to non-current assets (or disposal groups) classified as held for sale or discontinued operations set out all the disclosures required in respect of those assets or operations. Disclosures required by other standards do not apply to such assets (or disposal groups).
- View B: Disclosures required by IFRSs, whose scope does not exclude non-current assets (or disposal groups) classified as held for sale or discontinued operations, continue to apply to such assets (or disposal groups).
The Board discussed the two approaches and noted that splitting out disclosures as proposed by View B would present practical difficulties. The Board did not make a final decision on which approach is preferable. It requested staff to perform further analysis to be presented at a future Board meeting.
Discussion at the December 2007 IASB Meeting
IFRS 8: Disclosures of Information about Segment Assets
The IASB staff presented a proposal for the 2008 annual improvements process. The staff asked the Board whether IFRS 8 should be amended to eliminate an unintended potential divergence from existing US practice regarding the disclosures of information about segment assets. Specifically:
- (a) should a measure of segment assets be disclosed even when such information is not provided to the chief operating decision maker (CODM) notwithstanding that this requirement creates a difference from existing US practice?
- (b) Should the standard be amended to state clearly the disclosure requirement for segment assets that the Board intends?
The issue arises as BC35 appears to require such disclosures in all cases even when those amounts are not provided to the CODM. This interpretation contradicts guidance published for the application of SFAS 131 Disclosures about Segments of an Enterprise and Related Information. Further, information about segment assets is not listed as one of the intended differences between IFRS and US GAAP.
The Board agreed that a measure of segment assets should only be disclosed when such information is provided to the CODM and no difference should be created from US practice. The Board further agreed to amend the Basis for Conclusions and to make no changes to the standard of IFRS 8. This amendment is to be included in the 2008 annual improvements process.
Scope of Paragraph 11A of IAS 39 - Application of Fair Value Option
The staff presented a paper to the Board analysing two alternative interpretations of paragraph 11A of IAS 39. The issue was initially referred to the IFRIC when they were asked to consider whether the fair value option (FVO) available in paragraph 11A of IAS 39 can be applied to all contractual arrangements with one or more 'substantive' embedded derivatives, including contractual arrangements that contain host contracts outside the scope of IAS 39. The IFRIC referred the issue to the Board as it relates to some of the basic requirements of IAS 39 and amendments to the standard may be required.
IAS 39 paragraph 11A states that 'Notwithstanding paragraph 11, if a contract contains one or more embedded derivatives, an entity may designate the entire hybrid (combined) contract as a financial asset and financial liability at fair value through profit or loss'.
The issue arises as to whether paragraph 11A applies to all hybrid contracts, even if , in the absence of such designation, the host would not be in the scope of IAS 39 or whether paragraph 11A only applies to hybrid contracts with financial hosts in the scope of IAS 39.
The Board agreed that the wording of IAS 39 should be amended to clarify that paragraph 11A only applies to financial host contracts in the scope of IAS 39. This amendment is to be included in the 2008 annual improvements process.
Application of Paragraph AG33(d)(iii) - Bifurcation of Embedded Foreign Currency Derivative
In May 2007 the IFRIC issued a tentative agenda decision, noting that applying AG33(d)(iii) of IAS 39 requires an entity to:
- identify where the transaction takes place; and
- identify currencies that are commonly used in the economic environment in which the transaction takes place.
However at its September 2007 meeting the IFRIC decided to refer the issue to the Board because any guidance developed would be more in the nature of application guidance rather than an interpretation.
The IASB staff presented a paper to the Board outlining the issue and inconsistencies in practice with respect to the application of paragraph AG33(d)(iii)and suggested amended wording for the Board's consideration. The staff noted that the standard does not explain the meaning of economic environment and noted that entities are interpreting 'economic environment' in different ways.
The IASB staff believe that the intent of the exemption is to allow preparers not to separate embedded foreign currency derivatives if the embedded derivatives are integral to the arrangement and therefore bear a close relationship to the terms of the contract. That is, the exemption applies to embedded foreign currency derivatives that have been entered into for reasons that are clearly not based on achieving a desired accounting result or for speculative purposes.
The staff presented examples of situations in which foreign currency would be considered to be integral and noted that in each example the currencies have many of the characteristics of a functional currency (that is, the currency of the primary economic environment in which the entity operates).
The IASB staff recommended to the Board that the paragraph be amended to refer to the characteristics of a functional currency as detailed in paragraph 9 of IAS 21 (refer to Agenda paper 3C Appendix 1 for the proposed wording of the amendment). The Board agreed. This amendment is to be included in the annual improvements process.
Cash Flow Hedge Accounting Issues
The IASB staff presented an issue for clarification as to the period in which gains or losses on hedging instruments should be reclassified from equity to profit or loss as a reclassification adjustment for cash flow hedges. In particular, the staff noted that there was some confusion regarding the period during which reclassification adjustments should be made if the hedged forecasted transaction resulting in recognition of a financial instrument. The staff proposed amendments to paragraph 97 and 100 of IAS 39 to remove any confusion as to the appropriate timing of reclassification.
The Board agreed that the paragraphs required amendment; however a number of Board members had issues with the proposed wording, and the Board decided that drafting the proposed amended wording would be concluded offline. The resulting amendment is to be included in the annual improvements process.
Discussion at the January 2008 IASB Meeting
Disclosures required for non-current assets (or disposal groups) classified as held for sale or discontinued operations under IFRS 5
The staff presented a paper on disclosures required for non-current assets (or disposal groups) classified as held for sale or discontinued operations. This issue was previously discussed at the October 2007 Board meeting at which the Board agreed that:
- IFRS 5 specifies the disclosures required in respect of non-current assets (or disposal groups) classified as held for sale or discontinued operations;
- Disclosures in other IFRSs do not apply to such assets (or disposal groups) unless that other IFRS specifically requires a disclosure in respect of non-current assets (or disposal groups) classified as held for sale or discontinued operations; and
- Other disclosures about such assets (or disposal groups) may be necessary to comply with the general requirements of IAS 1 Presentation of Financial Statements.
At the October 2007 meeting the Board asked staff to analyse whether it would be burdensome to segregate the information relate to assets held for sale and whether the information produced would be meaningful. The staff have completed this research, and recommended that the Board clarify the disclosure requirements of IFRS 5 though the Annual Improvements Process to reflect the discussion at the October 2007 board meeting. The staff proposed changes to IFRS 5 to reflect the above decisions. The board agreed, subject to editorial changes.
Discussion at the April 2008 IASB Meeting
Application of IAS 39.2
The purpose of this session was to seek Board members' views on adding to the Annual Improvements Project 2008 an amendment regarding the applicability of the scope exemption in IAS 39.2(g), which excludes from the scope of IAS 39 Financial Instruments: Recognition and Measurement contracts between an acquirer and a vendor in a business combination to buy or sell an acquiree at a future date. The question raised was whether this applies only to binding contracts (forwards) or whether it applies more widely and whether it could be applied by analogy.
Originally, this issue had been referred to the IFRIC along with the question whether IAS 39 paragraph 2(g) could be applied to similar transactions (such as contracts with an associate) by analogy. The IFRIC concluded that the standard is ambiguous, which could lead to diversity in practice.
The staff presented an analysis of the scope exemption for three types of financial instruments in a business combination:
- Binding contracts (such as forwards) constituting control within the period necessary to complete a business combination.
- Currently exercisable option contracts to acquire shares in another entity the exercise of it would result in a transaction to which IFRS 3 applies.
- Non-currently exercisable option contracts to acquire shares in another entity.
On forward contracts, the staff analysis concluded that the scope exemption in paragraph 2(g) applies. For currently exercisable options, the staff noted that IAS 39 provides another scope exemption in paragraph 2(a), which precedes paragraph 2(g). Finally, the staff concluded that paragraph 2(g) is not applicable to non-currently exercisable option contracts.
The Board only discussed this issue briefly. One Board member noted that originally the Board excluded such contracts because there might be a period between agreement and closing of a business combination. Some Board members suggested drafting changes. The Board agreed to the proposed wording by the staff subject to drafting changes.
The staff then asked the Board if it would concur with the staff recommendation that paragraph 2(g) could not be applied to similar transactions by analogy. The Board agreed.
Furthermore, the Board confirmed that this amendment should be included as part of the Annual Improvements Project 2008.
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