Discussion at the January 2009 IASB Meeting
Scope of IFRIC 9 and Revised IFRS 3
The Board agreed that an amendment to paragraph 5 of IFRIC 9 Reassessment of Embedded Derivatives was necessary to clarify that the scope of IFRIC 9 excludes contracts with embedded derivatives acquired in a combination between entities under common control or in the formation of a joint venture. With the revised definition of a 'business' in IFRS 3 (2008), the formation of a joint venture was brought within the scope of IFRIC 9, something that the Board had not addressed specifically as it developed IFRS 3 (2008).
The Board agreed that the scope of IFRIC 9 should be amended to read as follows:
5 This interpretation does not apply to the acquisition of contracts with embedded derivatives in:
- a. a business combination;
- b. a combination of entities or businesses under common control as described in paragraphs B1-B4 of IFRS 3 Business Combinations (as revised in 2008); or
- c. the formation of a joint venture as defined in IAS 31 Interests in Joint Ventures
nor their possible reassessment at the date of acquisition.
So this amendment can be in place in time for the effective date of IFRS 3 (2008) – 1 July 2009 – the Board agreed that it should issue an exposure draft of the proposals for a 30-day comment period (the minimum permitted by the IASB's Due Process Handbook). (See also Hedges of a Net Investment, below).
IFRIC 16 – Amendment to the restriction on the entity that can hold hedging instruments
The Board discussed an issue that had been submitted by a constituent subsequent to the publication of IFRIC Interpretation 16 Hedges of a Net Investment in a Foreign Operation.
The staff had satisfied itself (in consultation with Board members and an IFRIC member) that the constituent's issue was valid and had not been contemplated by the IFRIC when IFRIC 16 was being developed. The concern raised was that in some circumstances, while the total amounts of foreign exchange differences are indeed the same with and without hedge accounting, the split between the amounts included in profit or loss and foreign currency translation reserve would be different. Without hedge accounting, the foreign exchange difference arising from the hedging instrument would be included in profit or loss while the difference arising from the net investment would be included in the foreign currency translation reserve.
The Board agreed to amend IFRIC 16 paragraph 14 by deleting a parenthetical comment: '(except the foreign operation that itself is being hedged)'.
The Board agreed that it should issue an exposure draft of the proposals for a 30-day comment period (the minimum permitted by the IASB's Due Process Handbook). It was acknowledged that it was unlikely that any amendment could be finalised in time to accommodate first quarter 2009 interim reporting.
January 2009: Exposure Draft issued
On 30 January 2009, the IASB issued Exposure Draft ED/2009/1 Post-implementation Revisions to IFRIC Interpretations (Proposed amendments to IFRIC 9 and IFRIC 16). The proposals would amend IFRIC 9 Reassessment of Embedded Derivatives and IFRIC 16 Hedges of a Net Investment in a Foreign Operation. The proposed changes are:
- IFRIC 9: Exclude from the scope of IFRIC 9 embedded derivatives in contracts acquired in combinations of entities or businesses under common control or in the formation of a joint venture. The proposed effective date is annual periods beginning on or after 1 July 2009.
- IFRIC 16: Allow entities to designate as a hedging instrument in a hedge of a net investment in a foreign operation an instrument that is held by the foreign operation that is being hedged. The proposed effective date is annual periods beginning on or after 1 October 2008.
The IASB requests comments on the ED by 2 March 2009. Click here for Press Release (PDF 43kb).
Deloitte's IFRS Global Office has published an IAS Plus Update Newsletter (PDF 131k) explining the proposals in the ED.
Discussion at the March 2009 IASB Meeting
ED/2009/1: Scope of IFRIC 9 and IFRS 3
The staff noted that the proposals would exclude from the scope of IFRIC 9 Reassessment of Embedded Derivatives contracts with embedded derivatives acquired in a combination of entities or businesses under common control or the formation of a joint venture. The amendment became necessary because the definition of a business combination changed under IFRS 3 as revised in 2008.
Staff further highlighted that the vast majority agreed with the proposals and that only one comment letter wanted the exemption to be extended to investments in associates. The staff recommended not extending the scope exemption because obtaining significant influence is not the same as obtaining control.
The Board agreed to proceed with the proposals subject to drafting changes.
ED/2009/1: Removal of restriction of hedging instruments in IFRIC 16
The proposals would remove the restriction currently in IFRIC 16 Hedges of a Net Investment in a Foreign Operation to designate as a hedging instrument in a hedge of a net investment in a foreign operation a financial instrument that is being held by the hedged entity.
The staff noted that most respondents agreed with this proposal. However, many constituents were concerned about the proposed effective date of 1 October 2008 as this would imply the possibility of backdating without having the appropriate (and required) hedge documentation in place at that date.
After brief discussion the Board agreed on an effective date of 1 July 2009, with earlier application permitted. It was further agreed that the Basis for Conclusions would make clear that the amendment did not introduce the possibility of backdating hedging relationships.
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