Issue

The Board, in its Exposure Draft of Improvements to IAS 1 proposed deleting the requirement that the line items: “the results of operating activities” and “profit or loss from ordinary activities” be presented. Because some entities are likely to continue presenting these line items, either voluntarily or because they are required to (eg by local law), the IFRIC discussed whether it would be appropriate for it to give guidance on the types of items that would not be included in operating activities and ordinary activities.

Decision not to add

February 2003

Reason

The IFRIC agreed not to take this item on its agenda because it would be best dealt with as part of the joint IASB / FASB project on Reporting Comprehensive Income.

IFRIC reference: IAS 1

Issue

The issue is whether the IFRIC should add six deferred tax issues to its agenda (listed below).  The IFRIC noted that all of the issues would potentially be affected by the Board’s short-term convergence project on IAS 12 Income Taxes that will be discussed by the Board in April. The IFRIC agreed to await the Board’s decision on the scope of that project before deciding whether to proceed with these agenda items.

Decision not to add

February 2003

Reason

Issues 1-3 concern whether, and how, entities should apply the exemption from recognising deferred tax on initially recognising assets and liabilities.

Issue 4:  Any entity issues an equity instrument, any payments made under which will be deductible against taxable profits.

Should the entity recognise a deferred tax asset on recognising an equity instrument, and should the income tax benefit arising on any payments made under the instrument be recognised in income or equity?

Issue 5:  An entity purchases an option on its own shares and classifies it as an equity instrument.  For tax purposes, the cost of the option will be deductible against future taxable profits at some point in the future.  Should an entity recognise a deferred tax asset on recognising the equity instrument?

Issue 6:  Certain tax jurisdictions compute tax liabilities on a territorial rather than a worldwide basis, so that overseas income is not taxable unless it is repatriated.  If the entity does not intend to repatriate the overseas interest income, and therefore does not expect to be liable to domestic taxation, should it recognise a deferred tax liability?
The IASB has tentatively decided to amend IAS 12 to eliminate the ‘initial recognition exception’.  Accordingly, the IFRIC declined to take this item onto the agenda.

The IFRIC agreed that the underlying issue was how to account for the tax consequences of distributions to external shareholders.  The IFRIC observed that the accounting for tax-deductible dividends is explicit in IAS 12.  Paragraph 52B of IAS 12 states:

…the income tax consequences of dividends are recognised when a liability to pay the dividend is recognised.  The income tax consequences of dividends are more directly linked to past transactions or events than to distributions to owners.  Therefore, the income tax consequences of dividends are recognised in net profit or loss for the period as required by paragraph 58 except to the extent that the income tax consequences of dividends arise from the circumstances described in paragraph 58 (a) and (b).

The Board reaffirmed at the April 2003 meeting that the tax consequences of dividends are recognised when a liability to pay the dividend is recognised.  Accordingly, the IFRIC agreed that no further consideration of this issue is necessary.

At the June 2004 meeting, the Board tentatively agreed to modify the definition of tax base in IAS 12 to explain that tax base is a measurement attribute and is the amount at which an asset, liability or equity instrument is recognised for tax purposes under existing tax law as a result of one or more past events.  Accordingly, an entity would recognise deferred tax for temporary differences arising on equity instruments.


The IFRIC agreed that IAS 12 requires recognition of a deferred tax liability.  The current exception in IAS 12 relates to differences between the carrying amount of investments in subsidiaries, branches and associates or interests in joint ventures that result primarily from undistributed earnings.  The exception does not apply to the temporary differences that exist between the carrying amount and tax base of the individual assets and liabilities within the subsidiary, branch, associate or interest in joint ventures.

Additionally, the Board has tentatively decided to eliminate this exception. Thus, the IFRIC agreed to take no further action.

IFRIC reference: IAS 12

Issue

The IFRIC considered two issues focused on IAS 36 paragraph 37, which requires the cash flows used in the value in use calculation not to include cash flows that are expected to arise from (a) a future restructuring to which an enterprise is not yet committed; or (b) future capital expenditure that will improve or enhance the asset in excess of its standard of performance assessed immediately before the expenditure is made.  The IFRIC noted that it was likely that resolution of these issues would require an amendment to IAS 36. Also the IASB is already amending IAS 36 as part of its project on business combinations. For these reasons, the IFRIC agreed that these issues would be better addressed directly by the Board rather than by the IFRIC.

Decision not to add

February 2003

Reason

The Board considered this issue at the November 2003 meeting, making a minor amendment to the IAS 36 paragraph 27(b) as a result of the discussion.

These issue are clarified at length in paragraphs BC68-BC75 of the Basis of Conclusions of IAS 36.

IFRIC reference: IAS 36

Issue

Four scenarios were considered concerning the classification of treasury shares in the consolidated cash flow statement, under IAS 7:

• a subsidiary purchases (sells) shares of its parent;

• the parent entity purchases (sells) shares of its subsidiary from (to) minority interest holders;

• the subsidiary issues shares to minority interest holders; and

• the subsidiary purchases its own shares from minority interest holders.

Decision not to add

April 2003

Reason

While the IFRIC noted that conclusions could be drawn that were consistent with the current accounting for transactions with minority interest holders, it also noted that this accounting will probably change, given the Board’s tentative decision that transactions between majority and minority interest holders are equity transactions.  Therefore, the IFRIC agreed that the issue should be passed to the Business Combinations Phase II team for consideration of consequential amendments to IAS 7.

IFRIC reference: IAS 7

Issue

The issue concerns the recognition and measurement of tax assets and tax liabilities under the tax consolidation system where a wholly owned subsidiary leaves, or is expected to leave, the tax-consolidated group.

Decision not to add

April 2003

Reason

The IFRIC noted that this issue was relevant only to separate (rather than consolidated) financial statements, and that it would be difficult to provide guidance that could be applied consistently by entities, given that tax laws in each jurisdiction are different. For these reasons, the IFRIC agreed not to add this issue onto the agenda.

IFRIC reference: IAS 12

Issue

The issue is how an employer should account for the separation of the substitutional portion of the benefit obligation of employees' pension fund plans (which are defined benefit pension plans established under the Japanese Welfare Pension Insurance Law) from the corporate portion and the transfer of the substitutional portion and related assets to the Japanese government.

Decision not to add

April 2003

Reason

The IFRIC agreed that this issue did not have widespread and practical relevance in an IFRS context (ie the issue is too narrow to take onto the IFRIC’s agenda). The IFRIC also noted that it was not aware of any interpretive questions that have arisen on this issue in practice.

IFRIC reference: IAS 19

Issue

The issue is which exchange rate an entity should use for remeasuring foreign currency transactions and translation of foreign operations if more than one exchange rate is available.

Decision not to add

April 2003

Reason

The IFRIC agreed that the guidance in the improved IAS 21 is satisfactory and decided not to take the issue on to its agenda.

IFRIC reference: IAS 21

Issue

The issue is which exchange rate an entity should use for remeasuring foreign currency transactions and translation of foreign operations if more than one exchange rate is available.

Decision not to add

April 2003

Reason

The IFRIC agreed that the guidance in the improved IAS 21 is satisfactory and decided not to take the issue on to its agenda.

IFRIC reference: IAS 21

Issue

The IFRIC considered various examples that raise the issue of whether the presumption in the Exposure Draft to improve IAS 28 Accounting for Investments in Associates that an investor has “significant influence” over the operations of an investee if it holds directly or indirectly through subsidiaries, 20 per cent or more of the voting power of the investee is met. The examples fell into two main categories:

(a) When the investor has a subsidiary that is less than wholly-owned, and the subsidiary holds 20 per cent of the voting power of the investee; and

(b) When the investor holds 20 per cent or more of the voting power of the investee through associates or joint ventures (rather than subsidiaries).

Decision not to add

April 2003

Reason

The IFRIC agreed that in the examples that fell under:

(a)  the presumption was met.

(b) in one case, the conclusion that equity accounting would be applied was based on the mechanics of equity accounting rather than using the 20 per cent presumption, and in another case, it was unclear as to whether the presumption was met.

The IFRIC agreed to pass this issue to the Improvements project to clarify the wording in IAS 28.   Paragraph 6 of the revised IAS 28 was revised to address this issue (paragraph 4 of the exposure draft).

References

Improvements Exposure Draft IAS 28 paragraph 4:

“If an investor holds, directly or indirectly through subsidiaries, 20 per cent or more of the voting power of the investee, it is presumed that the investor has significant influence....” [emphasis added]

Improvements Standard IAS 28 paragraph 6:

“If an investor holds, directly or indirectly (eg through subsidiaries),...

IFRIC reference: IAS 28

Issue

In connection with its discussion of EITF Issue No. 02-14 Whether the Equity Method of Accounting Applies When an Investor Does Not Have an Investment in Voting Stock of an Investee but Exercises Significant Influence through Other Means, at the 21 November 2002 meeting, the EITF discussed the meaning of other-than-temporary impairment and its application to certain investments carried at cost.

The EITF requested that the FASB staff consider other impairment models within U.S. GAAP when developing its views. The EITF also requested that the scope of the impairment issue be expanded to include equity method investments and investments subject to FASB Statement No. 115 Accounting for Certain Investments in Debt and Equity Securities, and that that issue be addressed by the EITF as a separate issue.

Decision not to add

April 2003

Reason

The IFRIC agreed to not take this issue onto the agenda because it may be affected by the Board’s decisions in its project on proposed amendments to IAS 32, and IAS 39.

The distinction between an impairment (or reversal of an impairment) and other falls (or rises) in value was considered by the Board when improving IAS 39.

While IFRS does not contain the notion of “other than temporary” impairment, IAS 39.61 (December 2003) states that:

“..A significant or prolonged decline in the fair value of an investment in an equity instrument below its cost is also objective evidence of impairment...”

IFRIC reference: IAS 39

Issue

The IFRIC considered an example of a transaction involving exchanges of non-monetary assets in which Company A exchanges its 13 per cent interest in Company B for a 13 per cent interest in Company C, where C’s only asset is its 100 per cent holding in B. As a result, A’s holding in B is held in a different legal form (ie via an intermediate holding company with no other activities), rather than held directly.  The issue is whether the exchange of A’s interest in B for the 13 per cent interest in C would result in derecognition of the investment in B with any gain or loss reported in profit or loss and recognition of a new investment in C.

Decision not to add

April 2003

Reason

The IFRIC agreed not to publish an Interpretation on this issue because the example is relatively narrow. However, the IFRIC agreed to consider including this example in its future guidance on Reporting Linked Transactions.

This issue is within the scope of a draft Interpretation considered by the IFRIC at the February 2003 meeting as part of the IFRIC project on Reporting Linked Transactions (though the draft Interpretation did not include a specific example on the topic).

IFRIC reference: IFRS 3

Issue

Some “sales” contracts, such as those found in the telecommunications and electricity industries, convey to the purchaser a right to use some or all of the capacity of a network operated by the seller for an agreed period. The IFRIC considered addressing the issue of contracts for sales of capacity and, in particular:

(a) Should the seller derecognise the asset recognised for the capacity sold?

(b) When should income from the sales be recognised?

(c) Should the treatment of sales be the same when all or part of the consideration received is capacity on another entity’s network?

(d) Should the seller present the consideration received or receivable from a sale as revenue or another form of income?

Decision not to add

October 2003

Reason

The IFRIC decided to defer consideration of whether to address this issue until after it finalises its Interpretation on Determining Whether an Arrangement Contains a Lease.

IFRIC reference: IAS 17

Issue

The IFRIC considered providing guidance on the meaning of “closely related" in the context of embedded derivatives in IAS 39.

Decision not to add

October 2003

Reason

The IFRIC decided not to address this issue because:

• changing the approach in IAS 39 would go beyond providing an Interpretation of existing guidance.

• the IFRIC would not have sufficient time to provide input to the Board's project to improve IAS 39, given the need to finalise that Standard within a short timeframe.

IFRIC reference: IAS 39

Issue

In December 2003, the IFRIC considered whether it should take onto its agenda the issue of interpreting the requirements of IAS 37 Provisions, Contingent Liabilities and Contingent Assets relating to onerous contracts. The IFRIC had a preliminary discussion on the scope of this issue, the underlying rationale for recognising such a provision and how the provision should be measured.

Decision not to add

December 2003

Reason

The IFRIC agreed that this issue should not be taken on as its agenda, but agreed that the points raised in its discussion should be brought to the Board’s attention, including the interaction with the revision of IAS 37 in the convergence project.

Given the limited scope of the IAS 37 convergence project, the Board decided that it should not make fundamental changes to the requirements for onerous contracts.  It also noted that it had two projects on its active agenda (Leasing and Revenue Recognition) that could affect these requirements.  Nonetheless, the Board is considering additional guidance to the existing requirements to make it clear that if a contract becomes onerous as a result of an entity’s own actions, no provision is recognised until that action occurs.

The IASB / FASB joint convergence project on IAS 37 is expected to result in an Exposure Draft being issued by the IASB in the 2^nd quarter of 2004.

IFRIC reference: IAS 37

Issue

The IFRIC considered whether, when a single hedging instrument is designated as a hedge of more than one type of risk, the effectiveness test can be carried out for the total hedged position, which incorporates all risks identified, if these risks are inextricably linked in the hedging instrument.

Decision not to add

October 2004

Reason

The IFRIC agreed that IAS 39 was clear on the matter.  The Standard does not require separate effectiveness testing when a single hedging instrument is designated as a hedge of more than one type of risk.  The IFRIC also noted that the issue is neither widespread nor pervasive at present

IFRIC reference: IAS 39