Issue

The Interpretations Committee received a request for guidance regarding the application of IAS 19 (2011) to ‘Altersteilzeit’ plans (ATZ plans) in Germany. ATZ plans are early retirement programmes designed to create an incentive for employees within a certain age group to smooth the transition from (full- or part-time) employment into retirement before the employees’ legal retirement age.

ATZ plans offer bonus payments to employees in exchange for a 50 per cent reduction in working hours. Their employment is terminated at the end of a required service period. The bonus payments are wholly conditional on the completion of the required service period. If employment ends before the required service is provided, the employees do not receive the bonus payments.

ATZ plans typically operate over a period of one to six years. Eligibility for the benefit would be on the basis of the employee’s age but would also typically include a past service requirement.

IAS 19 (2011) was the result of revisions issued in 2011 to IAS 19. These revisions, among other things, amended the guidance relating to termination benefits. Paragraph 8 of IAS 19 (2011) defines termination benefits as ‘employee benefits provided in exchange for the termination of an employee’s employment as a result of either:

1. an entity’s decision to terminate an employee’s employment before the normal retirement date; or
2. an employee’s decision to accept an offer of benefits in exchange for the termination of employment.’

Decision not to add

January 2012

Reason

The Committee observed that ATZ plans have attributes of both required service and termination benefits. The Committee noted that the distinction between benefits provided in exchange for services and termination benefits should be based on:

1. all the relevant facts and circumstances for each individual entity’s offer of benefits under the plan considered;
2. the indicators provided in paragraph 162 of IAS 19 (2011); and
3. the definitions of the different categories of employee benefits in IAS 19 (2011).

The Committee noted that, in the fact pattern described above, consistently with paragraph 162(a) of IAS 19 (2011), the fact that the bonus payments are wholly conditional upon completion of an employee service over a period indicates that the benefits are in exchange for that service. They therefore do not meet the definition of termination benefits.

On the basis of the analysis described above, the Committee decided not to add the issue to its agenda.

IFRIC reference: IAS 19-17

Issue

The IFRS Interpretations Committee received a request seeking clarification of whether production-based royalty payments payable to one taxation authority that are claimed as an allowance against taxable profit for the computation of income tax payable to another taxation authority should be presented as an operating expense or a tax expense in the statement of comprehensive income.

As the basis for this request, the submitter assumed that the production-based royalty payments are, in themselves, outside the scope of IAS 12 Income Taxes while the income tax payable to the other taxation authority is within the scope of IAS 12. On the basis of this assumption, the submitter asks the Committee to clarify whether the production-based royalty payments can be viewed as prepayment of the income tax payable. The Committee used the same assumption when discussing the issue.

Decision not to add

July 2012

Reason

The Committee observed that the line item of ‘tax expense’ that is required by paragraph 82(d) of IAS 1 Presentation of Financial Statements is intended to require an entity to present taxes that meet the definition of income taxes under IAS 12. The Committee also noted that it is the basis of calculation determined by the relevant tax rules that determines whether a tax meets the definition of an income tax. Neither the manner of settlement of a tax liability nor the factors relating to recipients of the tax is a determinant of whether an item meets that definition.

The Committee further noted that the production-based royalty payments should not be treated differently from other expenses that are outside the scope of IAS 12, all of which may reduce income tax payable. Accordingly, the Committee observed that it is inappropriate to consider the royalty payments to be prepayment of the income tax payables. Because the production-based royalties are not income taxes, the royalty payments should not be presented as an income tax expense in the statement of comprehensive income.

The Committee considered that, in the light of its analysis of the existing requirements of IAS 1 and IAS 12, an interpretation was not necessary and consequently decided not to add this issue to its agenda.

IFRIC reference: TBD

Issue

The IFRS Interpretations Committee received a request to clarify the accounting for market value uplifts introduced in a new income tax regime in a jurisdiction.

In calculating taxable profit under the tax regime, entities are permitted to calculate tax depreciation for certain mining assets using the market value of the assets as of a particular date as the ‘starting base allowance’, rather than the cost or carrying amount of the assets. If there is insufficient profit against which the annual tax depreciation can be used, it is carried forward and is able to be used as a deduction against taxable profit in future years.

Decision not to add

July 2012

Reason

The Committee noted that the starting base allowance, including the part that is attributable to the market value uplift, is attributed to the related assets under the tax regime and will become the basis for depreciation expense for tax purposes. Consequently, the market value uplift forms part of the related asset’s ‘tax base’, as defined in paragraph 5 of IAS 12 Income Taxes.

The Committee observed that IAS 12 requires an entity to reflect an adjustment to the tax base of an asset that is due to an increase in the deductions available as a deductible temporary difference. Accordingly, the Committee noted that a deferred tax asset should be recognised to the extent that it meets the recognition criteria in paragraph 24 of IAS 12.

The Committee considered that, in the light of its analysis of the existing requirements of IAS 12, an interpretation was not necessary and consequently decided not to add this issue to its agenda.

IFRIC reference: TBD

Issue

The Interpretations Committee received a request for clarification about the accounting in accordance with IAS 19 Employee Benefits (2011) for contribution-based promises. An underlying concern in the submission was whether the revisions to IAS 19 in 2011 that, for example, clarified the treatment of risk-sharing features related to defined benefit obligations, affect the accounting for contribution-based promises.

The Interpretations Committee noted that the 2011 amendments to IAS 19 clarified the treatment of risk-sharing features (described in paragraph BC144 as features that share the benefit of a surplus or the cost of a deficit between the employer and the plan participants or benefit plans that provide benefits that are conditional to some extent on whether there are sufficient assets in the plan to fund them).

The Interpretations Committee noted that the IASB did not intend to address elements specific to contribution-based promises in the amendments. Accordingly, the Interpretations Committee does not expect the 2011 amendments to cause changes to the accounting for contribution-based promises unless such promises also include elements of risk sharing arrangements between employees and employers. Finally, the Interpretations Committee noted that the IASB expressed, in paragraph BC148 of the revised Standard, that addressing concerns about the measurement of contribution-based promises and similar promises was beyond the scope of the 2011 amendments.

Decision not to add

September 2012

Reason

On the basis of the analysis described above, the Interpretations Committee decided not to add the issue to its agenda. It is, however, working towards proposals to address the accounting for contribution-based promises.

IFRIC reference:

Issue

In January 2012, the Interpretations Committee received a request to clarify whether the purchase of a right to use land should be accounted for as a:

• purchase of property, plant and equipment
• purchase of an intangible asset, or
• lease of land.

In the fact pattern submitted, the laws and regulations in the jurisdiction concerned do not permit entities to own freehold title to land. Instead, entities can purchase the right to exploit or build on land. According to the submitter, there is diversity in practice in the jurisdiction on how to account for a land right.

Decision not to add

September 2012

Reason

The Interpretations Committee identified characteristics of a lease in the fact pattern considered, in accordance with the definition of a lease as defined in IAS 17 Leases. The Interpretations Committee noted that a lease could be indefinite via extensions or renewals and, therefore, the existence of an indefinite period does not prevent the ‘right to use’ from qualifying as a lease in accordance with IAS 17.

The Interpretations Committee also noted that the lessee has the option to renew the right and that the useful life for depreciation purposes might include renewal periods. Judgement will need to be applied in making the assessment of the appropriate length of the depreciation period.

The Interpretations Committee, notwithstanding the preceding observations, noted that the particular fact pattern is specific to one jurisdiction. Consequently, the Interpretations Committee decided not to take this issue onto its agenda.

IFRIC reference:

Issue

Issue

The Interpretations Committee received a request for guidance on the appropriate accounting for the GDP-linked security that was offered as part of the restructuring of Greek Government bonds (GGB).

The submitter noted that IAS 39 Financial Instruments: Recognition and Measurement refers to a ‘non-financial variable that is not specific to a party to the contract’ but does not define the meaning of that term. The Interpretations Committee noted that the four alternatives in the submitted fact pattern were based on the assumption that the indexation to the issuer’s GDP is a non-financial variable specific to a party to the contract.

Decision not to add

September 2012

Reason

The Interpretations Committee noted that the question of what constitutes an underlying that is a non-financial variable specific to a party to the contract had been considered on several previous occasions by itself and by the IASB. Consequently, the Interpretations Committee was concerned that it would not be able to resolve the issue efficiently within the confines of existing IFRSs and the Conceptual Framework and the demands of the Interpretation process and that it was not likely that it would be able to reach a consensus on the issue on a timely basis. The Interpretations Committee therefore considered that the question of whether the assumption in the submission is appropriate would remain open.

However, the Interpretations Committee thought that it could highlight some aspects that should be considered when assessing the accounting for the GDP-linked securities:

• The GDP-linked security is a structured option that entitles the holder to cash payments depending on the nominal and the real GDP of the issuer exceeding particular thresholds.
• Mandatory classification as at fair value through profit or loss only applies, by definition, if the GDP-linked security is a derivative or is otherwise held for trading.
• The definition of loans and receivables in paragraph 9 of IAS 39 excludes those financial assets “for which the holder may not recover substantially all of its initial investment, other than because of credit deterioration, which shall be classified as available for sale”.
• The definition of held-to-maturity investments requires that an entity has the positive intention and ability to hold that financial asset to maturity. The application guidance in IAS 39 clarifies that “the criteria for classification as a held-to-maturity investment are met for a financial asset that is callable by the issuer if the holder intends and is able to hold it until it is called or until maturity and the holder would recover substantially all of its carrying amount”.
• Unless the GDP-linked securities are classified as at fair value through profit or loss they would be classified as available-for-sale debt instruments.
• Entities should consider the operational complexities of applying the effective interest method to the GDP-linked securities, because of their complex cash flow profile.

The Interpretations Committee considered that no clarification of IAS 39 was required. Even if changes were required, the Interpretations Committee considered that IFRS 9 Financial Instruments already used a different classification for financial assets. Consequently, the Interpretations Committee decided not to add the issue to its agenda.

IFRIC reference:

Issue

The Interpretations Committee received a request seeking clarification on whether a regulatory asset or regulatory liability should be recognised in a particular situation in which a regulated entity is permitted to recover costs, or required to refund some amounts, independently of the delivery of future services.

Specifically, the submitter asked two questions for the accounting under this situation:

• Can the population of customers be regarded as a single unit of account?
• If the population is a single unit of account, is it acceptable to recognise an asset or liability?

Decision not to add

November 2012

Reason

The Interpretations Committee did not address the two specific questions in the submission. However, regarding the question of the recognition of regulatory assets and liabilities generally, the Interpretations Committee noted that it had discussed in 2005 the subject of whether or not it would be appropriate to recognise a regulatory asset. At that time the Interpretations Committee concluded that an entity should recognise only assets that qualify for recognition in accordance with the IASB’s Conceptual Framework and with relevant IFRSs such as IAS 11 Construction Contracts, IAS 18 Revenue, IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets. The Interpretations Committee noted that since the Interpretations Committee reached that conclusion there have been no major changes made to these IFRSs that warrant revisiting this issue.

The Interpretations Committee also noted that, in the IASB’s project on Rate-regulated Activities, the IASB had concluded that the issue could not be resolved quickly, and had therefore included requests for views on future plans for this project in its Agenda Consultation published in July 2011. In addition, the Interpretations Committee noted that in September 2012 the IASB had started to discuss its plan for the new Rate regulated Activities project following its decision in May 2012 to give priority to developing a standards level proposal for Rate regulated activities. At the September 2012 meeting, the IASB decided to develop a Discussion Paper for this project which it expects to publish in the second half of 2013.

Because of the position reached by the IASB in its last project on this subject, the Interpretations Committee observed that this issue is too broad for the Interpretations Committee to address within the confines of existing IFRSs and of the Conceptual Framework. Consequently, for this reason, and because the IASB has recently resumed a comprehensive project on Rate regulated Activities in which the IASB expects to publish a Discussion Paper in the second half of 2013, the Interpretations Committee decided not to add this issue to its agenda.

IFRIC reference:

Issue

The Interpretations Committee received a request for guidance on several accounting issues that resulted from the restructuring of Greek government bonds (GGBs) in 2012.

Decision not to add

November 2012

Reason

At its September 2012 meeting, the Interpretations Committee concluded that the GGBs surrendered in March 2012 should be derecognised, which means the new GGBs received as part of the debt restructuring are recognised as new assets.

At the July 2012 and November 2012 meetings, the Interpretations Committee addressed the particular request to consider whether paragraph AG5 of IAS 39 Financial Instruments: Recognition and Measurement could apply when determining the effective interest rate on initial recognition of those new GGBs.  Applying paragraph AG5 of IAS 39 means that the effective interest rate would be determined at initial recognition using estimated cash flows that take into account incurred credit losses.

The Interpretations Committee noted that paragraph AG5 of IAS 39 applies to acquired assets, which includes both purchased and originated assets.

The Interpretations Committee also noted that even though an origination of a debt instrument with an incurred loss is rather unusual, there are situations in which such transactions occur. For example, within the context of significant financial difficulty of an obligor, transactions can arise that involve originations of debt instruments that are outside the normal underwriting process but are instead forced upon already existing lenders by a restructuring process. This could include situations in which modifications of debt instruments result in derecognition of the original financial asset and the recognition of a new financial asset under IFRSs. In circumstances such as these, new financial assets could be recognised that have incurred losses on initial recognition.

The Interpretations Committee noted that whether an incurred loss exists on initial recognition of an asset is a factual matter and that the assessment requires judgement. The Interpretations Committee also noted that the circumstances leading to the recognition of an asset with an incurred loss on initial recognition need not be limited to those in which debt instruments are effectively forced upon existing lenders, but could also arise in other transactions.

The Interpretations Committee considered that in the light of its analysis of the existing requirements of IAS 39 an interpretation was not necessary and consequently decided not to add the issue to its agenda.

IFRIC reference: