Annual Improvements Project 2008
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.