The Committee received a request to clarify whether, under certain circumstances, IFRIC 6 Liabilities arising from participating in a specific market—Waste Electrical and Electronic Equipment should be applied by analogy to identify the event that gives rise to a liability for other levies charged for participation in a market on a specified date. Four specific examples were provided in the submission: UK bank levies, feeds paid to the Federal Government by pharmaceutical manufacturers in the US, Hungarian bank levies, and the railway tax in France. These examples are thought to refer to the taxes being conditional on the entity existing or participating in a particular activity at a specified date (similar to the decommissioning liability discussed in IFRIC 6). The concern relates to when a liability should be recognised and to the definition of a present obligation in IAS 37 Provisions, Contingent Liabilities and Contingent Assets.

Following previous meeting decisions to add the issue of whether the obligating event is the participation in an activity on the date specified by the legislation, or whether other factors create an earlier obligation, to its agenda, the focus of November 2011 deliberations was to consider when the liability for the obligation to pay a levy should be recognised. To this end, the Committee considered whether: economic compulsion creates a constructive obligation; the going concern principle affects the timing of recognition of the liability; there can be multiple obligating events and if so, which ones give rise to a liability; the recognition of a liability arising at a point in time or, in some circumstances, arises progressively over time; and a liability to pay a levy charged for participation in a specific market should be recognised when the entity is required to participate in that specific market in future periods.

The Committee considered certain principles in liability recognition before considering the specifics of the levies raised in the submission. Considering relevant principles, and with little debate, the Committee tentatively decided:

• an entity does not have a constructive obligation to pay a levy that arises from operating in a future period, even if the entity is economically compelled to continue operating in that future period
• the going concern principle does not lead to the recognition of a liability at a reporting date for levies that arise from operating in the future. As noted by one Committee member, recognition of a liability should not be linked to the future conduct of the business, but rather, should be recognised only when a constructive obligation arises as a result of an obligating event
• a liability should be recognised when the last of the necessary events to create the present obligation has occurred
• for levies charged for participating in a specific market, the obligating event is the participation in the market as identified by the legislation.

However, concerns were raised by the Committee when it considered circumstances in which a liability may be seen to arise progressively over time. While the staff presented an analysis of the guidance in IAS 37 in analysing this issue, its analysis was seen by many Committee members to confuse the concepts of recognition and measurement (i.e., is there one obligating event which gives rise to subsequent remeasurement of the liability or is there an activity which occurs over a period of time which collectively creates an obligation). This confusion was linked, in large part, to the staffs recommended guidance on recognising a liability progressively, which suggested that progressive recognition is appropriate if: (a) the obligating event occurs continuously over time because it is linked to the entity's activities and (b) the amount of the liability (i.e., the best estimate of the expenditure to incur at a reporting date) changes over time as a result of the entity's activity performed to date.

Committee members expressed specific concerns with (b) of the staff's recommended guidance. Committee members considered an example in which an obligation is created once CU 1.0 million in sales is reached. Applying the staff's model, Committee members were concerned that liabilities would not be applied progressively against sales until sales reached CU 1.0 million.

With this, one Committee member expressed a desire to revise the principle underlying progressive recognition of a liability to state: "an obligation arises progressively if the activity that creates the obligation occurs over a period of time." Committee members agreed with this recommendation.

Subsequent to deciding on the above principles, the Committee attempted to consider practical examples, including the UK bank levy. While Committee members were comfortable with the above underlying principles, there was a noticeable level of concern when the obligating event is triggered at a specific balance sheet date (such as the UK bank levy). Specifically, in applying the above principles, recognition of a liability would not be triggered until the last day of the fiscal year. However, many Committee members challenged this presentation as 'unfaithful', as they believed recognition of the liability should be recorded progressively throughout the fiscal year. Many possible 'solutions' were expressed by Committee members including:

• asking the IASB to explore non-exchange transactions as a separate project
• considering whether a limited-scope amendment of IAS 12 Income Taxes might be appropriate to include levies, or whether a methodology similar to IAS 12 could be developed for 'tax-like' levies since IAS 37 may not give a faithful representation of the item
• amending IAS 34 Interim Financial Statements to reflect these liabilities in the interim financial statements (although this would not resolve situations in which the applicable levy date differs from the fiscal year end date)
• considering whether 'in-substance' obligating events can arise before constructive obligations.

Given the differing views amongst Committee members, the Committee elected to have the staff perform further research on this topic, which considered Committee discussions, and bring back another paper at the January 2012 Committee meeting.

At the IASB's September 2011 board meeting, considering a recommendation by the Committee, the IASB discussed a possible scope exclusion to IAS 32 Financial Instruments: Presentation for put options written over the non-controlling interest in the consolidated financial statements of a group. The objective of the scope exclusion was to address a potential inconsistency between the requirements of IAS 32, IAS 39 Financial Instruments: Recognition and Measurement and IFRS 9 Financial Instruments for measuring financial liabilities and the requirements in IAS 27 Consolidated and Separate Financial Statements and IFRS 10 Consolidated Financial Statements for accounting for transactions with owners in their capacity as owners. That is, whether the offsetting entry for subsequent measurement changes should be to profit or loss or to equity.

The IASB voted not to amend the scope of IAS 32 to exclude these put options over non-controlling interests. However, the IASB expressed support for considering addressing the potential inconsistency; not by changing the measurement basis of the non-controlling interest, but by clarifying the accounting for subsequent changes in the measurement of such puts. The IASB asked the staff to obtain feedback from the Committee on how they wish to be involved in further considering this issue.

As part of the Committee's November 2011 meeting, the Committee considered their potential involvement in this project. Many Committee members expressed a preference not to be involved in the project, as they expressed concern that no viable conclusion would be reached given the significant amount of time that had been spent to date evaluating this issue, while others believed the scope of the IASB's intended project was too restrictive to advance the issues appropriately.

However, when put to a vote, the Committee decided that they would like to be involved with this issue in the future. The Committee requested that specific feedback be garnered from the IASB as to the anticipated scope of the project. The staff noted that they would be requesting feedback on the scope of the project during the IASB's November 2011 board meeting.

Paragraph 51C of IAS 12 Income Taxes (which was added in December 2010 as an amendment to IAS 12) contains a presumption that the carrying amount of an investment property will be recovered through sale. The Committee received a request to clarify whether that presumption can be rebutted in cases other than the case described in paragraph 51C.

As part of its September 2011 meeting, the Committee tentatively decided that paragraph 51C did not provide an exhaustive list of cases in which the presumption could be overcome. Similarly, if the presumption is rebutted, the resulting deferred tax was seen to reflect recovery of the carrying amount entirely through use, rather than being based on any dual purpose analysis. Based on the clarity of the guidance, and the lack of perceived expected diversity, the Committee tentatively decided not to add this issue to its agenda.

The Committee received 8 comment letters with respect to the tentative agenda decision. While the majority of comment letters supported or did not object to the decision by the Committee not to take this issue to its agenda, concerns were expressed by many respondents as to the need to clarify IAS 12 (through annual improvement) regarding whether paragraph 51C can be rebutted in other circumstances beyond that which is described in the guidance and whether the resulting deferred tax should reflect recovery of the carrying amount entirely through use, if the presumption is rebutted.

In discussing the rebuttal presumption, and considering IASB discussions at the time of amending IAS 12 for paragraph 51C, Committee members expressed a continued belief that paragraph 51C did not provide an exhaustive list. Similarly, Committee members noted that this general view was not contradicted in comment letters received in response to the September tentative decision.

Thus, the Committee noted that a presumption is a matter of policy in applying a principle (or an exception) in IFRSs in the absence of acceptable reasons to the contrary and that it can be rebutted when there is sufficient evidence to overcome the presumption. Because paragraph 51C is expressed as a rebuttable presumption and because the sentence explaining the rebuttal of the presumption does not express the rebuttal as 'if and only if', the Committee noted that the presumption in paragraph 51C of IAS 12 can be rebutted in other circumstances as well, provided that sufficient evidence was available to support that rebuttal.

One Committee members expressed a desire to limit any agenda issue to the specific issue raise to the Committee (above, in clarifying whether the presumption can be rebutted in cases other than those described in paragraph 51C), as opposed to again considering the dual tax recovery issue. This view was shared by other Committee members. Thus, the agenda decision will not reference the dual tax recovery issue, but rather, will be limited to a decision not to add the rebuttable presumption issue to its agenda.

At its September meeting, the Committee considered a request for clarification relating to whether the expected manner of recovery in paragraph 51 of IAS 12 should in any circumstances reflect disposal of the shares of the entity holding the asset (a corporate wrapper) rather than disposal of the asset itself. However, the Committee made the tentative decision not to add this issue to its agenda based on clarity of guidance.

The Committee received 5 comment letters from its tentative agenda decision published in the September 2011 IFRIC Update. All comment letters either supported or did not object to the Committee's decision not to take this issue to its agenda. However, comment letters expressed certain concerns, including: broader concerns relating to the principles of IAS 12, apparent inconsistencies in the wording of the tentative agenda decision, the inappropriateness of providing what is perceived to be interpretative guidance in an agenda decision and a general belief that the Committee's de facto interpretation does not provide a faithful representation of the underlying commercial reality of these transactions.

Based on this feedback, the staff recommended undertaking outreach with the National Standard Setters group and International Organization of Securities Commissions (IOSCO) to determine whether the issue is widespread and has practical relevance, and whether the issue indicates that there are significant divergent interpretations.

In considering the staff's recommendation, many Committee members expressed the lack of a perceived need for further outreach, as they believed that it was clear that the issue was widespread and either emerging or already existing divergence in practice existed. One Committee member expressed a preference to issue an agenda decision which removed the interpretative guidance and stated only that the issue was too broad to be addressed by the Committee; believing that the issue speaks to fundamental concerns with IAS 12, while others felt that the apparent diversity gave rise to the need for an annual improvement project.

When put to a vote, the Committee tentatively confirmed the recommendation of the staff, in which the staff will carry out further outreach regarding the practical relevance and divergent interpretations on this issue. The staff will report on its outreach at the January 2012 Committee meeting, and present recommendations derived from the results of the outreach.

The Committee had previously received an inquiry related to IFRIC 15 and recognition of revenue under continuous transfer. Specifically, the submitter asked for clarification on 1) does continuous transfer of control mean that the buyer receives control over the part-completed work in progress or the seller loses control and the buyer gains protective rights, 2) does control mean that the buyer has legal or physical possession of the work in progress while construction takes place; or is it sufficient that the seller is unable to sell the work in progress to anyone else, and 3) whether the unit of account is each individual unit or the entire block.

Interrelated with this interpretation of IFRIC 15 is the Board's pending project on revenue recognition which is developing guidance on the meaning of transfer and continuous transfer. During a meeting earlier this year, the Committee recommended that the Board should consider the fact pattern received by the Committee in its revenue recognition project. However, before concluding on this issue, the Committee asked for further input on this issue from interested parties.

The staff presented the committee with transactions from two separate jurisdictions with an analysis of whether each transaction met the continuous transfer requirements in IFRIC 15.

In jurisdiction A, property developers are highly regulated and licensed by a local Housing Act. Once the sales contract has been executed, the buyer has no right to rescind the contract unless the developer totally fails to perform in respect of any matters arising out of the agreement or the buyer cannot obtain financing. The buyer is also required to make non-refundable payments throughout the construction process based on certified stages of progress with 80% of the price paid to the developer before completion of the development. Jurisdiction A also requires specific performance by both parties to the contract.

In jurisdiction B, developers are subject to building standards but otherwise not regulated as they are in jurisdiction A. Buyers in this jurisdiction are less tied into a sales contract with typically only a 10% deposit required at contract execution and the remainder due upon completion of the property. The buyer may choose not to perform under the contract but would forfeit the deposit and may be legally liable for any difference between the ultimate sales price and the original sales price. Contract terms also typically allow the developer to terminate the contract without penalty. Specific performance may be required by the courts but is not required by legal statute.

The staff's analysis focused on the risk and rewards that each party was subject to and consideration of the transfer of control. Based on their analysis of numerous factors, the staff believed that the transfer to the buyer is continuous in jurisdiction A while it occurs at a point in time in jurisdiction B.

The staff also presented the Committee with an analysis of the unit of account for consideration of continuous transfer. The analysis focused on whether the unit of account represented the individual unit or the entire block. The staff concluded that the appropriate unit of account for assessment of continuous transfer is the individual unit.

The Committee members had various views but several expressed certain issues with the staff analysis. Ultimately, because of the correlation between the interpretation of IFRIC 15 and the revenue recognition proposals the Committee will seek the Board's advice on how to further address the issue.

The Committee had previously received a request for clarification on whether an asset with relatively simple associated processes meets the definition of a business in accordance with IFRS 3 Business Combinations. In particular, the submission questioned whether the acquisition of a contract to provide services alongside the acquisition of an asset constitutes a business combination.

The particular submission highlighted diversity in practice in acquisitions of a single investment property with lease agreements with multiple tenants over varying periods and associated processes, such as cleaning, maintenance and administrative services (e.g. rent collection). The submission noted that while some consider the acquisition of such an investment property together with an obligation to render services to be a business combination as defined in IFRS 3, others believe that it is the acquisition of only a single investment property.

The Committee previously discussed this issue at the September 2011 meeting. During that meeting, the Committee observed that IFRS 3 and IAS 40 are not mutually exclusive and that an entity acquiring an investment property should consider whether it meets the definition of a business under IFRS 3. The Committee asked the staff to analyse whether a clarification can be made to IAS 40 through the annual improvements process.

During the November meeting, the staff suggested that the Committee recommend to the Board that clarifying amendments be made to IAS 40 through the 2011-2013 annual improvements process and applied prospectively. That clarifying amendment would add after paragraph 14 the following:

"Judgement is also needed to determine whether the acquisition of an investment property is the acquisition of a single asset or a business combination within the scope of IFRS 3 Business Combinations. Reference should be made to IFRS 3 to determine whether it is a business combination. The discussion in paragraphs 7-15 of this standard relates to whether or not the property is an owner-occupied property or an investment property and not to whether or not the acquisition of the property is a business combination as defined in IFRS 3 and an investment property as defined in this standard requires the separate application of both standards independently of each other."

The Committee was generally supportive of the staff recommendations although several Committee members questioned if it addressed the bigger issue of what is a business under IFRS 3. The staff acknowledged that the recommendation did not address that issue but it would be addressed separately in the future. The Committee ultimately agreed to recommend to the Board the amendment to IAS 40 of the staff's suggested clarification above through the 2011-2013 annual improvements process with prospective application.

The Committee had previously received a request to clarify the applicability of IFRS 3 by (1) joint operators for the acquisition of interests in joint operations under IFRS 11 and (2) venturers for the acquisition of interests in jointly controlled operations or assets under IAS 31, when the activity of the joint operation or the activity of the jointly controlled operation or assets constitutes a business as defined in IFRS 3. Specifically, the Committee was asked whether the acquirer of such an interest should apply the principles in IFRS 3 on initial recognition of the interest or whether the acquirer should instead account of it as the acquisition of a group of assets.

During the September 2011 Committee meeting, the Committee asked the staff to analyse whether a premium paid for synergies can be recognised as a separate asset under another standard in circumstances when an entity acquires an interest in a joint operation that contains a business, whether IFRS 3 could be applied by analogy or whether further guidance should be developed on this issue.

The staff presented the Committee the results of their additional analysis. Under IAS 38, synergies cannot be recognised as a separate asset if they relate to a business and can only be sold, transferred, licensed, rented or exchanged together with the entire business or combined businesses. The Committee members generally agreed with the staff analysis regarding recognising intangible assets under IAS 38. One Committee member suggested that a joint arrangement constitutes a contract and that perhaps the premium paid could be allocated to the identifiable contract as an intangible rather than a general goodwill amount.

The staff then presented their analysis with respect to whether guidance in IFRS exists to account for the acquisition of an interest in a joint operation that constitutes a business under IFRS 3. The staff noted that in practice their appear to be three approaches used in accounting for the acquisition of interests in jointly controlled operations or assets as specified in IAS 31 when the activity constitutes a business. The first approach is a 'fair value approach' where IFRS 3 is analogised to and identifiable assets and liabilities are measured at fair value and the residual amount is recognised as goodwill. Under the fair value approach, transaction costs are not capitalised and deferred taxes are recognised. The second approach is the 'cost approach' where the total cost is allocated to the individual identifiable assets and liabilities on a relative fair value basis such that any premium is allocated out to the identifiable assets. Under the cost approach, transaction costs are capitalised and deferred taxes are not recognised. The third approach is the 'combination approach' in which the identifiable assets and liabilities are measured at fair value and the residual amount is recognised as a separate asset (i.e. goodwill). This approach is based on the cost approach but utilises guidance in IFRS 3 to issues not addressed in other IFRSs. The combination approach differs from the fair value approach in that the guidance in IFRS 3 is not applied when it is also addressed in other standards (so that transaction costs are capitalised, contingent liabilities and deferred taxes are not recognised, etc).

The staff recommended the Committee develop an interpretation based on the combination approach as they felt it more closely aligns with the requirements in the IFRSs that apply to the assets and liabilities recognised on the acquisition of an interest in a joint operation and the measurement basis most commonly adopted by entities in preparing their financial statements is historical cost.

Several Committee members expressed concern with the staff's recommendation of the combination approach. Their concerns focused on the lack of a technical basis for the combination approach and the fact that it permits 'cherry-picking' of only those concepts in IFRSs that preparers want to utilise. A majority of the Committee members supported the fair value approach is the preferred approach.

The Committee then began discussions of whether they should address the current diversity through either an interpretation or whether this should be an amendment to either IFRS 3 or IFRS 11. The Committee members had various views on this issue. Some expressed concern with changing the scope of IFRS 3 and potential unintended consequences. Some Committee members felt that such a change would be beyond the scope of an interpretation and required amending a standard while others felt that this was exactly the purpose of an interpretation.

The Committee asked the staff to further analyse how to proceed with this issue and bring back to the Committee at a future meeting potential pros and cons of proceeding with either 1) an interpretation, 2) an amendment to IFRS 3, or 3) an amendment to IFRS 11.

The Committee then discussed the scope exception in paragraph 2(a) of IFRS 3 for 'the formation of a joint venture'. The Board did not update the language in IFRS 3 when IFRS 11 was issued to reflect joint arrangements rather than just joint ventures. The Committee unanimously agreed to recommend to the Board to amend paragraph 2(a) of IFRS 3 to reflect the new term joint arrangements in IFRS 11 through the 2011-2013 annual improvements process and applied retrospectively.

The Committee received a request for clarification on the period on which a dividend on non-cumulative preference shares should result in an adjustment to the EPS calculation. The preference shares in questions have the following characteristics: (1) classified as equity, (2) there is no contractual requirement to declare a preference dividend in any given period, (3) when a dividend is proposed on the ordinary shares, a preference dividend must be declared in the same period with a contractually fixed ratio, and (4) the preference dividends are non-cumulative.

Paragraph 14(a) of IAS 33 Earnings Per Share provides that the after-tax amount of preference dividends that is deducted from the net profit or loss is the after-tax amount of any preference dividends on non-cumulative preference shares 'declared in respect of the period'. The submitter of the request believes that entities are adjusting EPS for non-cumulative preference dividends in two ways (1) when the directors propose the dividend (even though they are not recognised until they are approved by the shareholders after the year) or (2) when the preference dividends are recognised in the financial statements even though the directors' rationale for proposing the preference dividends is based on the previous year's profits.

The staff recommended the Committee not take the item on to its agenda and included the following as part of a draft agenda decision:

“The Committee noted that paragraph A14 of IAS 33 would require the preference dividends considered to be taken into account in the calculation of EPS on the notional basis that all of the net profit or loss for the period was distributed to each class of equity instrument. In other words, the Committee noted that the declaration of the preference dividends should not affect the calculation of EPS.”

Some of the Committee members agreed with the staff's overall conclusion but questioned their analysis and suggested improvement to the draft agenda decision. The Committee ultimately decided not to reject taking the item on to its agenda at this point, but rather asked the staff to consider the feedback provided by the Committee and to bring back a proposal to the Committee during a future meeting.