IFRS 8: Disclosures of Information about Segment Assets

The IASB staff presented a proposal for the 2008 annual improvements process. The staff asked the Board whether IFRS 8 should be amended to eliminate an unintended potential divergence from existing US practice regarding the disclosures of information about segment assets. Specifically:

• (a) should a measure of segment assets be disclosed even when such information is not provided to the chief operating decision maker (CODM) notwithstanding that this requirement creates a difference from existing US practice?
• (b) Should the standard be amended to state clearly the disclosure requirement for segment assets that the Board intends?

The issue arises as BC35 appears to require such disclosures in all cases even when those amounts are not provided to the CODM. This interpretation contradicts guidance published for the application of SFAS 131 Disclosures about Segments of an Enterprise and Related Information. Further, information about segment assets is not listed as one of the intended differences between IFRS and US GAAP.

The Board agreed that a measure of segment assets should only be disclosed when such information is provided to the CODM and no difference should be created from US practice. The Board further agreed to amend the Basis for Conclusions and to make no changes to the standard of IFRS 8. This amendment is to be included in the 2008 annual improvements process.

Scope of Paragraph 11A of IAS 39 - Application of Fair Value Option

The staff presented a paper to the Board analysing two alternative interpretations of paragraph 11A of IAS 39. The issue was initially referred to the IFRIC when they were asked to consider whether the fair value option (FVO) available in paragraph 11A of IAS 39 can be applied to all contractual arrangements with one or more 'substantive' embedded derivatives, including contractual arrangements that contain host contracts outside the scope of IAS 39. The IFRIC referred the issue to the Board as it relates to some of the basic requirements of IAS 39 and amendments to the standard may be required.

IAS 39 paragraph 11A states that 'Notwithstanding paragraph 11, if a contract contains one or more embedded derivatives, an entity may designate the entire hybrid (combined) contract as a financial asset and financial liability at fair value through profit or loss'.

The issue arises as to whether paragraph 11A applies to all hybrid contracts, even if , in the absence of such designation, the host would not be in the scope of IAS 39 or whether paragraph 11A only applies to hybrid contracts with financial hosts in the scope of IAS 39.

The Board agreed that the wording of IAS 39 should be amended to clarify that paragraph 11A only applies to financial host contracts in the scope of IAS 39. This amendment is to be included in the 2008 annual improvements process.

Application of Paragraph AG33(d)(iii) - Bifurcation of Embedded Foreign Currency Derivative

In May 2007 the IFRIC issued a tentative agenda decision, noting that applying AG33(d)(iii) of IAS 39 requires an entity to:

• identify where the transaction takes place; and
• identify currencies that are commonly used in the economic environment in which the transaction takes place.

However at its September 2007 meeting the IFRIC decided to refer the issue to the Board because any guidance developed would be more in the nature of application guidance rather than an interpretation.

The IASB staff presented a paper to the Board outlining the issue and inconsistencies in practice with respect to the application of paragraph AG33(d)(iii)and suggested amended wording for the Board's consideration. The staff noted that the standard does not explain the meaning of economic environment and noted that entities are interpreting 'economic environment' in different ways.

The IASB staff believe that the intent of the exemption is to allow preparers not to separate embedded foreign currency derivatives if the embedded derivatives are integral to the arrangement and therefore bear a close relationship to the terms of the contract. That is, the exemption applies to embedded foreign currency derivatives that have been entered into for reasons that are clearly not based on achieving a desired accounting result or for speculative purposes.

The staff presented examples of situations in which foreign currency would be considered to be integral and noted that in each example the currencies have many of the characteristics of a functional currency (that is, the currency of the primary economic environment in which the entity operates).

The IASB staff recommended to the Board that the paragraph be amended to refer to the characteristics of a functional currency as detailed in paragraph 9 of IAS 21 (refer to Agenda paper 3C Appendix 1 for the proposed wording of the amendment). The Board agreed. This amendment is to be included in the annual improvements process.

Cash Flow Hedge Accounting Isues

The IASB staff presented an issue for clarification as to the period in which gains or losses on hedging instruments should be reclassified from equity to profit or loss as a reclassification adjustment for cash flow hedges. In particular, the staff noted that there was some confusion regarding the period during which reclassification adjustments should be made if the hedged forecasted transaction resulting in recognition of a financial instrument. The staff proposed amendments to paragraph 97 and 100 of IAS 39 to remove any confusion as to the appropriate timing of reclassification.

The Board agreed that the paragraphs required amendment; however a number of Board members had issues with the proposed wording, and the Board decided that drafting the proposed amended wording would be concluded offline. The resulting amendment is to be included in the annual improvements process.