Transition and effective date of IFRIC 15 Agreements for the Construction of Real Estate

The Board considered representations made by some participants at the September 2008 World Standards Setters' meeting and two individual letters requesting a change to the transitional requirements and effective date of IFRIC 15. The Board had been asked:

• to consider changing the transitional requirements to require prospective application (rather than retrospective); and
• to consider delaying the effective date to annual periods beginning on or after 1 July 2009 (as opposed to 1 January 2009).

The Board discussed both items. There was very little sympathy for prospective application. Board members noted that it was likely that entities applying IFRIC 15 would be moving from a percentage-of-completion approach for revenue to a completed sale approach, which would not require extensive systems changes. With respect to the effective date, the IFRIC Chairman noted that IFRIC and the Board had already agreed to a delayed effective date: six months after issue rather than the usual three months.

The staff noted the Interpretation had been through full due process and that EFRAG had not been persuaded by the arguments raised by one of its constituents (which were copied to the IASB) when preparing its endorsement advice to the European Commission.

The Board unanimously declined to change IFRIC 15 for either issue.

Ratification of IFRIC 17 Distributions of Non-cash Assets to Owners

The Board ratified, subject to written ballot, IFRIC 17 as well as consequential amendments to IFRS 5 and IAS 10. No Board members indicated they would dissent.

A Board member was worried that the Interpretation would create legal problems in some jurisdictions, especially during the period between the declaration of a non-cash dividend and the date on which that dividend is settled. An entity making such a distribution could appear to be making a return of capital rather than a return on capital because it could appear (before the effect of the fair value adjustment related to assets used to settle the liability) to be distributing more than its available retained earnings. The Board debated this point, but ultimately agreed with the Interpretation as drafted and noted that the issue was not raised as a fatal flaw by any constituents during the IFRIC's due process.

The staff noted that a few constituents (primarily UK-based) commenting on the near-final draft had raised concerns about the following proposed deletion from IAS 10 paragraph 13:

If dividends are declared (i.e., the dividends are appropriately authorised and no longer at the discretion of the entity) after the reporting period but before the financial statements are authorised for issue, the dividends are not recognised as a liability at the end of the reporting period because they do not meet the criteria of a present obligation in IAS 37.

The Board discussed the constituents' concerns and concluded that the parenthetical comment did provide useful guidance about whether a distribution was irrevocable but that the comment was better placed in IFRIC 17 rather than IAS 10. Consequently, the phrase will be removed from IAS 10 and incorporated in IFRIC 17.

The Board also considered whether it was necessary or desirable to amend IFRS 5 to include a new defined term, 'costs to distribute'. The Board concluded that there was considerable potential for confusion between that term and the similar defined term in IFRS, 'costs to sell'. The Board agreed not to create a new defined term but to incorporate the elaboration of the term 'costs to distribute' in IFRS 5 paragraph 15A (new).

A Board member also questioned the lack of symmetry between IFRIC 17 and US GAAP with respect to spin-off transactions (especially for non-publicly accountable entities). There was no appetite to amend the Interpretation at this late stage.