Annual Improvements

Date recorded:

The staff introduced this session by providing a brief update on the status of the annual improvements process. Staff noted that the outstanding issues from the process were:

The objective of this session was to resolve the outstanding issue from the 2006-2008 cycle, one issue from the 2008-2009 cycle, and the proposals of ED/2009/1.

 

Statement of compliance with IFRS

Under the proposals an entity would be required to make disclosures when it did not include the explicit and unreserved statement of compliance with IFRS as required by IAS 1 Presentation of Financial Statements.

The staff proposed not to finalise the proposals. The Board agreed.

 

ED/2009/1: Scope of IFRIC 9 and IFRS 3

The staff noted that the proposals would exclude from the scope of IFRIC 9 Reassessment of Embedded Derivatives contracts with embedded derivatives acquired in a combination of entities or businesses under common control or the formation of a joint venture. The amendment became necessary because the definition of a business combination changed under IFRS 3 as revised in 2008.

Staff further highlighted that the vast majority agreed with the proposals and that only one comment letter wanted the exemption to be extended to investments in associates. The staff recommended not extending the scope exemption because obtaining significant influence is not the same as obtaining control.

The Board agreed to proceed with the proposals subject to drafting changes.

 

ED/2009/1: Removal of restriction of hedging instruments in IFRIC 16

The proposals would remove the restriction currently in IFRIC 16 Hedges of a Net Investment in a Foreign Operation to designate as a hedging instrument in a hedge of a net investment in a foreign operation a financial instrument that is being held by the hedged entity.

The staff noted that most respondents agreed with this proposal. However, many constituents were concerned about the proposed effective date of 1 October 2008 as this would imply the possibility of backdating without having the appropriate (and required) hedge documentation in place at that date.

After brief discussion the Board agreed on an effective date of 1 July 2009, with earlier application permitted. It was further agreed that the Basis for Conclusions would make clear that the amendment did not introduce the possibility of backdating hedging relationships.

 

IAS 39.2(g) - Scope exemption for business combinations contracts

The staff introduced this topic by highlighting that nearly all respondents to the Annual Improvements 2008 ED commented on this issue. The proposals would make clear that only forward contracts entered into during a business combination would qualify for the scope exemption. Most respondents agreed to exclude forward contracts.

Many respondents asked to extend the exemption to optional contracts. The staff noted that option contracts are not binding and, hence, staff believe it is not appropriate to exclude option contracts.

Furthermore, the staff did not recommend extending the exemption to contracts that are synthetic forwards (that is a combination of a put and a call option with same volume, maturities, and strike prices). The rationale for this was that while such a combination in theory is equivalent to a forward, there are many other business considerations that might result in one party not exercising.

The staff informed the Board that it changed the drafting to clarify that a forward contract would have to mature within a 'normal timeframe' to qualify for the exemption.

Finally, the staff recommended not adopting proposals from constituents to extend the exemption to joint ventures and investments in associates, as they would not represent business combinations.

The Board agreed with all staff recommendations.

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