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Annual improvements — 2011-2013 Cycle: IFRS 13 — Scope of paragraph 52

Date recorded:

The Staff presented their recommendation that an amendment to paragraph 52 of IFRS 13 Fair Vale Measurement be included in the Annual Improvements 2011–2013 cycle.

Paragraph 52 of IFRS 13 defines the scope of paragraph 48 of the Standard. Paragraph 48 permits an entity to apply an exception to IFRS 13 when measuring the fair value of a group of financial assets and financial liabilities. The exception permits an entity that manages a group of financial assets and financial liabilities on the basis of its net exposure to either market risks or credit risks to measure that group of financial assets and financial liabilities on a net basis, rather than on an individual instrument basis.

Paragraph 52 states:

The exception in paragraph 48 applies only to financial assets and financial liabilities within the scope of IAS 39 Financial Instruments: Recognition and Measurement or IFRS 9 Financial Instruments.

The Staff highlighted to the IASB Board members that the inclusion of the terms ‘financial assets’ and ‘financial liabilities’ in paragraph 52 of IFRS 13 had raised the question of whether the intention of the IASB was to explicitly exclude from the scope set out in that paragraph contracts that, even though they are contracts within the scope of IAS 39 or IFRS 9, do not meet the definitions of ‘financial assets’ or ‘financial liabilities’ in IAS 32 Financial Instruments: Presentation, such as some physically-settled commodity derivative contracts. The literal reading of paragraph 52 lead some interested parties to believe that such contracts would not benefit from this portfolio exception.

The Staff presented their view that the IASB intended the scope set out in paragraph 52 to apply to all contracts that are within the scope of IAS 39 or IFRS 9 regardless of whether they meet the definitions of “financial assets” or “financial liabilities” in IAS 32. The staff intend for the amendment to provide greater clarification and that it should be applied retrospectively (also for first-time adopters).

One Board member expressed concern that the amended paragraph 52 should align with the amendments to the wording of Topic 820: Fair Value Measurement that the FASB are intending to make. The wording of the US standard is virtually identical to the IFRS standard. The FASB Exposure Draft that includes this amendment is expected in Q1 2013. The Staff responded that they are in contact with the FASB to ensure that both sets of wording are consistent. Another Board member said that this is just a lack of clarity with this particular aspect of IFRS 13 and hence should be amended. One other Board member noted that it would be helpful to include background information to this amendment in the Basis for Conclusions of the Annual Improvements 2011–2013 cycle.

All of the Board members tentatively agreed with the Staff recommendation.