 Administrative Matters
The Chairman announced that Junichi Akiyama would resign his membership of IFRIC as soon as a suitable replacement could be found. It was noted that in terms of vacancies on IFRIC the Trustees had made two offers of IFRIC positions and hoped to be able to announce new IFRIC members in December.
The Chairman also referred to his own impending return to Australia, and indicated that he currently expects this to occur in April 2005. He noted that plans for a replacement chair are well advanced and a smooth transition in the new year is expected.
Report of the Agenda Committee: Scope of IFRS 2
The Board discussed whether to develop an interpretation regarding the scope of IFRS 2, particularly whether or not where a share issue has taken place and the goods or services received in return are not immediately obvious, would such a transaction be considered within IFRS 2. It was noted that where special condition attach to the shares this would affect their fair value. The IFRIC agreed that prima facie, where no cash, or less cash than the fair value of the instruments is received the entity will have received other assets (whether recognisable under IFRS or not) equivalent in value to the cash shortfall. It was agreed that unless the other assets received are financial assets within the scope of IAS 32 and IAS 39, or arise from a business combination in accordance with IFRS 3, the transaction would be within the scope of IFRS 2. However, there was some unresolved debate, particularly around issues such as where shares are issued at a discount due to an urgent cash need. It was agreed that the distinction of when items should be accounted for in accordance with IFRS 2 is not immediately obvious in all cases and that IFRIC should issue an interpretation on this matter.
The IFRIC agreed to discuss this matter in more detail at a future meeting.
IFRS 2: Changes in Employee Contributions to ESPP's
The IFRIC considered a draft interpretation on accounting for employee contributions to employee share purchase plans (such as the save-as-you-earn plans in the United Kingdom).
The IFRIC agreed that where an employee ceases to participate in the savings plan and therefore loses the right to exercise options, there are two viable alternative treatments. The first is to treat this as a cancellation and to recognise the remaining expense to be recognised immediately, or the second to continue to recognise the expense over the previously determined vesting period. Two further alternatives of treating this as a vesting condition and therefore reversing all of the related expense, or to simply stop expensing without any reversal were discounted as being inconsistent with IFRS 2.
The IFRIC agreed that as the entity is no longer receiving future service in respect of the employee's right to participate in the option scheme (which they have forfeited by lapsing their savings, and therefore are not taking this benefit into account in determining whether to provide future service) the cessation of saving should be treated as a cancellation under IFRS 2. The IFRIC agreed to proceed with a draft interpretation on this basis providing that a balanced view of alternative treatments was provided in the Basis for Conclusions.
IFRS 2: Treasury Shares and Group Transactions
The IFRIC considered a paper that contained a range of examples concerning the issues that arise when a subsidiary gives its employee benefits in the form of rights to purchase shares in its parent, and when an entity must purchase its own shares to satisfy IFRS 2 obligations. The IFRIC agreed that this issue should be taken onto its agenda, and that at this time the following issues should be considered:
- A single entity that voluntarily purchases its own shares to satisfy an obligation to issue shares
- A single entity that mandatorily purchases its own shares to satisfy an obligation to issue shares
- A group where the subsidiary grants share options over shares in the parent
- A group where the subsidiary grants share options over shares in the parent and the parent levies an inter-company charge
- A group where the subsidiary grants share options over shares in the parent which it buys shares on market to satisfy
- A group where the subsidiary grants share options over shares in the parent which it purchases shares from the parent to satisfy
- A group where the subsidiary grants cash benefits based on the market price of the parent company shares
- A group where employees are moved from entity to entity
It was noted that the existence of minority interests would further complicate many of these issues. The IFRIC decided to consider all of these issues for interpretation, as many of the simpler issues must be concluded on as a building block to those requiring more in depth interpretation. However the IFRIC noted that in terms of final published interpretations it was possible some of these issues might be excluded and passed to the IASB education section.
IAS 37: Waste Electrical and Electronic Equipment
The IFRIC considered some editorial changes to this draft, and recommended that others be made. The staff undertook to complete these changes during the course of the meeting so that the draft could be formally voted on day two of the meeting.
Activities of Other Interpretation Bodies
The IFRIC heard a report of activities undertaken by other interpretation bodies in Australia, Canada, France and the United States. The IFRIC considered a number of the items under discussion by other bodies but did not wish to add any of them to its agenda at this time.
Service Concession Arrangements
The IFRIC considered issues raised by the financial instruments staff of the IASB in respect of the proposed draft interpretations. The IFRIC considered what situations across the following range of situations should be considered within the financial assets model
- Grantor pays - fixed payments
- Grantor pays - payments vary with demand
- Grantor retains demand risk - users pay but grantor guarantees amounts
- Grantor retains demand risk - operator collects revenues from users until it achieves a specified return
- Grantor regulates prices - designed to ensure operator receives specified return from users
The proposal from the staff was that only the first two of these items should fall within the financial instruments model. The IFRIC agreed to expose this, but to include in the basis for conclusions a discussion of the possible merits of including the other items, and requesting comments on whether the IFRIC had drawn the distinction between the intangible asset model and the financial asset model in the correct manner. It was noted that a majority of IFRIC members supported exposing this proposal, but a majority do not necessarily agree that this is the most appropriate answer.
The IFRIC also considered the limitation in IAS 39 that an item cannot be classified as a loan or receivable unless the entity is expected to recover substantially all of the amount , subject to any credit deterioration risk. It was noted that many service concessions arrangements would not meet this criteria and therefore could not be accounted for as a receivable. It was agreed that a discussion of this in the basis for conclusions was required (as the IFRIC had previously determined that an item could still be accounted for as a receivable if the only risk of non-recovery was related to future service issues - such as penalty clauses for non-availability of the asset), and that further consideration should be given to whether this highlights an inconsistency between IAS 11 and IAS 39.
The IFRIC will consider a worked example of the service concessions models at a future meeting, but decided not to delay exposure of the proposals until this had been done. Accordingly this topic will be discussed at the December meeting with a view to issuing the draft interpretations for exposure.
Publication of reasons for rejecting IFRIC agenda proposals
The IFRIC considered the advantages and disadvantages of publishing the reasons why proposals put to the agenda committee were not accepted onto the agenda. Broadly, proposals are not accepted for one or more of three possible reasons:
- Inappropriate level (too narrow an issue)
- IFRS is considered by IFRIC to be clear
- Included within an existing Board or IFRIC project.
The IFRIC considered the risk issues of such a list forming another part of GAAP, and the positive outcomes such as discouraging repeat requests to IFRIC and ease of dissemination. The IFRIC will further discuss this proposal at their closed session on day two of the meeting when the review of IFRIC operations is discussed.
[Note: We maintain a List of Issues Not Added to IFRIC's Agenda.]
This summary is based on notes taken by observers at the IFRIC meeting and should not be regarded as an official or final summary.
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