July

Proposed comprehensive revision of IFAC Code of Ethics

16 Jul 2008

The International Ethics Standards Board for Accountants (IESBA) has published for comment a complete rewrite of the IFAC Code of Ethics for Professional Accountants.

The changes are intended to enhance the clarity of the Code by:
  • making clear the specific requirements that are contained in the Code, and
  • explaining the application of the Code's conceptual framework.
The proposed changes resulted from the IESBA's project to improve the drafting conventions of the Code. Comments are requested only on the proposed changes to the Code that are the result of its drafting conventions project, not on the Code itself.

Types of changes to the IFAC Code of Ethics Proposed in the Exposure Draft:

  • Revised wording to indicate clearly what are the requirements
  • Guidance on when a temporary departure from a requirement in the Code is allowed, and how to do it
  • Description of five categories of threats to compliance with the fundamental principles, and examples of situations in which those threats might be created
  • Guidance on how to assess whether a threat to compliance with the fundamental principles is 'clearly insignificant', which is defined in the Code as 'a matter that is deemed to be both trivial and inconsequential'
  • Clarification of the 'conceptual framework approach' to emphasise the need for a professional accountant to apply the framework in the Code to any situation that is not explicitly addressed in the Code
  • Clarify that examples in the Code must be followed.
  • Drafting changes consistent with the following principles:
    • 'Consider' is used where the accountant is required to think about several matters
    • 'Evaluate' is used when the accountant has to assess and weigh the significance of a matter
    • 'Determine' is used when the accountant has to conclude and make a decision
The IESBA proposes that the revised Code be effective on 15 December 2010, with earlier adoption encouraged. That date will be approximately 18 months after the planned issuance of the document (currently projected to be June 2009). Comments on the exposure draft are requested by 15 October 2008. The exposure draft may be downloaded at www.ifac.org/EDs. Click for Press Release (PDF 35k).

 

Summary of issues not added to IFRIC agenda is updated

15 Jul 2008

We have updated our Summary of Issues Not Added to IFRIC's Agenda to reflect the IFRIC's final decision at its July 2008 meeting not to add the following topic to its agenda.

Our summary now includes over 135 issues:
  • IAS 39: Application of the effective interest rate method

 

Commentary on the proposed IASCF Monitoring Group

15 Jul 2008

The European 'think tank' Breugel has published a policy note Empower Users of Financial Information as the IASC Foundation's Stakeholders.

This commentary, by Mr Nicolas Veron, a research fellow at Bruegel, analyses the draft proposal for reforms to the IASB's governance that was the subject of Roundtable Discussions conducted by the Trustees of the IASC Foundation on 19 June 2008. The proposal would, among other things, create a Monitoring Group to oversee the activities of the IASC Foundation. Mr Veron argues that investors and other users of financial statements should be directly represented on the new group:

The creation of a new body with authority over Trustee appointments and reappointments is a crucial step for the IASC Foundation. This body is likely to be granted more authority in the future over other key governance functions, including the Foundation's funding.

In this respect, the proposed Monitoring Group contains significant flaws, the primary one being its inability to credibly represent at global level the investors and other capital market users which should be considered the Foundation's key stakeholders.

Moreover, the very short timetable proposed for the first part of the Foundation's Constitution Review is not warranted by the circumstances. The Foundation's Trustees should take a step back and consider a revised concept of oversight body as part of a one-phase Constitution Review to be completed in 2009.

Mr Veron concludes that "This governance reform will have a significant impact on the future shape of IFRS standards and should not be rushed without due public debate. As primary users of accounting information, investors and capital-markets participants should be granted direct representation in the future governance framework." Policy note posted on IAS Plus with the kind permission of Breugel.
Click to view Empower Users of Financial Information as the IASC Foundation's Stakeholders (PDF 172k).

 

We comment on two proposed International Standards on Auditing

15 Jul 2008

Deloitte has recently submitted letters of comment to the International Auditing and Assurance Standards Board (IAASB) on two proposed International Standards on Auditing (ISAs), as listed below.

IAASB publishes four new ISAs and 2009-2011 strategic plan

15 Jul 2008

The International Auditing and Assurance Standards Board (IAASB) has published:

  • The IAASB's Strategy and Work Program for the period 2009-2011.
  • Four final International Standards on Auditing (ISAs) as part of the IAASB's Clarity Project.

The IAASB's 2009-2011 strategy focuses on three areas:

  • The development of standards;
  • The facilitation and monitoring of adoption of those standards; and
  • Responding to concerns about the implementation of the standards by activities designed to improve the consistency with which they are applied in practice.
The IAASB's Strategy and Work Program 2009-2011 can be downloaded without charge from www.ifac.org/store.

The four final ISAs are:

  • ISA 250 (Redrafted) Consideration of Laws and Regulations in an Audit of Financial Statements
  • ISA 510 (Redrafted) Initial Audit Engagements–Opening Balances
  • ISA 550 (Revised and Redrafted) Related Parties.
  • The revision of this ISA clarifies the meaning of 'related party' and explains the auditor's responsibility to obtain sufficient evidence about the required accounting and disclosure of related party relationships and transactions and to understand how such relationships and transactions affect the view given by the financial statements.
  • ISA 570 (Redrafted) Going Concern
The four new ISAs, along with all of the other 'clarified' ISAs, will be effective for audits of financial statements for periods beginning on or after 15 December 2009.
Click for:

 

Agenda for July 2008 IASB meeting

14 Jul 2008

The International Accounting Standards Board will hold its July 2008 meeting at the IASB's offices, 30 Cannon Street, London on Tuesday to Friday 22-25 July 2008. The meeting is open to public observation and will be webcast.

You can access the agenda on our July 2008 IASB meeting page. We will also post Deloitte observer notes on this page as they are available.

CESR draft statement on fair value in illiquid markets

14 Jul 2008

The EU Committee of European Securities Regulators has invited comment on a draft statement titled Fair Value Measurement and Related Disclosures of Financial Instruments in Illiquid Markets.

The statement, when finalised, will provide guidance to preparers and auditors in the current financial market situation when preparing the next financial statements. "CESR acknowledges that the competence of setting standards, formally interpreting standards and issuing general interpretation of existing standards lies with the IASB/IFRIC. The work conducted by CESR remains under the domain of the application of current IFRS, as CESR Members' role regarding IFRS is the enforcement of financial information." CESR requests comments by 12 September 2008. CESR intends to consider the comments received and publish a final guidance statement in October 2008. Click for:

The starting point for the measurement of financial instruments is the assessment of whether the financial instrument is traded on an active or a non active market. The measurement of financial instruments on active markets is conducted with the reference to quoted prices. If an active market does not exist, the measurement is determined by using valuation techniques that incorporate all factors that market participants would consider in setting a price, minimising entity-specific inputs. The distinction between active and non active markets is therefore important in the application of the measurement of financial instruments.

On the identification of active and non active markets the statement stresses:

  • As judgment is required, a well-documented valuation policy is needed. It should be consistent across time and across financial instruments;
  • Even if the number of transactions is relatively low compared to other markets or to the past, the market could still be active;
  • The size of the holdings of instruments is not a criterion to decide whether a market should be considered active;
  • Different pricing sources can be available in an active market, such as prices for actual transactions or for binding quotes;
  • Market quotes can only be disregarded if there is sufficient evidence that they do not constitute a reliable reference for valuation.
On the use of valuation techniques CESR highlights that:
  • It entails a significant amount of judgment;
  • The issuer should document the criteria, the assumptions and the inputs to the valuation techniques to ensure consistency;
  • Transactions conducted in a market that is not considered active can often provide the most relevant input for valuation techniques;
  • Liquidity risk and correlation risk could also be relevant in addition to the inputs to valuation techniques listed in the accounting standards;
  • The use of indices (e.g. the ABX HE index) should be approached with caution.
The draft statement then proposes some disclosure guidance.

New comparison of IFRSs and Indian GAAP

14 Jul 2008

Deloitte Touche Tohmatsu India Private Limited has published IFRSs and Indian GAAP: A Comparison.

This booklet (PDF 288k, 48 pages) summarises the strategy of the Institute of Chartered Accountants of India (ICAI) for converging Indian Accounting Standards and IFRSs and presents a comparison of current Indian GAAP and IFRSs in issue at 31 March 2008.

 

Summary of IFRS Convergence Strategy of Indian Institute of Chartered Accountants

Will all entities be required to follow IFRS?

Keeping in view the complex nature of IFRSs, the ICAI in its Concept Paper has expressed the view that IFRSs should be adopted for the public interest entities such as listed entities, banks and insurance entities, and large-sized entities from the accounting periods beginning on or after 1 April 2011.

Accounting standards for small and medium-sized entities

The ICAI has indicated that a separate standard may be formulated based on the IFRS for SMEs (an exposure draft of which has been issued recently) when finally issued by the IASB after making any modifications necessary. In order to be an IFRS-compliant country, it is not necessary to adopt the IFRS for SMEs to be issued by the IASB.

Format of converged Accounting Standards (ASs)

The ICAI, in its Concept Paper, has expressed the view that the format of standards to be adopted for public interest entities should be the same as IFRSs including their numbers. The numbers of existing ASs may be given in brackets for the purpose of easier identification. India-specific regulatory or legal aspects may be included in a separate section, where appropriate.

Date of adoption of IFRSs for public interest entities: whether stage-wise or all at once from a specified future date?

The ICAI, in its Concept Paper, has expressed the view that it would be more appropriate to adopt all IFRSs from a specified future date as has been done in many other countries rather than doing so stage-wise. After considering the current economic environment, expected time to reach the satisfactory level of technical preparedness and the expected time to resolve the conceptual differences with the IASB, the ICAI has decided that IFRSs should be adopted for public-interest entities for accounting periods commencing on or after 1 April 2011. This should give enough time for all the participants in the financial reporting process to help in building the environment supporting the adoption of IFRSs.

Notes from day 2 of the July 2008 IFRIC meeting

12 Jul 2008

The International Financial Reporting Interpretations Committee (IFRIC) met at the IASB's offices in London on Thursday 10 July and Friday 11 July 2008. Presented below are the preliminary and unofficial notes taken by Deloitte observers at the second and final day of the meeting:

Notes from the IFRIC Meeting
11 July 2008
Review of Tentative Agenda Decisions published in May IFRIC Update
IAS 39: Application of the Effective Interest Rate Method
The IFRIC confirmed its tentative decision taken in May 2008 not to provide guidance on the application of the effective interest rate method to a financial instrument whose cash flows are linked to changes in an inflation index.
In doing so, the IFRIC referred the issue to the IASB.
A Board observer noted that the IASB would most likely decide to address the issue as part of the project on 'reducing complexity' in financial instrument accounting. Consequently, it is unlikely that the issue would be resolved in the short term.

gpeg.gif Staff Recommendations for Tentative Agenda Decision

Recognition of Lease Expense under an Operating Lease

The IFRIC considered a request that it provide guidance on how a lessee should determine an appropriate pattern of recognition of expense for an operating lease with non-level payments.

The IFRIC agreed that it should not add the issue to its agenda. The tentative agenda decision will compare and contrast guidance in IAS 16 paragraph 60 and IAS 38 paragraph 97 (which refer to a depreciation/amortisation method reflecting 'the pattern in which the asset's future economic benefits are expected to be consumed by the entity') with that in IAS 17 paragraphs 33 and 34, which refer to a method being 'representative of the time pattern of the user's benefit'. In an operating lease no asset is recognised in the financial statements, and thus cannot be consumed; thus it is the access or right to use the asset that determines the appropriate accounting.

Accounting for Trailing Commissions

The IFRIC considered a request that it provide guidance on how an entity should account for ongoing commission arrangements, referred to as trailing commissions. The submission was made in the context of investment funds, but IFRIC members noted that such arrangements exist in other contexts, for example, telecommunications.

The IFRIC agreed that it should not add the item to its agenda. However, the IFRIC disagreed with the preliminary staff analysis that suggested that diversity in practice should not arise. Instead, IFRIC members noted that diversity already exists, across industries and across jurisdictions. There was agreement that IAS 32 provided sufficient guidance for the financial asset (although there were measurement challenges) but that revenue recognition was more challenging. However, to address this issue effectively, the IFRIC would have to interpret several different IFRSs, including IAS 18, 32, 27, and 39. As such, the IFRIC was probably the wrong forum to decide the accounting and was unlikely to achieve consensus in a reasonable period of time.

Transaction Costs Deducted from Equity

The IFRIC considered a request that it provide guidance on the extent of transaction costs to be accounted for as a deduction from equity in accordance with IAS 32 paragraph 37. In addition the submission requests guidance on how the requirements of IAS 32.38 to allocate transaction costs that relate jointly to more than one transaction should be applied.

The IFRIC agreed that it should not add the item to its agenda as it could be addressed more conveniently within the Annual Improvements process. In making this recommendation to the IASB, the IFRIC may suggest that the action of listing on a recognised exchange without issuing new equity (that is, a secondary offering of existing shares) was not an equity transaction because no new equity is introduced to the entity.

Compliance Costs for REACH

REACH is an EU regulation on the Registration, Evaluation, Authorisation, and Restriction of Chemicals.

The IFRIC considered a request that it provide guidance on the treatment of costs incurred to comply with the requirements of the European Commission Regulation concerning the Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH). The Regulation came into force in part on 1 June 2007, is binding immediately on Member States, and companies have begun to account for the first costs incurred to comply.

The staff noted that they had not completed their information gathering and analysis of this issue, but that their preliminary assessment was to recommend tentatively adding the issue to the agenda. IFRIC members agreed, noting that the retrospective cost of new regulation was a generic issue faced by entities in a variety of jurisdictions. The staff noted that scoping the issue would be critical, and that the costs of implementing the REACH Regulation could be used as examples, rather than scope the issue to address REACH specifically.

The staff will return with scope recommendations at the September 2008 IFRIC meeting.

gpeg.gif Administrative Session – IFRIC work in progress

The IFRIC reviewed the status and progress made on issues on its agenda and new issues referred to it but not yet brought to the IFRIC. In particular, the chairman noted two new issues (customer related intangible assets and valuation of restricted securities) for which the staff will present its agenda decision recommendations at the September 2008 meeting.

This summary is based on notes taken by observers at the IFRIC meeting and should not be regarded as an official or final summary.

 

Notes from day 1 of the July 2008 IFRIC meeting

12 Jul 2008

The International Financial Reporting Interpretations Committee (IFRIC) is meeting at the IASB's offices in London on Thursday 10 July and Friday 11 July 2008. Presented below are the preliminary and unofficial notes taken by Deloitte observers at the first day of the meeting:

Notes from the IFRIC Meeting
10 July 2008
The new IFRIC members are:
  • Margaret M. (Peggy) Smyth, Vice President, Controller, United Technologies Corp., United States
  • Scott Taub, Managing Director, Financial Reporting Advisors, LLC, United States, and former Acting Chief Accountant and Deputy Chief Accountant, US Securities and Exchange Commission.

gpeg.gif Exposure Draft IFRS 2 Share-Based Payment and IFRIC 11: IFRS 2 – Group Treasury Share Transactions – Preliminary Comment Letter Analysis

The IFRIC commenced its detailed redeliberation of the proposed amendments to IFRS 2 and IFRIC 11. The exposure draft (ED) proposes to include cash-settled group share-based payment transactions within the scope of IFRS 2 and would provide guidance on the appropriate accounting. In May 2008 the IFRIC had been presented with a preliminary analysis. The staff structured the session as follows:

  • Scope
  • Accounting for transactions within the scope

Scope

Regarding the topic of scope the staff highlighted that even with the scope definition as proposed there would still be group share-based payment transactions that would not be covered by IFRS 2 and that the proposals aggravate that issue. One reason for that seemed to be that the proposals would amend the scope, not the defined terms. The staff therefore presented the following recommendations:

  • To amend the related definitions in Appendix A of IFRS 2;
  • Paragraph 2 of IFRS 2 be amended to mirror the revised defined terms;
  • Paragraph 3 of IFRS 2 be amended to more clearly articulate the principle of IFRS 2 when a party other than the entity receiving the goods or services settles the group share-based payment transaction.

One IFRIC member asked whether this is something the Board should deliberate. The chairman answered that the issue originally came from the IFRIC, but the Board formally issued the ED as it included amendments to existing Standards and that once IFRIC concludes its redeliberations it recommends its conclusions to the Board.

Some IFRIC members expressed concerns over the view the ED takes – group or entity view, that is, is the group accounting relevant for the accounting in the subsidiary? One IFRIC member questioned whether separate financial statements of joint ventures or associates would be addressed by the amendments. It was stated that only subsidiaries would be covered and that this would be made clear by referring to the definitions in IAS 27.

The IFRIC agreed to the staff recommendations subject to editorial changes.

Accounting for transactions within the scope

The staff then turned to the accounting for the transactions within the scope of IFRS 2 in a group situation. Many commentators had argued that if an entity (the subsidiary) has no obligation to make a payment, it would not be sound to require the subsidiary in the its financial statements to recognise a liability. This would also conflict with the Framework. The IFRIC had a lengthy debate about whether the accounting in the parent and in the subsidiary should be symmetrical. Some IFRIC members were of the view that there should be some relationship – which would often result in some form of push-down accounting. Others followed the entity route and concluded that the subsidiary should account for the transaction as an equity-settled share-based payment. One of the Board members present highlighted the structuring opportunities that would result if the subsidiary would account for such a transaction as an contribution by the parent under an equity-settled accounting model.

One IFRIC member highlighted that the solution should be in line with the conclusions reached during the redeliberation of D23.

There was a lengthy debate about whether, when a transaction is accounted for as equity-settled, it should reflect any true-ups when value and/or vesting changes which would be important in some scenarios (for example, if the share-based payments are granted to employees of the subsidiary) should be considered.

The IFRIC coordinator highlighted that the staff wanted to avoid introducing an additional accounting model and tried to be as close to IFRS 2 as possible.

In the end, there seemed to be agreement over a model that would true-up for vesting of the share-based payments, but not for other changes in value. This would effectively be the accounting for equity-settled share-based payments as per current IFRS 2.

The chairman summed up the discussions and highlighted that any conclusion reached would be reported back to the Board including any strong minority views. The IFRIC coordinator reemphasised that the general approach to the accounting model was not to increase complexity.

The chairman than took a vote on the staff recommendations reflecting the outcome of the discussions as suggested by one of the Board members present. The IFRIC accepted the recommendations with two dissents.

Next steps

The modified staff recommendations will be presented to the Board in one of the next Board meetings.

gpeg.gif D23 Distributions of Non-cash Assets to Owners – First redeliberations

D23 is aimed to provide guidance on the accounting for non-cash distributions to owners. The purpose of this session was to present to the IFRIC a comment letter analysis along with recommendation of the staff on how to proceed with D23. The issues addressed were:

  • General approach in D23
  • Applicability of IFRS 5 for the asset to be distributed and timing of recognition of the liability

General approach in D23

The staff highlighted in its overview of the comment letter analysis that the following significant concerns were expressed by commentators:

  • The scope is too narrow by excluding common control transactions
  • Fair value measurement of the liability and reference to IAS 37 is not appropriate
  • The difference between book value of the asset distributed and the distribution liability should not be recognised in profit or loss

Based on those concerns the staff proposed the following:

  • Continue with the project
  • Include common control transactions
  • Provide an consistently applicable accounting policy choice to measure the dividend liability at either fair value or book value of the assets to be distributed
  • Keep the disclosures proposed in D23

The staff noted that under the fair value approach taken in D23 most respondents would support recognition of the difference in profit or loss. One IFRIC member asked if the staff analysed whether those respondents would accept recognising the difference directly in equity. The staff answered it did not analyse this.

The IFRIC coordinator explained that most of the transactions that the draft Interpretation attempts to address arise in common control situations. However, some IFRIC members expressed their concerns about the dramatic change in scope. The chairman proposed first to answer the question if common control transactions should be within the scope of the draft Interpretation before proceeding to the remaining issues. Some of the IFRIC members said that in the case of inclusion of common control transactions this would trigger re-exposure.

The IFRIC discussed at length whether common control transactions should be within the scope. Some IFRIC members noted that while the scope should not be extended it should be made clear, possibly in the Basis for Conclusions, what transactions IFRIC considers to be within the scope of the draft Interpretation.

The staff highlighted that even with a scope excluding common control transactions, constituents consider an Interpretation useful. There seemed to be agreement around the table that the scope should not be broadened, but that the scope should be clarified.

Most IFRIC members were against providing an accounting option as proposed by the staff although it might be appropriate if the scope would be extended to include common control transactions.

However some IFRIC members had difficulties with the proposed measurement of the liability and acknowledged that this was shared by commentators. Notably, the reference solely to IAS 37 caused concern. One IFRIC member highlighted that often the liability recognised would be a financial liability as defined in IAS 32 and hence, in the scope of IAS 39. Others proposed to prescribe the measurement attribute 'fair value' instead of referring to IAS 39 which requires applying the best estimate which some considered not to be equal to fair value.

The chairman noted that the IFRIC rejected the staff proposal to provide for an accounting option.

Applicability of IFRS 5 for the asset to be distributed and timing of recognition of the liability

The staff then presented the comment letter analysis regarding the proposed amendment to IFRS 5 resulting from the deliberation of D23. Both the IFRIC and the Board concluded that IFRS 5 should apply to non-cash distributions although this is not a sales transaction. The staff noted that the majority of commentators agreed.

The IFRIC discussed whether IFRS 5 should also be amended to allow fair value measurement above the carrying amount that would avoid creating a mismatch between the measurement of the dividend liability and the asset to be distributed in settlement of that liability.

The IFRIC reaffirmed its position that the assets (groups) should be within the scope of IFRS but that allowing measurement above the carrying amount would be a big change to the principle of IFRS 5.

The staff then asked the IFRIC when the assets should be reclassified in accordance with IFRS 5. The possible options would be commitment date or obligation date, notably in jurisdictions where shareholder approval is necessary. After a short discussion, the IFRIC agreed that the principles of IFRS 5 should apply and that any shareholder approval would be included in the assessment of high probability (one IFRIC member dissented).

The staff then brought to IFRIC's attention the question when to recognise the liability, which is not addressed by the draft Interpretation. The staff recommended that this should be covered by the final Interpretation. It further proposed that this should be dependent on the requirement of shareholders' approval in a jurisdiction. If shareholder approval of a distribution declared by management is required, the liability would be recognised on the date of shareholders' approval. Otherwise, it would be recognised on the date of declaration by management.

There seemed to be agreement with the staff recommendations.

The staff was asked to provide a redraft of D23 based on these conclusions and to prepare a paper on possible ways of addressing the accounting mismatch between dividend liability and asset to be distributed in extinguishment of the liability.

It was noted by some IFRIC members on that occasion that when businesses are distributed there might be unrecognised assets and that there could be a difference between the liability and the assets recognised even if they were measured at fair value.

gpeg.gif D24 Customer Contributions – First redeliberations

The IFRIC discussed comments received on the draft Interpretation D24 Customer Contributions published in April 2008. The staff noted that of the 58 comment letters received a majority supported IFRIC's proposal to develop an Interpretation. However, almost all comment letters expressed concern regarding certain aspects of D24.

The discussion focussed on the key concern raised by constituents being whether the entity receiving the customer contributions always has an obligation to provide ongoing access to a supply of goods or service.

Some respondents pointed out that when, for example, a utility company is required by law or regulation to provide access to a supply of goods or services to all customers at the same price, the access provider does not have any further obligation once the connection has been made.

The IFRIC discussion was based on the following example relating to customer contributions for connection to a price-regulated network:

A real estate company is developing a residential real estate in a remote area that is not connected to the electricity network. In order to have access to the electricity network, the real estate company is required to construct an electricity substation that is then contributed to the utility company operating the electricity network. The contributed electricity substation becomes an asset of the utility company that it must maintain or replace at its cost. The utility company uses the contributed asset to connect each house of the residential real estate development to its electricity network. The developer then sells the connected houses to customers at a price that includes a share of the costs of the electricity substation. By law or regulation, the utility company has an obligation to provide ongoing access to the electricity network to all connected customers at the same price, regardless of whether they have contributed an asset. Customers can choose to purchase their electricity from suppliers other than the utility company, but the utility company always provides the distribution. In that event, the electricity supplier charges the customers quarterly for the consumption of electricity and collects an ongoing access fee on behalf of the utility company.

The staff was of the view that in contrast to paragraph 16 of D24 in such scenario revenue should be recognised once the connection services have been performed since providing initial access would be the only service provided in exchange for the contributed asset. The staff pointed out that generally speaking they could not see why there is an ongoing obligation arising from the customer contribution when the entity that receives the contribution from a customer has no obligation to this customer that is different from its obligation to other customers who did not contribute.

Some IFRIC members agreed to the staff with regard to this particular (simple) fact pattern but noted that there may be other scenarios where an ongoing obligation may exist.

Other IFRIC members stated that the answer should be given from an IAS 18 Revenue standpoint, that is, whether the service in return for the customer contribution has been provided or not. In doing so the guidance in paragraph 13 of IAS 18 regarding separately identifiable components should be applied. In addition, one IFRIC member noted that the obligation arising from the customer contribution should be considered separately from obligations to other customers.

The IFRIC had a thorough debate on when an ongoing obligation to provide access exists but could not agree on a principle. There seemed to be a consensus that the answer depends on facts and circumstances and that judgement may be required. However, the chairman pointed out that simply referencing to facts, circumstances, and judgement would not be appropriate in an Interpretation but that specific guidance should be given.

The chairman noted that at the September 2008 meeting a decision whether the IFRIC would be able to reach a consensus on this matter on a timely basis should be made.

The IFRIC decided to proceed with the project for the time being and directed the staff to further elaborate this issue by:

  • Developing further examples to enable establishing a principle under which circumstances a performance obligation exists. The staff was asked to also address the concerns of constituents raised in respect of analogous application in this context.
  • Develop indicators regarding the existence or non-existence of performance obligations.
The IFRIC will discuss the staff's analysis on performance obligations and an analysis of the other issues raised by constituents at the September 2008 meeting.

This summary is based on notes taken by observers at the IFRIC meeting and should not be regarded as an official or final summary.

Correction list for hyphenation

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