8 May 2008, London

Thursday 8 May 2008

• Introduction
• D21 Real Estate Sales – Final redeliberations and consideration of draft Interpretation
• D22 Hedges of a Net Investment in a Foreign Operation – Cover note including sweep issues and Draft Interpretation
• Exposure Draft IFRS 2 Share-Based Payment and IFRIC 11 IFRS 2 – Group Treasury Share Transactions – Preliminary Comment Letter Analysis
• Review of Tentative Agenda Decisions published in March IFRIC Update
  • IAS 37 Provisions, Contingent Liabilities and Contingent Assets – Deposits on returnable containers
  • IAS 19 Employee Benefits – Settlements
• Staff Recommendations for Tentative Agenda Decision
  • Application of the Effective Interest Rate Method
• Administrative Session
  • IFRIC work in progress
  • Project plan for agenda request on rate regulated liabilities

• Enhancing various aspects of the Basel II Framework, including the capital treatment of complex structured credit products, liquidity facilities to support asset-backed commercial paper (ABCP) conduits, and credit exposures held in the trading book. At the same time, the Committee notes the importance of prompt implementation of the Basel II framework, as this will help address a number of the shortcomings identified by the financial market crisis.
• Strengthening global sound practice standards for liquidity risk management and supervision, which the Committee will issue for public consultation in the coming months.
• Initiating efforts to strengthen banks' risk management practices and supervision related to stress testing, off-balance sheet management, and valuation practices, among others.
• Enhancing market discipline through better disclosure and valuation practices.

The Risk Concentrations paper is being released in final form and has also been included in the Joint Forum submissions to the Financial Stability Forum to contribute to its work related to the market turmoil. This paper expands on previous reports and explores the extent to which financial conglomerates active in two or more of the banking, securities, and insurance sectors currently identify, measure, and manage risk concentrations at the firm-wide level and across the major risks to which these firms are exposed. The paper also explores how current and emerging risk techniques, including stress testing and scenario analyses, are employed to identify potential concentrations. It also includes observations and lessons drawn from the market turmoil that begin in mid-2007. An annex to the paper contains a summary of current regulatory requirements relating to risk concentrations.

We have reservations about the IFRIC's approach to this issue. The Interpretation does not clearly establish the principles on which it is based and, accordingly, the appropriate application of the proposed Interpretation is not always clear. In the absence of such clear principles, there is a danger that the Interpretation may be applied as a set of arbitrary rules, and may lead to practices which conflict with the principles of IAS 18.

For this reason, as explained in more detail below, we believe that it is best for the IFRIC not to proceed with the Interpretation but to address this issue for the time being in an Agenda Decision.

It appears to us that the IFRIC initially intended to address, in situations in which an entity receives a specific item of property, plant and equipment that must be used to provide access to a supply of goods or services, whether the recipient should recognise such an asset at fair value and how to account for the resulting credit. The IFRIC later extended this to circumstances where an entity receives cash to fund the acquisition or construction of that specific asset.

However, we believe that the Interpretation as currently drafted has a much wider scope without providing robust principles for all situations that may fall in that scope.

We agree with and support the consensus proposed in the Draft Interpretation to measure a liability to distribute non-cash assets as dividends to its owners at fair value, with any difference between the fair value of the liability and the carrying amount of the non-cash assets being recognised in profit or loss. We also agree that the entity should apply the requirements of IFRS 5 to non-current assets held for distribution to owners. However, we have a number of concerns with the consensus that are outlined in appendices to our letter.