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Issue Description:

This project concerns an apparent inconsistency between IAS 34 Interim Financial Reporting and IAS 36 Impairment of Assets and IAS 39 Financial Instruments: Recognition and Measurement. IAS 34 states that the frequency of financial reporting will not affect the total numbers reported for an annual period. However, because IAS 36 and IAS 39 prohibit the reversal of certain impairment losses, in fact if an impairment loss is recorded in an interim period, and has reversed by the year end, the frequency of reporting will effect the numbers in the annual report. This is because had the entity not prepared an interim report, the impairment loss need not have been recognised, but because the interim report was prepared it was recognised and cannot be reversed.

Discussion at the August 2005 IFRIC Meeting

The IFRIC considered a paper detailing an apparent inconsistency between IAS 34 Interim Financial Reporting and IAS 36 Impairment of Assets and IAS 39 Financial Instruments: Recognition and Measurement. IAS 34 states that the frequency of financial reporting will not affect the total numbers reported for an annual period. However, because IAS 36 and IAS 39 prohibit the reversal of certain impairment losses, in fact if an impairment loss is recorded in an interim period, and has reversed by the year end, the frequency of reporting will effect the numbers in the annual report. This is because had the entity not prepared an interim report, the impairment loss need not have been recognised, but because the interim report was prepared it was recognised and cannot be reversed.

Three alternative views were presented to the IFRIC

• Assessment of impairment is required at each reporting date, and reversals that are prohibited by IAS 36 and IAS 39 may not be recorded in a subsequent interim period
• Assessment of impairment is required at each reporting date, but due to IAS 34.28 a reversal would be allowed in a subsequent interim period
• Each impairment should be recognised when it occurs, and therefore the frequency of reporting does not matter, because the event would have been recognised when it occurred and the number of reporting dates in an annual period won't have any affect.

The IFRIC noted that there were other areas where IAS 34 seemed to be inconsistent with other standards (such as revaluations of assets), but that they should not try to comprehensively resolve all of these issues at this time. Staff were asked to prepare a paper for the agenda committee detailing what might be covered by a more comprehensive project on interim reporting.

It was agreed that the three alternative views highlighted the following two questions for IFRIC:

• 1. When should assessments of impairment be made; and

• 2. Does the frequency of reporting influence on the reported numbers for the annual reporting period.

The IFRIC noted that day-to-day assessment of impairment indicators was not required.

The IFRIC agreed that this item should be taken onto its agenda. A paper should be prepared on how to interpret the application of the impairment requirements at interim reporting dates. The preferences of the IFRIC at this time (which was not a formal vote) were that at each interim reporting period amounts should be recognised that were appropriate at the reporting date, based on the movement since the last reporting date. There is not a requirement to recognise the impairments which would have been required had reporting date occurred at the lowest point during the interim period. If an impairment is booked at an interim period and the reversal of that impairment is prohibited by another standard reversal is not permitted within subsequent interim reporting periods. The IFRIC will reconsider this issue at a future meeting.

Discussion at the December 2005 IFRIC Meeting

At the previous meeting, the IFRIC tended to the view that the specific guidance with regard to reversals of previously recognised impairment losses of goodwill in IAS 36 and investments in equity instruments in IAS 39 should take precedence over the more general guidance in IAS 34 and decided to proceed with a draft Interpretation.

The staff introduced a draft Interpretation stating an intention to issue it for comment before the end of the year, and to set a 60-day comment period.

The Chairman confirmed that the IASB had been asked about the direction the IFRIC is taking on this project. He indicated that there had been no objections from IASB members.

IFRIC debated whether the draft basis for conclusions should be expanded to discuss, comprehensively, the requirements of IAS 34. The IFRIC was split on this issue, with some favouring a brief basis for conclusions focussing only on the narrow issue dealt with by the draft Interpretation, while others believed it necessary to consider the IAS 34 requirements in more detail in arriving at a conclusion. It was not clear how the IFRIC decided to proceed on this issue.

IFRIC decided to issue a draft Interpretation, with two IFRIC members dissenting. The staff were instructed to finalise the draft and present it to the Board for negative clearance.

IFRIC D18 Issued

IFRIC D18 Interim Financial Reporting and Impairment was issued 12 January 2006. Comment deadline is 31 March 2006.

Discussion at the May 2006 IFRIC Meeting

The staff presented the IFRIC with an analysis of the comment letters received on D18, along with staff's proposed responses. Staff asked the IFRIC for how to proceed.

Although the majority of respondents agreed with the consensus in the draft interpretation, there was some strong disagreement as well. The IFRIC therefore decided that the Basis for Conclusion should include a paragraph stating that the IFRIC respondents were divided and that the IFRIC had considered their views.

Some respondents believed that the consensus lacked a clear principle or failed to identify such a principle. The IFRIC said that this was the reason that they had chosen to issue a narrow interpretation that will reduce divergence, and that there should be no amendment to the interpretation based on this comment.

Some respondents said the transitional requirements were bit clear and could be read to require retrospective application from a date before the effective date of IAS 36 and IAS 39. The IFRIC decided that the draft interpretation should be amended to clarify that the draft interpretation should apply prospectively from the date when the entity first applies IAS 36 and/or IAS 39.

One respondent would include the following statement from BC8 "the draft interpretation applies only to reversals of impairment losses on goodwill and investments in equity instruments and financial assets carried at cost" in the body of the standard rather than in the Basis for Conclusions. The IFRIC stated that this is merely emphasising what is already in the interpretation and decided not to move the wording.

A number of respondents commented that the requirements in IAS 34 were more specific to interim reporting than IAS 36 and IAS 39. They disagreed with the statement in the Basis for Conclusions that IAS 36 and IAS 39 should take precedence over IAS 34 on this matter. The IFRIC agreed to the staff proposal that IAS 36 and IAS 39 is more specific regarding reversal of impairment, and that identifying which standard is more specific is a matter of judgement and central to the consensus reached. No changes will be made.

A number of respondents stated that the argument that IAS 34 was issued before IAS 36 and IAS 39 and could therefore not have considered the implications is weak and could potentially set precedent for other standards. The IFRIC agreed and decided to remove this argument.

One respondent commented that it was not clear whether the interpretation would apply to interim financial statements other than those prepared in compliance with IAS 34. The IFRIC decided that they would not amend the interpretation in this regard as the implications of this had not been considered.

A respondent suggested amending the consensus to more closely reflect the wording in IAS 39. The IFRIC stated that the consensus is sufficiently clear and would not be changed.

The IFRIC decided that the revised draft should be presented to the IASB at the meeting in June as the IFRIC's agreed position.

Discussion at the June 2006 IASB Meeting

IFRIC's draft interpretation D18 Interim Financial Reporting and Impairment was discussed at the May 2006 IFRIC meeting. During that meeting, the IFRIC agreed on certain changes to the Interpretation arising from comments from constituents and decided that a revised draft should be presented at the June 2006 IASB meeting for approval.

The Board had only minor editorial comments, and voted unanimously in favour to approve the Interpretation for publication.

July 2006: IFRIC 10 Issued

On 20 July 2006, the IFRIC issued Interpretation 10 Interim Financial Reporting and Impairment