 IAS 16 Property, Plant and Equipment – Accounting for production phase stripping costs in the mining industry
The IFRIC continued its deliberations on the accounting treatment for stripping costs during the production stage of a mine. In response to a question from the staff, the IFRIC tentatively agreed that by incurring costs to remove the waste, a mining entity has created a benefit in the form of improved access to the mineral ore body and therefore meets the definition of an asset. The IFRIC then discussed whether the asset should be classified as a tangible or intangible asset. One IFRIC member noted that before the IFRIC can conclude on the classification of the asset, it first need to consider whether the asset is an asset in its own right or an addition to an existing asset. After a fairly long discussion, the majority of members supported the view that the benefit created by the stripping costs is an addition to an existing asset.
The IFRIC then discussed whether the stripping costs should be capitalised to the intangible asset (mineral right) in accordance with IAS 38 or to the tangible mining assets (plant and equipment) in accordance with IAS 16. The IFRIC tentatively agreed that the capitalisation of stripping costs should follow the treatment applied by an entity when capitalising other mining costs or assets, and an Interpretation should not to specify whether it is an intangible or tangible asset. As a result the IFRIC agreed not to amend to the scope of the Standard with regards to mineral rights and reserves.
The IFRIC also deliberated how to allocate stripping costs between the current and future periods. It considered two approaches:
- strip ratio approach, which makes use of a strip ratio using the long-term mine plan data; and
- specific identification approach, whereby the costs of a stripping campaign are allocated to the section of the mineral ore that become accessible as a result of the campaign.
One IFRIC member questioned the staff on the practicality and application of the specific identification approach in practice. Staff responded that their research showed that the majority of mining entities are capable of applying this approach as the information is already available as part of the mine plan.
Another IFRIC member did not consider the specific identification approach to be conservative and was opposed to it. However, the majority of the IFRIC members supported the specific identification approach as, in their opinion, the strip ratio approach can lead to a entity's recognising a gain when the stripping costs have been spread over the entire ore body and it is subsequently decided not to mine the entire ore body. When put to a vote, only one member objected to the specific identification approach, with all other members voting in favour of it.
The IFRIC then considered what the appropriate unit of account should be. Without much discussion, the IFRIC tentatively agreed that the unit of account should be the stripping campaign.
Lastly, the IFRIC was asked to consider the subsequent attribution (or amortisation) of the asset. The IFRIC tentatively agreed that regardless of whether an entity capitalises those costs as part of a tangible or intangible asset, the asset should be attributed over ore reserves in a systematic and rational manner. IFRIC further agreed that in drafting the interpretation, the concepts of componentisation included in IAS 16 should be incorporated into the interpretation.
IFRS 2 Share-based Payment – Vesting and non-vesting conditions
At the January 2010 meeting, the IFRIC had tentatively agreed to add a project to its agenda to clarify the distinction between a service condition, a performance condition, and a non-vesting condition. The staff an analysis and preliminary staff views. A number of IFRIC members were uncomfortable with the proposed list of issues identified by the staff for further research and analysis. Those members were also of the opinion that to analyse and amend/improve the issues identified by the staff will result in a complete rewrite of IFRS 2, which is a task that has to be performed by the Board.
One IFRIC member noted that the real issue troubling preparers at the moment is the interaction between multiple conditions, especially 'and', vs 'or' conditions, and that the IFRIC should only focus on this issue and leave the comprehensive review of IFRS 2 for the Board. Another IFRIC member observed that although US GAAP guidance on share-based payments is written in a different manner to IFRS 2, the principles are broadly the same, and the same issues are not encountered under US GAAP, as everybody is clear about what the requirements are for service and performance conditions.
The IFRIC instructed the staff to explore the guidance under US GAAP regarding the interaction of multiple conditions and determine whether it can be accommodated in IFRS 2 without contradicting any IFRS requirements.
Review of Tentative Agenda Decisions published in January 2010 IFRIC Update
The IFRIC re-deliberated its tentative agenda decisions published in the January 2010 IFRIC Update.
IAS 21 The Effects of changes in Foreign Exchange Rates – Determination of functional currency of investment holding company
The IFRIC confirmed the tentative agenda decision published in the January 2010 IFRIC Update subject to editorial changes presented in the agenda paper.
IAS 32 Financial Instruments: Presentation – Debt/equity classification of instruments with obligation to deliver cash at the discretion of shareholders
The IFRIC confirmed the tentative agenda decision published in the January 2010 IFRIC Update subject to minor editorial changes. The IFRIC also asked the staff to stay informed on the development of the Exposure Draft on Financial Instruments with Characteristics of Equity and whether the Board addresses this issue as part of that project.
IAS 36 Impairment of Assets – Transition provisions for IFRS 8 amendment
The IFRIC confirmed the tentative agenda decision published in the January 2010 IFRIC Update without any editorial changes.
IAS 39 Financial Instruments Recognition and Measurement – Unit of account for forward contracts with volumetric optionality on non-financial items readily convertible to cash
The IFRIC confirmed the tentative agenda decision published in the January 2010 IFRIC Update.
Staff Recommendations for Tentative Agenda Decision
IFRS 1 First-time adoption of International Financial Reporting Standards – Accounting for costs included in self-constructed assets on transition
The IFRIC continued its discussion related to this issue from the January 2010 IFRIC meeting. Staff research found that the issue was not very common in practice.
The IFRIC briefly discussed the possibility of capitalisation of costs that were recorded in other comprehensive income (OCI). Based on preliminary analysis most of the IFRIC members agreed thet accounting policies related to recognising the item in profit or loss or in OCI should not drive the decision whether to capitalise. Nonetheless, most of the IFRIC members thought that other practical difficulties would prevent entities from capitalisation of items recognised in OCI.
One IFRIC member noted that the issue is more prevalent in North America in relation to pension cost and expressed his preference for a more explicit guidance. Nonetheless, he acknowledged that the issue was more complex, as pension costs are capitalised in their entirety and not by components. Other IFRIC members noted, that materiality of the issue should also be considered.
Finally, the IFRIC decided not to add the issue to its agenda as it did not expect widespread divergence in the practice.
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations – Reversal of disposal group impairment losses relating to goodwill
The IFRIC discussed the request to consider the need for additional guidance on the recognition of reversal of disposal group impairment losses related to goodwill. In particular, the discussion focused on the differences between the requirements of IFRS 5 and IAS 36 and on the question whether the disposal group should be treated as a single asset or it was merely a group of individual assets and liabilities.
IFRIC members held divergent views. Some preferred the alternative that impairment loss should not be reversed as this answer would be consistent with the rest of the literature (IAS 36) as well as with the answer under the U.S. GAAP. Other IFRIC members on the other hand thought that impairment loss reversal should be recognised as the disposal group is one asset and guidance in IAS 36 relates to allocation rather than recognition of the impairment reversal.
One IFRIC member also noted that there are significant differences with the U.S. GAAP in scope of IFRS 5 and relevant Codification guidance and thus, in his opinion, a comparison with the answer under U.S. GAAP is not relevant when determining the proper accounting under IFRSs.
Another IFRIC member expressed her concerns about the application of the conflicting guidance in the current economic environment. In her opinion, those unclear requirements might lead to abuse.
Other IFRIC members noted that IFRS 5 is internally inconsistent and should be reviewed in its entirety. Moreover, in their opinion the issue was too significant for and interpretation or Annual Improvements process. Finally, IFRIC agreed with this reasoning. IFRIC decided not to add the issue to the agenda and, in light of the multiple submissions on IFRS 5, agreed to recommend that the Board to perform a full post-implementation review of IFRS 5.
IAS 12 Income Taxes – Tax effect of distributions to equity holders
The IFRIC was asked to clarify a conflict between IAS 12 Income Taxes and IAS 32 Financial Instruments: Presentation in respect of the accounting for income tax consequences of distributions to holders of equity instruments.
The inconsistency results because IAS 12 generally requires the recognition of income tax consequence of dividends in profit or loss, whereas IAS 32 requires debiting the distribution directly to equity, net of any related income tax benefits. As part of the ED on Income tax issued in March 2009, the Board proposed a change to IAS 32 to resolve the issue. However, that proposal will not be carried forward to the Board's limited scope project on IAS 12.
Although the IFRIC members agreed with the proposal to amendment IAS 32 to requirement accounting for income tax in accordance with IAS 12 through the annual improvements project, there was disagreement on the wording of the basis for conclusions accompanying the proposed amendment. Some members were concerned that the proposed wording would change the treatment of income tax related to all distributions. Another member was opposed to the proposed retrospective application of the amendment as it may be very complicated to determine.
After a short discussion on the matter, the IFRIC tentatively agreed to propose an amendment to IAS 32 and IFRIC 2 to direct preparers to IAS 12 for income tax consequences as part of the ED on Annual Improvements to be issued later during the year. IFRIC also agreed to propose retrospective application in line with normal transitional requirements, but to include a specific question on the practicability of retrospective application in the ED.
IAS 1 Presentation of Financial Statements – Comparative information
The IFRIC became aware of diversity in views as to the requirements for comparative information when an entity provides individual financial statements beyond the minimum comparative information requirements of IAS 1.
The IFRIC was asked whether the presentation of one or more prior period financial statements solely as part of compliance with regulatory requirements will trigger the need to provide all of the financial statements for that comparative period.
All members expressed support for the view that only the minimum comparative periods are required for a complete set of financial statements under IFRSs. Therefore, if an entity decides to present a primary financial statement for a comparative period in excess of the minimum requirements, the only requirement in IFRSs is that it must be presented in compliance with the specific requirements for that individual statement.
The IFRIC was then asked if an additional selected comparative financial statement is presented and an entity is required to present a third statement of financial position (in accordance with IAS 1.10(f)), what the appropriate date for that statement would be? For example, in the December 2009 financial statements, an entity has to provide comparative financial statements for 2008 as a minimum in accordance with IAS 1. If an entity then presents a statement of comprehensive income for 2007, would the date of opening statement of financial position be 1 January 2008 or 1 January 2007?
Further to this, the IFRIC was also asked if the presentation of a 2007 statement of comprehensive income for regulatory purposes would require the entity to present four statements of financial position, that is, 31 December 2009, 2008, and 2007 and 1 January 2007?
A majority of IFRIC members agreed that the 'beginning of the earliest comparative period' must be read in context of the minimum requirements within IFRSs. Therefore, in the example above, the beginning of the earliest comparative period will be 1 January 2008, with no statement of financial position required as at the end of 2007.
The IFRIC noted that the Board will be discussing the matter at its meeting on 11 March. Therefore, IFRIC should not reach a conclusion until the Board has deliberated the matter. IFRIC will consider the matter again in May.
Annual Improvements – 2008-2010 Cycle
Comment letter analysis on minor issues
The IFRIC considered the comment letters received to the proposed amendments to IFRS 1 related to 'Accounting policy changes in the year of adoption', to IAS 27 related to 'Transition requirements for amendments made as result of IAS 27 (2008) to IAS 21, IAS 28 and IAS 31' and to IFRIC 13 related to the 'Fair value of award credit'.
As a majority of the comments was supportive with only minor editorial comments, the IFRIC recommended to the Board to finalise the amendments subject to editorial drafting suggestions.
Unreplaced and voluntarily replaced share-based payment transactions (IFRS 3)
The comment letters received on the proposed amendments to IFRS 3 related unreplaced and voluntarily replaced shared-based payment transactions were mostly supportive.
The IFRIC decided to simplify paragraph B56 of IFRS 3, as the distinction between voluntary and obligatory replacement was no longer relevant.
The IFRIC also clarified that the transition provision requirements should apply prospectively from the date the entity first applied IFRS (2008).
After a brief discussion, the IFRIC expanded the basis for conclusions to explain the distinction between the accounting treatments for share-based payment transactions that expire as a result of a business combination and those that don't expire when replacement is voluntary.
The IFRIC considered a suggestion of one constituent to provide additional guidance for the cases where the replacement value is lower than the original market-based measure allocated to pre-combination. Nonetheless, the IFRIC members agreed that such guidance would not be in scope of the Annual Improvement project and, therefore, should be left for the planned post-implementation review of IFRS 2.
One IFRIC member suggested that the guidance should be clarified for modifications as well and not only for replacement share-based payment transactions and raised other related issues. In response, the IFRIC chairman responded that as those suggestions were not exposed in the due process, they could not be included in the 2008-2010 Annual Improvements cycle. The IFRIC asked the staff to look at those issues and consider whether they should be addressed separately (as future annual improvements) or included in the planned post-implementation review of IFRS 2.
On that basis, the IFRIC recommended to the Board to finalise the amendments subject to editorial drafting suggestions.
Measurement of non-controlling interest (NCI) (IFRS 3)
The IFRIC considered including illustrative examples related to the amendments to IFRS 3 to clarify that the option to measure NCI at the proportionate share of the acquiree's identifiable net assets should be applied only to those NCI components that are present ownership instruments and entitle their holders to a pro-rata share on the entity's net assets (as clarified at the January 2010 IFRIC meeting).
The IFRIC agreed with including of illustrative examples related to treatment of preference shares and share options. Nonetheless, a few IFRIC members expressed concerns about the calculation of the proportionate share of the identifiable assets in relation to preference shares and possibility of allocation of goodwill to ordinary and preference shareholders. The IFRIC concluded that the issue whether goodwill could be attributed to individual shareholders is beyond the Annual Improvements project and therefore the examples should be limited to illustrating the decision itself (and not reflect the measurement of the full double entry). As the IFRIC Chairman noted these issues relate to the choice of NCI measurement that was included in IFRS (2008) that was not fully reflected in the rest of the Standard that was conceptually written without this measurement choice.
In addition, the IFRIC agreed that the example illustrating share options should be limited to vested share options as there are further complications connected with vested conditions (part of it relates to non-controlling interest and part to future compensations cost).
On that basis, the IFRIC recommended to the Board to include these illustrative examples in the amendments.
Application of IFRS 5 to loss of significant influence over an associate or a jointly controlled entity (IFRS 5)
The IFRIC considered application of IFRS 5 to loss of significant influence over an associate or jointly-controlled entity. The staff noted that, in February, the IASB tentative decided that the term 'significant economic event' would be limited to loss of control (and not relate to loss of significant influence over an associate and jointly controlled entity. Therefore, the proposed amendment of IFRS 5 is no longer relevant.
The majority of IFRIC members were concerned with this decision of the Board and expressed their view that the accounting could be difficult to understand. In the view of many IFRIC members, the 'old logic' reflected in the original proposed amendment was articulated more clearly than the new reasoning related to the borders of the entity. The IFRIC members agreed to ask the Board to explicitly consider, in the Board's deliberation of ED 9 Joint Arrangements, the implications of the Board's decision to change the definition of significant economic event on IFRS 5 and to provide consistent answers in ED 9 and IFRS 5.
Change in terminology to the qualitative characteristics (IAS 8)
The IFRIC considered the comment letters received to the proposed amendments to IAS 8 related to changes of terminology reflecting the changes in the Framework. Most of constituents were concerned that the changes to IAS 8 were proposed before the Qualitative Characteristics chapter of the Framework is published. The IFRIC members reiterated those concerns.
After a short debate the IFRIC recommended to the Board to finalise the amendments and issue them in the Annual Improvement 2008-2010 cycle in case the Qualitative Characteristics chapter of the Framework is issued before Annual Improvements publication in April 2010.
Change from the fair value model to the cost model for investment property (IAS 40)
The IFRIC considered the comment letters received to the proposed amendments to IAS 40 related to changes from fair value model to cost model. As most of the commentators felt that the issue was too broad to be addressed in the Annual Improvements process and the technical arguments presented by constituents were narrowly split, the IFRIC – without discussing the technical merits of the proposal – decided to recommend that the Board include this issue on the Board's list of future projects and remove the issue from the Annual Improvement project.
Partial use of fair value for measurement of associates (IAS 28)
The staff informed the IFRIC about the decision of the IASB at the February meeting to include this amendment to IAS 28 as part of the final IFRS on Joint Ventures (and consequential amendments to IAS 28) to avoid the potential confusion of two successive changes related to the same issue (with different effective dates).
Annual Improvements 2009 – 2011 Cycle
Hard-wire dates (IFRS 1)
The IFRIC discussed an exception that IFRS 1 provides from full retrospective application of the requirements for derecognition of financial assets and financial liabilities in IAS 39 for transactions before 1 January 2004.
One of the IFRIC members agreed with the staff that exception was introduced to the Standard due to effective date of IAS 39 and was originally not intended as a stand-alone exception in IFRS 1. Therefore, she noted that any such exception would endanger the consistency of the transition balance sheet.
Other IFRIC members disagreed. In their view, extending the exemption, for instance, to the date of one year before the date of transition would be a practical accommodation similar to the one was applicable for Europe in 2005 and would, at the same time, avoid potential abuse. Some IFRIC members agreed that the exemption is conceptually wrong but noted that, practically, not providing it would make it very burdensome for first-time adopters, and IFRS 1 was developed to facilitate the transition.
One IFRIC member asked if the exemption was needed at all and what would be the consequences of the repeal of this exemption. Another IFRIC member suggested another approach that would recognise only assets at the date of transition (no 'stickiness').
Several IFRIC members were concerned what the answer would be under the new derecognition guidance. As such any amendment would be applicable only for entities not applying the new guidance (that is, for an interim period of two to three years).
Finally, the IFRIC agreed that more research of the issue was warranted and asked the staff to consult the derecognition project team. In addition the IFRIC agreed to consult the national standard setters on the differences with local GAAPs as well as practical experiences with application of the exemption.
Accounting for contingent consideration for business combinations that occurred prior to the date of IFRS 3(2008) for first-time adopters (IFRS 3)
The IFRIC discussed potential amendment of IFRS 3 to clarify accounting treatment for contingent consideration from a business combination that occurred before the effective date of IFRS 3(2008) for first time adopters.
Without much discussion the IFRIC agreed not to provide any additional relief to the first-time adopters in this respect as that would go against the principles of IFRS 3(2008). The IFRIC agreed that the current accounting treatment (any outstanding contingent consideration balance at transition date is a financial asset or liability recognised at fair value with corresponding adjustment to opening retained earnings) does not require use of hindsight.
Therefore the IFRIC decided not to proceed with this issue in the Annual Improvements process.
Scope of IFRS 8
The IFRIC discussed a potential clarification of the applicability of IFRS 8 to entities that issue debt and equity instruments to the public, but those instruments are not traded on a 'public market'.
In a brief discussion, most of the IFRIC members agreed that the current IFRS 8 scope requirements are clear and well understood and thus there is a limited diversity in practice. Moreover, they agreed that the potential widening of the applicability of IFRS 8 to entities with public accountability is outside of scope of Annual Improvement process and should be addressed by the Board as part of the post-implementation review of IFRS 8. This reasoning was supported also by the Basis for Conclusions of the IFRS 8, which suggests that the Board planned reconsideration of applicability of IFRS 8 to other entities when the SME Standard is finalised.
'CTA' recycling in IAS 27 (revised) transactions (IAS 21)
The IFRIC held an initial discussion on whether the separate foreign currency equity reserve related to the translation of the net assets of an investor's net investment in a subsidiary (often referred to as the cumulative translation adjustment, or 'CTA') should be recycled and if so, when such recycling is appropriate. The discussion focussed on whether the recycling should apply for transaction in which there is a reduction in proportionate (relative) equity ownership in a foreign operation or in absolute interest (for example, pro-rata repayment of capital to all equity holders).
One IFRIC member noted that there are two connected issues: what is the disposal and partial disposal and what are the principles connected to recycling connected to disposal and partial disposal. In his opinion this is a broad issue that is unlikely to be an Annual Improvement project but rather an interpretation.
Another IFRIC member agreed and noted that the current practical application of the guidance would limit recycling to cases when the investor actively participated in the transaction (that is, there would be no recycling of CTA if there was a deemed disposition, e.g. because the investor's interest was diluted by a transaction in which it did not participate).
Several IFRIC members expressed their conceptual preference for the absolute interest view, but some expressed unease for developing an interpretation related to recycling, as this is a concept the Board does not support. In response, another IFRIC member noted that as the Board did not address recycling as part of the Financial Statement Presentation project, interpretation related to CTA recycling might be necessary.
Some IFRIC members, on the other hand, noted that the issue might be too broad for an Interpretation.
The IFRIC did not make any decision and will continue to consider this issue at the May IFRIC meeting.
Presentation of retirement benefit plan investments (IAS 26)
The IFRIC considered a clarification of presentation of changes in the fair value of plan assets, as in view of some constituents there is an inconsistency between IAS 26 (present those changes in the statement of changes in net assets available for benefits) and IAS 39 (present them in profit or loss or in OCI depending on classification of the assets).
The IFRIC agreed that the guidance is clear, and IAS 26 provides a complete guidance on the recognition, measurement, presentation, and disclosure of plan assets in the financial statements of retirement benefit plans and thus classification of these assets in accordance with IAS 39 would be inappropriate.
The IFRIC disagreed with any comprehensive scope exemption of those assets from IAS 39/IAS 32 or IFRS 7 as it believed that some guidance that does not conflict with IAS 26 requirements but complements it would be useful (for example, fair value measurement).
The IFRIC thus decided not to proceed with annual improvement and publish an agenda decision.
Consistency in disclosure of total segment assets (IFRS 8 and IAS 34)
The IFRIC discussed the potential conflict between IFRS 8 and IAS 34. Some constituents read the IAS 34 requirement to provide a measure of segment assets in interim financial statements even if that amount was not provided to the chief operating decision maker.
The IFRIC members disagreed with this interpretation of IAS 34 requirements and noted that IAS 34 should be an update on a set of annual financial statements. They argued that when no measure of total assets is provided in the annual financial statement, interim financial statements need not provide an update. Nonetheless, the IFRIC agreed that wording of IAS 34 could be clarified in that respect. In addition, the IFRIC agreed to clarify the IAS 34 requirements to require an update of total assets in the interim financial statements only for those segments for which the measure of total asset change since the annual financial statements were published (and not all segments).
Administrative Session – IFRIC work in progress
The IFRIC coordinator gave a brief update on the progress of IFRIC activities. Apart from issues already discussed at the March meeting, he identified several issues that were currently being analysed and would be presented to the IFRIC at the May meeting. Those include:
- IFRS 3: Non-controlling interest puts.
- IAS 29: Financial reporting after a period of chronic hyperinflation.
Criteria for annual improvements
The IFRIC considered the criteria for assessing issues for inclusion within the Annual Improvements process. The IFRIC agreed to retain the IASB's current criteria, which are 'non-urgent but necessary amendment to IFRSs', but suggested clarifying the interaction between criteria for Interpretation and Annual Improvements. The IFRIC agreed with a suggestion that the Annual Improvement process should be used when the change of wording of the Standard is necessary but such changes do not change the principle in the Standard or develop a new principle.
Some IFRIC members were concerned that the criteria proposed by the staff were too similar to the IFRIC's Interpretation criteria and did not reflect the abovementioned reasoning. Moreover, some IFRIC members noted that the proposed criteria might be internally inconsistent and should be clarified.
The IFRIC will continue to consider this discussion at its next 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.
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