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Annual improvements: 2009 - 2011 cycle

Date recorded:

IFRS 1 - Clarification of borrowing costs exemption

The Board was presented with a recommendation from the IFRS Interpretations Committee with regards to a perceived lack of guidance in paragraph D23 of IFRS 1 with respect to the accounting for borrowing costs capitalised in accordance with previous GAAP for completed and under-construction projects at the date of transition.

The staff explained that there is current divergence in practice as to whether borrowing costs capitalised under previous GAAP should be eliminated or retained (grandfathered) at the date of transition. Furthermore, for qualifying assets under construction at the date of transition and for which the commencement date for capitalisation is before the transition date, there are divergence as to whether subsequent borrowing costs incurred should be capitalised under IAS 23 or remain accounted for in accordance with previous GAAP.

The Board unanimously agreed to include additional guidance in IFRS 1 through the annual improvement process to clarify that capitalised borrowing costs should be retained at the date of transition and that borrowing costs incurred after the date of transition should be accounted for in accordance with IAS 23.

A Board member questioned whether the Board will be opening itself to numerous other requests for the grandfathering of previous GAAP accounting in situations where the requirements are different to IFRSs. The Chairman responded that the amendment will be limited to this specific situation and that the Board will not be opening the floodgates for other assets as well.

Another Board member noted that the proposed amendment will also be of benefit to those jurisdictions that are transitioning to IFRSs in the near future and whether the amendment should be included as part of the separate exposure draft on amendments to IFRS 1 discussed earlier. The Chairman responded that although the final amendments following from the Annual Improvements ED will only be published towards May 2011, the effective date for this amendment can be backdated to annual periods starting on 1 January 2011. In that way the amendment can still be applied by jurisdictions that adopted IFRSs on 1 January 2011.


IAS 16 - Clarification of accounting for servicing equipment

The Board was asked to consider an apparent inconsistency in paragraph 8 of IAS 16 which states that spare parts and servicing equipment are usually carried as inventory but that major spare parts and stand-by equipment qualify as property, plant and equipment when they are expected to be used during more than one period. The matter was recommended as an annual improvement by the Committee.

The Board unanimously agreed that servicing equipment qualify as PP&E when used during more than one period, otherwise it should be classified as inventory. The Board also agreed to delete the requirement that spare parts and servicing equipment used only in connection with an item of PP&E be classified as such.

The Board considered the proposed amendments to IAS 16 presented by the staff and deliberated whether the make some editorial changes to ensure the proposed wording bring across the Board's intention. The Board finally accepted the proposed wording, subject to replacing the term 'usually' with 'often' in the proposed amended paragraph 8 of IAS 16.


IAS 32 - Tax effect of distributions to holders of equity instruments

The Board considered a conflict between IAS 12 and IAS 32 in respect of accounting for income tax consequences of distributions to holders of equity instruments, recommended as an annual improvement by the Committee.

The Board unanimously agreed to amend IAS 32 through the annual improvements process to require accounting for income tax in accordance with IAS 12 instead of addressing the specific accounting treatment on equity transactions within IAS 32 itself. A Board member pointed out that IAS 32 currently refers to 'distributions' whereas IAS 12 refers to 'dividends' and questioned whether the proposed amendment may have some unintended consequences in jurisdictions where not all distributions are treated as dividends. The Chairman clarified that all the proposed amendment will do is to clarify that users should refer to IAS 12 instead of IAS 32 for the tax treatment of distributions. The staff was asked to make sure that there are no unintended consequences while finalising the exposure draft.


IFRS 8 and IAS 34 - Consistency in disclosure of total segment assets

The Board considered a proposal to clarify the disclosure of total segment assets in the interim financial statements prepared in accordance with IAS 34. IFRS 8 was amended in April 2009 to only require disclosure of total segment assets when regularly provided to the chief operating decision maker, however no consequential amendments were made to IAS 34. The Committee recommended the matter to the Board to be clarified as an amendment to IAS 34 through the annual improvement process.

A few Board members noted that an amendment to IAS 34 is not required as IAS 34 only requires disclosure of material changes to information that has been previously disclosed. As total segment assets would not have previously disclosed where it is not regularly reported to the chief operating decision maker, nothing would need to be disclosed in accordance with IAS 34. However, the Board unanimously agreed to amend IAS 34 as part of the annual improvement process.


Issues recommended by the Committee not to lead to amendments within the scope of the Annual Improvements process

The Board considered the following three issues recommended not to lead to amendments by the Committee:

  • IFRS 3 - Contingent consideration and first-time adoption;
  • IFRS 8 - Determination of scope; and
  • IAS 32 - Clarification of the puttable instruments criteria for income trust units

The Board confirmed that contingent consideration existing on first-time adoption should continue to be accounted for under IFRS 3 (2004) and that no amendment to IFRS 3 is required.

The Board confirmed the Committee's recommendation that matters regarding the scope of IFRS 8 should be addressed as part of the post-implementation review of IFRS 8 and that no amendments to IFRS 8 should be made during this annual improvement cycle.

The Board unanimously confirmed the Committee's recommendation not to amend IAS 32 as part of the annual improvement process as the requested exception to the definition of a financial liability is outside the scope of the annual improvements and that many of the arguments supporting the application of the fixed for fixed condition also apply in considering this request.

Correction list for hyphenation

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