IFRS Interpretations Committee issues

Date recorded:

IAS 40 Investment property – Accounting for a structure that appears to lack the physical characteristics of a building

In the interest of time, the Senior Technical Manager did not provide a summary of the arguments in favour of and against extending the scope of IAS 40, but pointed Board members at the staff’s summary and recommendation. The staff was in favour of considering an expansion, and if the Board agreed, the staff would suggest further research to better understand the issue.

The Chairman started off stating that he saw very limited benefits and did advise against the staff's recommendation. A fellow Board member agreed based on cost-benefit grounds, though, conceptually, she believed the scope could be broadened to include structures. In her view, the main cost arising on including structures in the scope of IAS 40 would lie in disclosing their fair values – whether or not the owners valued them that accordingly.

Another Board member advised to reach out to national standard setters for researching the issue. He had heard that it could be issue in Latin America. The Senior Technical Manager responded that the IFRS Interpretations Committee had already performed some outreach, which revealed only one jurisdiction being significantly affected. A further Board member hinted at changing business models which might provide the Board enough support for pursuing the topic further. Another Board member said she was sceptical as to whether the Board should invest more resources into the issue. She suggested asking the Interpretations Committee whether they believed that not expanding the scope of IAS 40 could lead to issues in the future. A fellow Board member said that he felt the fair values of such structures to be highly judgmental and subjective. He believed the information provided under the cost model to be sufficient.

The Chairman called for a vote as to who would agree with not pursuing the issue. Eight Board members showed up, causing the Chairman to see a sufficient majority for turning the issue down.


IFRIC Update

The Director of Implementation Activities briefly highly five issues from the November edition of the IFRIC Update. The first issue concerned uncertain tax positions where the Interpretations Committee would be looking into the scope as well as the unit of account. He advised the Board that the Committee would prepare a draft interpretation according to which an entity should measure the amount at either the most likely amount or the expected value, depending on which method led to a better prediction of the future outflow. This would, in essence, create a GAAP difference with U.S. GAAP, as using a 'more-likely-than-not' amount would not be permitted. The draft interpretation would be expected in January 2015.

The second issue concerned the cost for testing PPE and the accounting for net proceeds. The Interpretations Committee had published a tentative agenda rejection; however, negative feedback received on the rejection note had led the Committee to put the issue back on its agenda. The third item was on the exchange rate to be used when a transaction involved a prepayment. The Committee had tentatively come to the conclusion that IAS 21 was not clear on this issue and that an interpretation should be developed. The fourth point concerned an agenda decision relating to transactions that take place in a jurisdiction where exchange restrictions applied and high inflation was present. Although the issue was discussed against the background of Venezuela originally, the Committee had concluded that the issue was too broad for it to be considered within its remits. Furthermore, the issue had been flagged on the research agenda of the IASB, so would be catered for.

The last issue concerned a set of tentative agenda decisions, seven of which were related to IFRS 11 Joint Arrangements. The IFRS Interpretations Committee had deliberated on several IFRS 11 issues over recent months and had now issued the agenda decisions for comment with a view to them being finalised at the March 2015 meeting. There were no major comments by Board members.

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