IFRIC Update

The Director of Implementation Activities provided the Board with an update of the May meeting of the IFRS Interpretations Committee. He highlighted the following three items from the IFRIC Update where the Committee had tentatively decided to add these to its agenda:

1. IAS 12: The issue discussed related to a situation in which the tax position is uncertain (e.g. because an entity was appealing against an upfront payment to be made following a tax inspection). The question raised with the Interpretations Committee was which standard (and, thus, which recognition threshold) would apply – IAS 12 requiring the claim to be 'probable', or IAS 37 requiring a 'virtually certain' threshold. Originally, the Committee had planned to issue a rejection, but when revisiting the comment letters received concluded that there was significant diversity in practice. It therefore tentatively decided to develop a narrow Interpretation on the recognition of assets and liabilities in such situations, but would not deal with any measurement aspects.
2. IAS 19. Here, the focus was on the remeasurement at a plan amendment or curtailment. The issue concerned the question whether the revised assumptions used to determine past service cost should be used for the period following the event when calculation service and interest cost. The IFRS Interpretations Committee had come to the conclusion that the revised assumption should be used, but had felt that it could not get there under the current version of the standard and, hence, tentatively decided to develop a narrow-scope amendment to address this issue.
3. IFRIC 14. The Committee was asked about the accounting in situations where there was a surplus in a defined benefit plan managed by an independent trustee who had full discretion over that surplus (i.e., could withdraw or enhance the benefit). The Interpretations Committee had drawn conclusions as to the existence of the surplus that was not the focus of the interpretation, which solely dealt with the measurement aspect. It tentatively decided to develop either an amendment or an interpretation to clarify the concerns raised.

A Board member sought clarity as to the last issue regarding the possible development of an amendment (to IFRIC 14) or an interpretation. The Director responded that this had indeed been the decision of the IFRS Interpretation Committee so far. If it were to go down the route of issuing an amendment, it would employ the same due process as was used for issuing an interpretation, as the underlying standard’s principles would be left untouched.

The Director of Implementation Activities then went on to inform the Board that the Committee had finalised nine Agenda decisions, five of which were thought unnecessary due to sufficient existing guidance in the standards. He highlighted two of the other four that had been rejected. The first of these concerned the issue of including additional lines or columns in the statement of comprehensive income as well as aggregating line items for reasons of materiality. Whilst the IFRS Interpretations Committee had come to the conclusion that the issue warranted further guidance, it had thought that this issue be best dealt with by the Board as part of its ongoing project on the Disclosure Initiative. The other concerned the finalised agenda decision on contribution-based promises. Although the issue had been discussed over several meetings, the Committee had been unable to agree on the way how to tackle this issue and had come to the conclusion that the subject be better addressed as part of a broader project (i.e. the IASB’s research project on employee benefits). Given the breadth of the issues involved, the Committee had felt that it was impossible to eliminate or reduce existing divergence in practice.

As there were no questions or additional comments on these or any other issues, the Board moved on to discuss the three narrow scope amendments on IFRS 10/IAS 28, IFRS 2 and IAS 12.

Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28) – Due process considerations

The Project Manager introduced the paper. Back in November 2013, the IASB had decided to finalise the proposed amendments. At that point in time, one Board member had indicated his intention to dissent from the amendment. Subsequently, three more Board members changed their mind and also signalled that they would dissent. A further Board member was considering issuing a dissent, too. This prompted the Staff to bring back the issue before the full Board and to ask how many IASB members intended to dissent to the amendments to IFRS 10 and IAS 28.

There was no further discussion on the issue. Four Board members indicated that they would put forward a dissenting opinion. The fifth Board member considering a dissent had finally come to the conclusion to go ahead with the amendment.

Narrow–scope amendments to IFRS 2: Clarifications of Classification and Measurement of Share-based Payment Transactions – Summary of Due Process followed

The Technical Manager indicated that the purpose of the paper is to explain the steps in the due process that the IASB has taken before the publication of the Exposure Draft (Proposed Amendments to IFRS 2 Share-based Payment) and to ask the IASB to confirm that it is satisfied that it has complied with the due process requirements to date.

No comments were raised by Board members. The Board members were satisfied that all mandatory due process steps had been complied with. No member indication an intention to dissent, and all Board members approved the proposed timetable and permission to ballot.

Recognition of Deferred Tax Assets for Unrealised Losses (Proposed amendments to IAS 12)

The Project Manager introduced the two papers for this session. The first paper was meant to meet the IASB’s request for further analysis as to how the mandatory guidance in IAS 12 could be clarified with regard to following three issues:

• the existence of a deductible temporary difference;
• the combined assessment of utilisation; and
• the recovery an asset for more than its carrying amount.

For the first issue, Staff proposed to include an example in the main body of the text after paragraph IAS 12.26(d) to clarify the application of the principle. On the second item, Staff was proposing adding a new paragraph after IAS 12.27 to reflect that the tax law would determine the grouping of deductible temporary differences for the assessment of their utilisation. Lastly, given that IAS 12 did not explicitly address whether an entity’s estimate of probable future taxable profit was limited by the carrying amounts of the assets in the statement of financial position, even if a recovery of the assets for more than their carrying amounts was probable, Staff recommended:

• adding a clarification to IAS 12.29 to explain that an entity would make such an assumption if such recovery for more than the carrying amount was probable;
• explaining in the Basis for Conclusions that it was not always probable for an asset to be recovered for more than its carrying amount and listing some facts and circumstances influencing the assumption; and
• addressing the issue in a non-mandatory illustrative example.

One Board member asked if it was possible to clarify in the illustrative example in which interest was paid only at year end that it was just an example. Another Board member asked whether there was diversity in practice. The Project Manager confirmed this, as many users believed that there were no tax consequences for the topic discussed. He also pointed out that the FASB had come to the same conclusion.

Another Board member expressed concern that an asset could be recovered at an amount higher than its current amount when the asset was measured at fair value. She also pointed out that when an asset was impaired and an impairment loss was recorded, it would not be appropriate to consider, for tax purposes, that the asset could be recovered at a higher amount.

Another Board member believed that the fact-pattern was very limited and the wording should be carefully considered in order to avoid application issues in other situations. Further, it was pointed out that the assessment should be the same regardless of the type of asset. Another Board member indicated that this is only applicable for financial instruments.

The Director for Implementation Activities concluded that there was general agreement with the principle while he acknowledged that the wording would be carefully considered. Board members agreed with this cause.

The Project Manager then quickly presented the second paper on the due process steps that had been followed, the recommended exposure period, as well the permission to start the balloting process. He also asked whether there were any Board member intending to dissent from the proposal.

When called to vote, the Board approved the transition requirements, the completion of required due process steps, the proposed timetable for balloting (subject to issuance of IFRS 9), and an 120 days comment period. The Board gave permission to prepare the Exposure Draft for balloting. No Board members intended to dissent.