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IFRIC Update

Date recorded:

The Director of Implementation Activities informed the Board that he wanted to highlight three items from the Update.

The first item related to IFRIC 14. The Interpretations Committee had looked into clarifying the circumstances in which an asset could be recognised in respect of a defined benefit pension plan. In particular, an asset should not be recognised if a third party had the unilateral right to use the surplus from the plan for other purposes. The Interpretations Committee also addressed some presentation issues. One sweep issue would be discussed at the Interpretations Committee meeting in November so that the Board could discuss the issue as early as during the December or January IASB meeting.

The Director then notified the Board that there had been five tentative agenda decisions that the Interpretations Committee had published. One item concerned the assessment of significant influence over a fund by the fund manager. The submitter had concluded that the fund manager was an agent for other investors and, therefore, did not consolidate the fund. However, the submitter had asked the Interpretations Committee whether the fund manager could have significant influence. The Interpretations Committee had concluded that IAS 28 did not provide sufficient guidance on this issue. The Committee had therefore recommended that the IASB should address this issue in its research project on the equity method of accounting.

A Board member said that this was a widespread issue and that waiting for the equity method project might mean another five to six years. She wondered whether the Interpretations Committee should be encouraged to develop an interpretation on the issue. She asked the Board members who were present at the Committee meeting why the Committee had decided to forward the issue. A fellow Board member said that the only guidance on the principal/agent issue was to be found in IFRS 10. IAS 28 being silent on the issue made it difficult to interpret. The former Board member replied that the Committee could issue an interpretation to fill the gap. The Director of Implementation Activities said that IFRS 10 could not be analogised for interpreting IAS 28 as 'control' and 'significant influence' required different assessments.

Another Board member said that the Committee had struggled with the question whether a fund manager could be an agent and exercised significant influence at the same time. One Board member asked whether the results were not the same under both possibilities, i.e. equity accounting the holding in a fund should deliver the same information as fair valuing the holding in a fund. The Director of Implementation Activities said that the disclosure requirements would be different.

He went on to the last issue, concerning the cost associated with levies raised on production property, plant and equipment. The question was whether these were administrative costs or whether those were fixed production overheads to be recognised as part of the cost of the entity's inventory. The Interpretations Committee had decided during its deliberations on IFRIC 21 that this could not be generalised and should therefore not be included in the Interpretation. At the last Committee meeting, the Committee decided to forward the issue to the Conceptual Framework team.

A Board member asked what the timeline was on the issue. The Director for Implementation Activities said that a short note had already been submitted to the Conceptual Framework team. The Board member said that the IASB had a comprehensive standard on revenue but not on cost and that cost should be addressed. The Director for Implementation Activities replied that he did not see much need for a project on cost as this had been the first question concerning cost. The Board member asked whether the issue would be included in the agenda consultation. The Director for Implementation Activities negated that.

One Board member asked about another issue that was that was also summarised in the IFRIC Update. The issue concerned IFRS 13, particularly the fair value hierarchy when third-party consensus prices were used. He said that the Committee had rejected this issue as the guidance in IFRS 13 was sufficient in their view. He was concerned that focussing only on inputs could be wrong, for example, when the third party used judgement in arriving at the output. The Director for Implementation Activities replied that the Committee had also said that one needed to consider what the third party had done with the inputs.

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