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IFRS implementation issues

Date recorded:

The staff briefly summarised IFRIC Update.  

The item that attracted the most Board discussion was the issue of additional variable payments in IAS 16 and IAS 38. A Board member urged the Interpretation Committee to be cautious when making conclusions as it is important that any conclusions reached should not be out of sync with the decisions made by the Board in other projects faced with similar issues.

IAS 23 Borrowing costs

The IASB were asked to approve for inclusion in the Annual Improvements Cycle 2015–2017 a proposal to amend IAS 23.  That amendment would clarify that borrowings made specifically to finance construction of a qualifying asset become part of the pool of general borrowings once the construction of the specific qualifying asset is completed (see Agenda Paper 12A).

IASB discussion and decisions

All Board members agreed with the proposed amendment to IAS 23 being published as an Annual Improvement. Further, they agreed that the amendment be applied prospectively with early application permitted.

During the some Board members raised general concerns regarding the appropriateness of capitalising borrowing costs.  One Board member stated that he would have preferred it if borrowings made to fund a specific asset were not pooled with general borrowings unless the related asset had been sold (as the funding effectively attaches to that asset).

IFRS 11 Joint arrangements

The IASB considered papers analysing issues the Interpretations Committee had considered relating to joint arrangements and the measurement of previously held interests.

The IASB were being asked to approve for inclusion in the Annual Improvements Cycle 2015–2017 two proposed amendments to IFRS.  The first would amend IFRS 3 (see Agenda Paper 12C) to clarify that previously held interests should be remeasured (to fair value) when control is obtained over a joint operation that meets the definition of a business.  The second would amend IFRS 11 (see Agenda Paper 12D) to clarify that when an investor participates in a joint operation but steps up to have joint control of the operation, the previously held interests in the related assets and liabilities would not be remeasured.

The third scenario considered was the case of an entity that has control of a business but enters into a transaction that results in the entity losing control but retaining joint control of, or being a party to, a joint operation.  The IASB was asked whether the Interpretations committee should continue its related deliberations or postpone these until the completion of the research project into the equity method (see Agenda Paper 12E).

IASB discussion and decisions

On the issue of remeasurement of previously held interests when control over a joint operation is acquired (see Agenda Paper 12C), some board members expressed a concern that any amendment issued may be affected by the outcome of discussions around the definition of a business – the transaction investigated by the Interpretations Committee was one where control was attained over an entity that constituted a business. As a result, the staff rephrased the questions posed to the Board.  The Board agreed with the proposal to amend IFRS 3, with prospective application of the requirements with early adoption permitted, but any amendment would be grouped with and conditional on any other amendments relating to the definition of a business.  Furthermore, it was clarified that the ‘crossing of the control boundary’ was vitally important in triggering transactions that would lead to remeasurements of previously held interests.

The discussion then focussed on the issue of remeasurement of previously held interests where there is a ‘change of interests’ transaction resulting in joint control (see Agenda Paper 12D). The Board agreed with the proposal to amend IFRS 11 with prospective application of the requirements with early adoption permitted. However, any amendment would be packaged with other amendments made relating to the definition of a business, (the example transaction investigated in the paper involved an entity attaining joint control over an entity that constituted a business) as assessing the amendments together would lead to a greater understanding of all of the related issues.

Finally, the issue of remeasurement of previously held interests where control is lost (see Agenda Paper 12E) was considered. The Board agreed that the Interpretations Committee that further discussions should be postponed In light of the deferral of decisions relating to IAS 28.  During the discussion, the message to be conveyed to the Interpretations Committee by the staff was clarified: is crossing the control threshold a sufficiently clear transaction that can be distinguished from other transactions where interests change or are they, conceptually, too closely related?

Furthermore, it was re-emphasised that decisions relating to any amendments to IAS 28 are of vital importance to certain jurisdictions.

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