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Maintenance and consistent application

Date recorded:

Sale and Leaseback with Variable Payments—Amendment to IFRS 16 (Agenda Paper 12A)


At its March 2020 meeting, the IFRS Interpretations Committee (Committee) discussed a submission about a sale and leaseback transaction with variable payments. The Committee published a tentative agenda decision but its discussions highlighted that IFRS 16 is not as complete as it could be regarding the subsequent measurement of the lease liability arising in a sale and leaseback transaction. They therefore recommended that the Board make a narrow-scope amendment to IFRS 16.

This paper explains the recommendation and asks the Board whether it agrees with the recommendation to amend IFRS 16 and the related illustrative examples.

Staff recommendation

The staff recommend a narrow-scope amendment to IFRS 16 to specify that:

a) in applying paragraphs 36–38 of IFRS 16 to a sale and leaseback transaction with variable lease payments, a seller-lessee:

  • (i) determines the lease payments made (as described in paragraph 36(b)) as the payments included in the measurement of the lease liability. The payments included in that measurement are those that, when discounted using the discount rate described in paragraph 37, result in an amount equal to the carrying amount of the lease liability;
  • (ii) does not remeasure the lease liability to reflect any reassessment of future variable lease payments; and
  • (iii) applies paragraph 38 in accounting for any difference between the payments made for the lease and those included in the measurement of the lease liability.

b) in applying paragraphs 40 and 45 of IFRS 16 to lease modifications and changes in lease term related to a sale and leaseback transaction, a seller-lessee determines the revised lease payments as the revised expected payments for the lease.

Discussion and voting

As part of their introduction, staff clarified that any amendments to IFRS 16 will be restricted to the requirements relating to sale and leaseback transactions and not to other areas of the standard i.e. the accounting for stand-alone lease transactions would not be affected.

The Board supported the recommendation but emphasised that the amendment to requirements should indeed be limited to sale and leaseback transactions and that the related BC paragraph should explain why the amendment has a narrow focus.

When asked to vote, 14 Board members voted in favour of the staff’s recommendation.

Next step

The staff will bring a paper to the Board discussing transition, effective date and due process steps as well as seeking permission to begin the balloting process.

Lack of Exchangeability—Cover Paper (Agenda Paper 12B)

In response to a question submitted, the IFRS Interpretations Committee considered the determination of the exchange rate an entity uses in particular circumstances to translate the results and financial position of a foreign operation into its presentation currency applying IAS 21.

The question was submitted in the light of circumstances that exist in Venezuela. As part of its analysis, the Committee observed that IAS 21 does not include requirements on the exchange rate an entity uses when the spot exchange rate (as defined in IAS 21) is not observable. This matter arises when exchangeability between two currencies is lacking. After undertaking research, the Committee decided to recommend that the Board propose narrow-scope amendments to IAS 21 to address that matter.

At its November 2019 meeting, the Board agreed with the Committee’s recommendation and tentatively decided to undertake narrow-scope standard-setting. The staff used the Board’s feedback to refine the analysis and recommendations on those topics. They also conducted further research and analysis to identify and recommend disclosure requirements that would provide useful information. The purpose of this meeting was to ask the Board whether it agrees with the staff’s recommendations.

The cover paper was not discussed.

Lack of Exchangeability—Exchangeability and lack of exchangeability (Agenda Paper 12C)

In this paper the staff analyse how to defined exchangeability and, consequently, a lack of exchangeability. As a consequence of this analysis, the staff recommend the following:

The Board should specify that a currency is exchangeable if an entity would be able to exchange that currency for another currency at a specified date. Accordingly, a currency would lack exchangeability if an entity is unable to exchange that currency for another currency at a specified date.

Furthermore, the staff recommended specifying that when an entity assesses exchangeability (or a lack of exchangeability), it would:

  1. consider whether it could obtain the foreign currency within a timeframe that includes a normal administrative delay.
  2. consider its ability to obtain foreign currency, and not its intention (or decision) to do so.
  3. consider only markets or exchange mechanisms that create enforceable rights and obligations.
  4. assume the purpose of obtaining foreign currency is:
    1. to settle individual foreign currency transactions, or assets or liabilities related to those transactions, when it reports foreign currency transactions in the functional currency; or
    2. to realise the entity’s net assets when it uses a presentation currency other than the functional currency (or to realise its net investment in a foreign operation when it translates the results and financial position of that foreign operation).
  5. in circumstances in which it is able to obtain only some amounts of foreign currency, conclude that exchangeability is lacking when, for a particular purpose, it is able to obtain no more than an insignificant amount of foreign currency. For example, for the purpose of translating a monetary liability of FC1,000 into its functional currency, assume an entity is able to obtain an amount of foreign currency of only FC400 to settle that liability. In this situation, the entity is able to obtain more than an insignificant amount of foreign currency to settle the liability and would therefore conclude that the currency is exchangeable for this particular purpose. Additionally, the staff recommend that when an entity (a) reports foreign currency transactions in its functional currency; and (b) can obtain less than the amount of foreign currency it needs to settle all balances and transactions in that currency, the entity assess exchangeability on an aggregated basis for all the related foreign currency balances and transactions.

Board discussion

Many Board members agreed with the staff recommendations. Some agreed that ‘a normal administrative delay’ should not be defined, however, staff was encouraged to give some guidance on that in the Basis for Conclusions (BC). One Board member noted that exchangeability might also be lacking if an entity has access to the foreign currency in question, but the provider would charge a fee so high that it is economically unreasonable to make the exchange. The BC could also give some guidance on that. The Vice-Chair added that the staff should also think about situations in which foreign exchange is easier to access if someone wants to buy medicine, than, for example, if someone wants to buy stationery. One Board member warned that the staff should be disciplined when drafting the scope of the amendment, as it needs to be relatively narrow-scope. It was also mentioned that if the currency can be exchanged outside the country in question, but not in the country, that would not constitute a lack of exchangeability. One Board member suggested to include a disclosure requirement if the entity has made a significant judgement in arriving at the assessment that there is no lack of exchangeability. It was also suggested to look into amending IFRS 13 as well, as it contains similar guidance, and the work the staff has done would also be beneficial for the guidance in IFRS 13.

Board decision

All Board members supported the staff recommendation.

Lack of Exchangeability—The exchange rate when exchangeability is lacking (Agenda Paper 12D)

In this paper the staff presented their analysis on the spot exchange rate (spot rate) an entity uses when a currency lacks exchangeability.

Based on the analysis, the staff recommended the following:

  • (a) an entity should estimate the spot rate when a currency lacks exchangeability.
  • (b) any proposed amendment should set out an objective for the estimation process. The objective would require an entity to estimate a spot rate that:
    • (i) the entity would have been able to access at the reporting date had exchangeability (as defined in Agenda Paper 12C) not been lacking;
    • (ii) would have arisen in an orderly transaction between market participants; and
    • (iii) would faithfully reflect the economic conditions prevailing at that date.
  • (c) an entity be permitted to use an observable rate (that does not meet the definition of a spot rate) if that rate approximates the spot rate in the following circumstances:
    • (i) when the observable rate meets the definition of a spot rate for particular transactions or balances but not those for which the entity assesses exchangeability; or
    • (ii) when the observable rate is the first subsequent rate at which exchanges could be made if exchangeability is restored before financial statements are authorised for issue.
  • (d) an entity apply an estimated exchange rate to:
    • (i) the entire transaction or balance of an asset or liability (when the entity reports foreign currency transactions in the functional currency); or
    • (ii) the financial statements as a whole (when the entity uses a presentation currency other than the functional currency).

Board discussion

Many Board members agreed with the staff recommendations. One Board member suggested to add to the amendment that entities with the same characteristics, circumstances and in the same jurisdiction should come up with a similar estimate. Other Board members agreed with the sentiment, but said it would be difficult to ask entities to make sure they are consistent with their peers. This role should rather fall to auditors or regulators. One Board member confirmed that regulators are aware of the problem and said they would guide entities to arrive at the correct estimate. However, the guidance of how to estimate the exchange rate is very different in different jurisdictions and adding something to IAS 21 in that respect would be counterproductive. The Vice Chair highlighted that in those situations good disclosures of how an entity arrived at its exchange rate are paramount.

Board decision

All Board members supported the staff recommendations.

Lack of Exchangeability—Disclosure requirement (Agenda Paper 12E)

This paper presented the staff’s analysis on the disclosures an entity should provide when a currency lacks exchangeability. Based on the analysis, the staff recommend the following:

An entity should be required to disclose:

  • (a) the currency that lacks exchangeability and a description of the restrictions that result in that lack of exchangeability;
  • (b) a description of the transactions affected by the lack of exchangeability;
  • (c) the carrying amount of assets and liabilities denominated in the currency that lacks exchangeability;
  • (d) the spot rate(s) used and whether that rate is:
    • (i) an observable rate that approximates the spot rate; or
    • (ii) has been estimated;
  • (e) a description of the estimation technique applied, and qualitative and quantitative information about the inputs used in that estimation technique; and
  • (f) qualitative information about each type of risk to which the entity is exposed because of a currency’s lack of exchangeability, and the nature and carrying amount of assets and liabilities exposed to each type of risk.

In addition, when a foreign operation’s functional currency lacks exchangeability, the staff recommend that an entity should be required to disclose:

  • (a) the name of the foreign operation, its nature (i.e. subsidiary, joint operation, joint venture, associate or branch) and its principal place of business;
  • (b) summarised financial information about the foreign operation; and
  • (c) the nature and terms of any contractual arrangements that could require the entity to provide financial support to that foreign operation, including events or circumstances that could expose the reporting entity to a loss. The entity also discloses the balance of assets to which such arrangements give rise.

Board discussion

Several Board members touched on the topic of adding a sensitivity analysis to the requirements. While some Board members would prefer to see a requirement for such an analysis, others questioned the practicability and usefulness of it. One Board member reported that preparers told him they would struggle to collect the data for such an analysis and might therefore not be able to provide it at all. In addition, analysts often disregard sensitivity analyses as they are difficult to incorporate and there is a high amount of uncertainty involved. Groups that often demand sensitivity analyses are often auditors and regulators. One Board member added that with sufficient information provided under the recommended requirements, users would be able to do a sensitivity analysis themselves. It was recommended by one Board member not to include a sensitivity analysis in the disclosure requirements, but to ask a question in the ED whether a sensitivity analysis is useful and practicable.

One Board member asked whether, if the entity determined that there was no lack of exchangeability, it would still have to make the disclosures. The staff said no, but that there are general disclosure requirements in IFRS 12, IAS 7 and IAS 1 that should capture most of the user information needs. The requirements recommended by staff in the paper are a combination of those, pulling them together into IAS 21. One Board member asked why in that case, the staff recommends to introduce detailed disclosure requirements if there is a lack of exchangeability and not rely on the requirements that already exist in IFRS Standards. The staff replied that they had analysed past disclosures by entities with regard to exchangeability and found that some entities had applied the requirements poorly. This could be due to individual materiality, which was not analysed by the staff, but it led the staff to believe that it is necessary to recommend more detailed requirements in one place. The Vice Chair highlighted that because of the interaction with IFRS 12, this project would also affect the post-implementation review of IFRS 10-12.

Board decision

All Board members voted in favour of the staff recommendations.

Commodity Loans (Agenda Paper 12F)

In 2017, the IFRS Interpretations Committee received a question about a particular commodity loan transaction and observed that the transaction may not be captured within the scope of any IFRS Standard.

Due to this question, the Board previously discussed a possible narrow-scope project on commodity loans and related transactions and asked the staff to research the feasibility of such a project.

The critical component of such a project would be to determine the scope (i.e. which commodity transactions should be included versus which should not be included). Based on research performed by the staff, they are aware that there are many different types of commodity transactions, however without investing additional time and effort the staff believe it is difficult to identify a population of commodity transactions for the narrow-scope project.

The staff therefore do not recommend the Board add a narrow-scope standard-setting project on commodity transactions to its work plan.

The staff think the Board should gather more information as to which types of commodity transactions stakeholders view as a priority and recommend that the Board consider referring to commodity transactions as a potential project in its Request for Information on the 2020 Agenda Consultation. This would allow the Board to consider commodity transactions in the context of other possible standard setting projects on its work plan.

Board discussion and voting

A Board member agreed that a good research effort was needed in order to define the scope of the project. Another Board member agreed with the staff recommendation and said she could see no other way to progress this project without knowing how to define the scope or the urgency of the project compared to other items on the work programme.

One Board member mentioned that the frequency of these commodity transactions is not low and diversity is seen in the accounting treatments, however from what she has seen each transaction has a small element which is different and that difference can cause the accounting treatment to be different. Therefore agreed it would be challenging to identify the specific transactions to make narrow scope amendments.

All Board members agreed with the staff recommendation not to add this project to the standard-setting programme and instead to include this project in the Request for Information for the next agenda consultation.

Deferred Tax Related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12)—Feedback Summary—Background and Overview (Agenda Paper 12G)


In July 2019 the Board published the Exposure Draft Deferred Tax related to Assets and Liabilities arising from a Single Transaction, which proposed a narrow-scope amendment to IAS 12. The proposed amendment would narrow the scope of the recognition exemption in paragraphs 15 and 24 of IAS 12 so that the exemption would not apply to the extent that, on initial recognition of a transaction, an entity would recognise equal amounts of deferred tax assets and liabilities. This is particularly in relation to deferred tax on assets and liabilities that arise, for example, on initial recognition of leases and decommissioning liabilities.

The purpose of these Agenda Papers is to provide a summary of feedback on the Exposure Draft and to ask the Board for initial thoughts on the feedback.

Almost all respondents agree with the decision to address the accounting for deferred tax related to leases and decommissioning obligations and many supported the proposed amendments as they will provide clarity and consistent application of IAS 12. Many agreed with the direction of the proposed amendments but requested clarifications or had specific concerns as laid out in Agenda Paper 12H. Many respondents disagreed with the proposed amendments given the costs of finalisation may outweigh the related benefits. They suggested alternative approaches that could be followed as laid out in Agenda Paper 12I.

Next Steps

The staff plan to bring a paper to a future Board meeting analysing the feedback and providing recommendations for the Board on the project direction.

Staff recommendation

The Board has not been asked to make any decisions at this stage but will be asked for their thoughts to guide the development of future staff papers.

Board Discussion

The majority of Board members agreed that this amendment should continue to be on the agenda.

A number of Board members raised concerns, based on the issues raised in the feedback, about whether it was possible to continue with the project as a narrow scope amendment and recommended that staff complete a cost/benefit analysis on this to ensure it would not be expanded.

One Board member noted that it didn’t appear to be the case that the benefits outweigh the costs given that most entities will have a portfolio of leases which will dilute the potential tax effects which caused the amendments to be proposed.

One Board member suggested that staff should consider the suggestions to simplify the approach so that it is not unnecessarily complicated.

Deferred Tax Related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12)—Feedback Summary – Main Matters (Agenda Paper 12H)

This paper summarises the main matters identified by respondents on the proposed amendments to IAS 12 included in the Exposure Draft Deferred Tax related to Assets and Liabilities arising from a Single Transaction.

The paper summarises comments on the following topics and further detail can be found in the paper:

  1. the proposal to limit the recognition of deferred tax liabilities to the amount of the related deferred tax asset recognised;
  2. the interaction of the proposed amendments with the requirement to reassess unrecognised deferred tax assets;
  3. the proposed amendments’ scope;
  4. the attribution of tax deductions; and
  5. the requirements for advance lease payments and initial direct costs.

This paper was discussed together with Agenda Paper 12G.

Deferred Tax Related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12)—Feedback Summary – Alternative approaches, transition and other comments (Agenda Paper 12I)

This paper summarises feedback on particular aspects of the proposed amendments to IAS 12 included in the Exposure Draft Deferred Tax related to Assets and Liabilities arising from a Single Transaction.

The paper covers feedback on the following:

  1. respondents’ suggestions on alternate approaches to address the matter;
  2. feedback on the proposed transition requirements; and
  3. requests for application guidance and examples, and other comments.

This paper was discussed together with Agenda Paper 12G.

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