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New Items for Initial Consideration

Date recorded:

IAS 36 Impairment of Assets - Disclosure of the recoverable amount

The Committee considered a request relating to inconsistency in the disclosure requirements in IAS 36 Impairment of Assets, when the discounted cash flow model is used in the calculation of a recoverable amount.

Without much discussion, the Committee agreed that that if fair value less cost to sell is determined using discounted cash flow projection, the discount rate used in current and previous estimates should be disclosed.

IAS 37 Provisions, Contingent Liabilities and Contingent Assets - Discount rate

The Committee considered a request to clarify whether the discount rate or the cash flows used to calculate provisions should be credit adjusted. The Committee considered the issue but noted that the guidance in IAS 37 and indeed in the recent exposure draft ED 2010/01 Measurement of Liabilities in IAS 37 was not clear about the issue.

The Committee noted that discount rate as defined in paragraph 47 of IAS 37 'pre tax rate that reflects current market assessment of the time value of money and the risks specific to the liability' could be interpreted in more than one way.

Although some Committee members were quite clear that in their opinion risk specific to the liability cannot include credit risk of the entity (as credit risk of the entity is not a risk specific to the liability), they acknowledged a diversity in practice. The staff noted that the issue was raised by constituents to the Board in deliberating the recent exposure draft on IAS 37 replacement and the Board has stated in the September 2010 IASB Update that it will consider addressing the issue as part of the re-deliberations.

The Committee noted that the credit risk issue has many implications on the whole area of measurement of liabilities (as well as issue whether single best estimate or probability-weighted estimate is used). As such the Committee agreed that the issue cannot be addressed in isolation. In the view of the current IASB project on the issue and the fact that the Board is already considering potential additional guidance in the new liability standard that would be relevant to the issue, the Committee decided not to add this issue to its agenda.

IAS 1 Presentation of Financial Statements - Current/non-current classification of debt

The Committee considered a request to clarify the meaning of 'unconditional right to defer settlement' in paragraph 69(d) of IAS 1. In particular, the request asked for clarification of the meaning of words 'refinance' and 'roll-over' as well as clarification whether the assessment of a right as unconditional requires consideration of all possible future circumstances, or only those that exists at the reporting date.

The Committee considered whether the following example would qualify for non-current classification in accordance with IAS 1.


  • During December 2010, Company A and SuperBank agree a new facility that expires in 5 years, into which Company A is able to roll the outstanding balance of its existing loan. Company A intends to roll over the existing loan into the new facility when the loan matures in June 2011, and intends not to settle the new facility until it is due in June 2016.

The Committee considered whether the instrument fulfils the criteria for non-current classification. Some Committee members noted that the crux of the issue is whether presentation on the face of financial statements should depict liquidity or contractual/derecognition criteria. They also noted that it is a unit of account issue - should maturity of the liability be considered or liquidity of the entity.

In a tentative vote, the Committee was evenly split between those preferring current and non-current classification.

The Committee considered a second example related to rolling over of short term commercial paper with a long term credit line of a bank that backs the issue attached (in case market does not buy up all the commercial paper, the bank would provide the money as required). Once again, in a tentative vote, the Committee was evenly split between those preferring current and non-current classification (with some Committee members switching the votes). For some Committee members the existence of backing facility was sufficient to warrant a non-current classification (as it means the unconditional right to defer settlement), for some the fact that each of the credit paper issue is a separate contractual right with a different counterparty, meant that the issue should be classified as current.

One of the present Board members noted that, according to her, investors would prefer current classification as a signal of the refinancing risk. She would prefer to classify all liabilities that need to be refinanced as current unless they are with the same lender (counterparty) under substantially the same conditions. The staff noted that the question posed a similar question as offsetting currently discussed by the Board.

Many Committee members noted that this issue could fulfil the Annual Improvement Criteria. They also noted that the issue is very important and requires further consideration. The representative of the regulators at the Committee also urged the Committee to provide clarity on this issue.

On balance, given the diversity of view around the table, the Committee asked the staff to perform an outreach about the practical issues in various jurisdictions to ascertain how prevalent the issue was as well as to compare the current IFRS guidance with the requirements under US GAAP. The Committee will discuss the issue again at its January 2011 meeting.

IAS 41 Agriculture: Illustrative Example on the presentation of revenue from biological transformation in the statement of comprehensive income

The Committee considered a submission that asserted that IAS 41.IE1 was unclear in its presentation of the statement of comprehensive income, and that this lack of clarity had resulted in divergence in practice. Having reviewed the example, the staff presented three possible actions:

  • (a) Remove the example from IAS 41 altogether,
  • (b) Strengthen the caveat in paragraph A2 in the introduction to the illustrative examples, to (i) highlight that the example should not be used as a complete illustration of presentation and disclosure, and (ii) specify that it does not illustrate the disclosure of revenue from the sale of agricultural produce, as required by IAS 18 Revenue, or
  • (c) Re-work the example to provide a fact pattern upfront and more complete presentation and disclosure.

The staff noted that alternative (a) was probably not helpful, seeing as the referral to the Committee indicated that the examples were being used in practice.

Senior staff noted that the IAS 41 illustrative examples were technically not part of IFRSs—they had been prepared by the IASC Staff, not subject to due process and were explicitly not approved by the IASC Board. Therefore, to amend the guidance might not be as straightforward as it might appear.

A Committee member noted that to attempt an amendment of the example might lead to unintended consequences arising from preparers currently following the example and thinking they were in compliance with IFRSs.

The Committee also noted that the issue of how to portray changes in fair value (as revenue; as changes arising from production; or other income?) was an issue that was not confined to IAS 41 but affected all IFRSs in which changes in fair value were to be reported in profit and loss.

The Committee decided not to take this project forward. A draft agenda decision would be issued explaining the rationale.

IFRS 3 Business Combinations: Settlement of a pre-existing relationship between the acquirer and the acquiree

The Committee considered a request to clarify the guidance that applies to the settlement of pre-existing relationship between the acquirer and the acquiree in a business combination, in particular there was a about divergent interpretations of the guidance set out in paragraph B52 of IFRS 3.

Several Committee members thought that the guidance in B52 was directly applicable to the fact pattern in the request and could not understand how divergence could develop in practice. A small minority of those who spoke on this issue were concerned that diversity was developing or might do so.

The Committee decided not to take the issue on to its Agenda and to issue a draft Agenda Decision clarifying the appropriate accounting treatment for reacquired rights in a business combination and identifying the appropriate guidance in IFRS 3.

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