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Administrative session

Date recorded:

In the administrative section two papers were presented to the board, the first on the Committee’s work in progress and the latter being a review of the Committee’s activity since January 2009 to July 2013.

Interpretations Committee work in progress

The staff provided the Committee with an update on the current status of issues that are in progress but not to be discussed during the Committee’s September 2013 meeting. The Committee deferred work on six new issues and two outstanding issues. All such issues will be discussed at future meetings.

Work in progress that will be discussed at future meetings:

  • An IAS 1 Presentation of Financial Statements request to clarify criteria for the classification of liabilities as current or non-current in paragraph 69(d) of  IAS 1 when read with paragraph 73 of IAS 1. The Committee recommended to the IASB that these should not be included in the Annual Improvements to IFRSs 2010-2012 cycle. The IASB agreed with this recommendation and at its March 2013 meeting asked the Committee to consider what clarifications could be made to IAS 1 about this issue. Since this meeting, the IASB has formed the Disclosure Initiative in response to messages reported in its Feedback Statement: Discussion Forum- Financial Reporting Disclosure (May 2013). This issue will now be considered as part of the first stage of the Disclosure Initiative: Narrow-focus Amendments to IAS 1 Presentation of Financial Statements. These proposals are expected to be published for comment in December 2013.
  • An IAS 12 Income taxes issue requesting clarification of the accounting for deferred tax assets when an entity: has deductible temporary differences relating to unrealised losses on debt instruments that are classified as available-for-sale financials assets and measured at fair value; is not allowed to deduct unrealised losses for tax purposes; has the ability and intention to hold the debt instruments until the unrealised loss reverses; and has insufficient taxable temporary differences and no other probable taxable profits against which the entity can utilise those deductible temporary differences.
  • An IAS 12 Income taxes request for clarification of the calculation of deferred tax in circumstances in which the entity holds a subsidiary which has a single asset within it. Specifically, the question asked was whether the tax base that was described in paragraph 11 of IAS 12 and used to calculate the deferred tax should be the tax base of the (single) asset within the entity which holds it, or the tax base of the shares of the entity holding the asset.

Issues on hold:

  • An IAS 39 Financial Instruments: Recognition and Measurement issue requesting clarification on how the income and expense that result from negative interest rates should be presented in the statement of comprehensive income. The issue arose from the fact that the demand of investors for ‘safe harbour’ assets has increased to a degree that the yield on some assets (on some of the remaining high quality government bonds) has turned negative. The staff have deferred finalisation of this issue pending the completion of the IASB’s financial instruments: classification and measurement project.
  • An IAS 2 Inventories issue requesting clarification on the accounting for long-term supply contracts of raw materials when the purchaser of the raw materials agrees to make prepayments to the supplier. The question is whether the purchaser/supplier should accrete interest on long-term prepayments by recognising interest income/expense, resulting in an increase of the cost of inventories/revenue. The Staff are reviewing this issue in the context of developments on the IASB’s revenue recognition project.

New Issues:

  • An IFRIC 21 Levies issue requesting clarification of whether an obligating event for a levy that is subject to a minimum annual threshold can occur before that threshold is reached. There are two different circumstances as examples in which the legislations require an entity to pay levies that are subject to minimum annual thresholds as well as ‘pro-rata’ threshold if the entity starts or stops the relevant activities that give rise to the levies in the middle of the annual assessment period. There is a concern as to how ‘the activity that triggers the payment of the levy’ in paragraph 8 of IFRIC 21 should be interpreted in identifying an obligating event. The three different views on what the activity is that triggers the payment of the levies in such circumstances are:
    • the activity is passing the annual threshold,
    • the activity is passing the ‘pro-rata’ threshold, and
    • the activity is provision of relevant services (i.e. prior to passing the annual and ‘pro-rata’ threshold’).
  • An IAS 32 Financial instruments issue on Classification of an instrument that is mandatorily converted, subject to a cap and floor. In the July 2013 meeting, the Committee asked staff to analyse the accounting for a financial instrument that is mandatorily convertible into a variable number of the issuer’s own equity instruments, subject to a cap and a floor on the number of equity instruments to be delivered. The Committee asked staff to analyse how the issuer of such an instrument should classify it in accordance with IAS 32 Financial Instruments: Presentation. The Committee noted that this instrument is similar to the instrument described in Agenda Paper 17, but excludes the issuer’s option to settle early by delivering a fixed number of equity instruments.
  • An IAS 8 Accounting Policies, Changes in accounting Estimates and Errors issue requesting clarification on the distinction between changes in accounting policies and changes in accounting estimates in relation to the application of this standard. There are divergent practices regarding the assessment of whether a change qualifies as a change in an accounting policy or as a change in an accounting estimate in accordance with lAS 8. The distinction between a change in accounting estimate and a change in accounting policy is important because IFRS requires a different accounting treatment resulting in application of the changes prospectively for a change in accounting estimate and retrospectively for a change in accounting policy. Moreover, IAS 8 sets out stricter criteria for changes in accounting polices than for changes in accounting estimates. According to paragraph 14(b) of IAS 8, in order to change an accounting policy the issuer should be able to justify that the change provides more relevant information, whereas there is no such explicit requirement for a change in accounting estimate.
  • An IFRS 11 Joint Arrangements request to provide clarification with respect to the classification of a joint arrangement in which one party is obliged to purchase all of the arrangement’s output. The Standard does not specify whether the assessment of whether a joint arrangement is a joint venture or a joint operation should be made at the level of the parties as a group or by each party in isolation.
  • An IFRS 11 Joint Arrangementsissue to provide clarification with respect to the classification of a joint arrangement under the other facts and circumstances test, in the following circumstances:
    • do the parties require a contract (i.e. legally enforceable rights and obligations) to purchase substantially all of the output of the arrangement in order to achieve classification as a joint operation?
    • does the availability of third party finance preclude classification as a joint operation?
  • An IAS 17 Leases issue requesting guidance on whether fixed staff cost–employees on payroll who spend all (or substantially all) of their time on the negotiation, arranging and creation of new transactions (leases and loans)–can qualify as "incremental costs" in terms of initial direct costs as specified in IAS17. It is unclear how the requirements in IAS 17 are applied and therefore there are two alternative views being applied in practice.

Review of the IFRS Interpretations Committee’s activity January 2009 – July 2013

The paper set out the objectives of the Committee as:

  • interpreting the application of IFRSs;
  • providing timely guidance on financial reporting issues that are not specifically addressed in the IFRSs; and
  • undertaking other tasks at the request of the IASB.

A summary of the Committee’s activities was given along with various graphs and charts. The following was noted:

  • the Committee dealt with 35 issues, 20 of which were new issues and 15 where re-deliberations of issues previously discussed or exposed;
  • the Committee deals with issues predominantly through Annual Improvements and Agenda Decisions (80% of new issues were dealt with in this way);
  • the level of Agenda Decisions issued is at a comparable level in 2013 to that seen in 2012;
  • the Committee has recommended that six of the new issues considered in 2013 be addressed in Annual Improvements;
  • the use of narrow scope amendments increased in 2012 and 2013 compared with earlier years;
  • the top three standards the Committee dealt with are IFRS 3, IAS 39 and IFRS 1.

Below are comments made during this session of the meeting.

A member asked if Staff obtain any form of feedback from submitters of issues once the Committee has resolved that issue. Staff do not obtain any formal feedback and will look into setting up a form of feedback from submitters.

Another member mentioned that the outcome of the Committee was not stated. The paper did not assess how well the Committee performed against its objectives and would have liked to see this. In addition, the member would have liked to see what standard had been predominant along with the reasons.

Other administrative matters

At the beginning of the meeting the Chairman introduced a new member Chung Woo. No other matters were discussed.

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