The Technical Manager introduced the agenda paper which comprised drafts for eight tentative agenda decisions on issues the IFRS Interpretations Committee had discussed in the past year.

He highlighted three points that had been revised in Agenda Decision A. The first point was the deletion of the terms ‘direct’ and ‘in substance’ when describing rights and obligations in connection with the assessment of other facts and circumstances. Secondly, the discussion about piercing the veil of the corporation was removed and thirdly, the removal of the implication of economic substance and its potential relocation to Agenda Decision D.

One Committee member agreed with the first two points but believed the discussion of economic substance was unnecessary. Another Committee member disagreed as he found the implication of economic substance helpful as it helped focusing on enforceable rights rather than the nature of the involvement with the arrangement itself.

The Chairman called a vote on the deletion of economic substance. Six of the twelve Committee members present voted for deleting.

The Technical Manager continued with Agenda Decision B. He asked the Committee whether they wanted the document published at all as the specific fact pattern in the draft tentative agenda decision had not been documented in the prior IFRIC Updates. He then asked whether the Committee wanted to delete the reference that the assessment of ‘substantially all of the output’ was based on monetary value rather than physical quantities. One Committee member had expressed concerns that this reference could be interpretative.

Another Committee member struggled with the reference in the draft tentative agenda decision that the parties’ purchase of the output of a joint arrangement at market price might not be sufficient to enable the joint arrangement to settle its liabilities on a continuous basis. In her view, additional rights and obligations would be needed to arrive at a joint operation classification. Also, it needed to be demonstrated that the parties had the right to any excess cash.

The Chairman called a vote on retaining the reference that assessment of ‘substantially all of the output’ should be based on monetary value. Three Committee members objected and proposed deletion. The Chairman concluded that there was sufficient support to retain the reference.

The Technical Manager went on to Agenda Decision C which concerned project entities. He said that a Committee member had found the fact pattern to be too industry- and structure-specific. They recommended focusing on generic principles in the context of a party being a primary obligor. Staff had modified the wording to reflect this comment. Both the original and the modified wording were included in the agenda paper. The Technical Manager asked the Committee which wording they preferred.

An observing IASB member expressed concern about the reference in the agenda paper that the joint arrangement was established to deliver a product or service to a single customer. He thought that the fact pattern was about the real estate industry which would imply that there were multiple customers.

One Committee member said he would not be comfortable publishing either version of the draft tentative agenda decision. He said that this draft tentative agenda decision would examine whether the decisions taken in Agenda Decisions A and B would change under a specific fact pattern which was not the case. In addition, the description of the performance guarantee was confusing to him as it suggested that the parties were primary obligors.

Another Committee member did not object to publishing either alternative but would otherwise be in favour of the modified version. The reference to primary obligors should be revised in his view as ‘sureties’ was not a clearly understandable term in his view. He would rephrase this to say that the vehicle did not have to go into default for the customers to have a claim and that the customers could enforce specific performance irrespective of a claim. He also said that he did not understand how having a primary obligation created rights to the assets of the entity unless it was the parties that had actually performed. If the vehicle had performed, the vehicle would have the rights to the assets.

A fellow Committee member supported not publishing either version. He would otherwise prefer truncating the modified version significantly. He proposed to only address the situation in which the parties of the arrangement were primary obligors and then explain that this might give the parties an obligation for the liabilities but it did not give them rights to the assets.

Several Committee members shared the concerns but they were split between publishing none of the alternatives and publishing the modified version.

The Chairman asked the Committee members who would not object to abandon the tentative agenda decision. Nine of the 14 Committee members did not object to abandoning. The Chairman concluded that the tentative agenda decision would be abandoned.

One observing Board member expressed regret about this decision. He said that with this decision the discussion would be lost and suggested alternatively bringing it to the attention of the educational team so they could consider drafting educational material on that issue.

The Technical Manager introduced Agenda Decision D which concerned two joint arrangements with similar features that were classified differently. The conclusion of the draft tentative agenda decision was that the classification of the joint arrangement reflected the rights and obligations of the parties and that the presence of a separate vehicle only played a secondary role in determining the nature of those rights and obligations.

A Committee member said that to her joint arrangements were not similar if one was structured through a separate vehicle and the other was not. She suggested rephrasing to reflect that not all features were similar.

When asked by the Chairman, none of the Committee members objected to publishing the tentative agenda decision with the proposed modification.

The Technical Manager continued with Agenda Decision E. IFRS 11 stated that a joint operator should recognise its share of the revenue from the sale of the output by the joint operation in relation to its interest. The draft tentative agenda decision stated that this reference was not applicable when the joint operation had been classified as such because the investors took all the outputs from the joint arrangement. The Committee’s rationale for this decision had been that a joint operation who sold the output to its joint operator would in fact sell the output to itself. A Committee member had suggested to change this rationale to the fact that the share of the output sold by the joint operation would be eliminated against the share of the output purchased by the joint operator in consolidation. However, staff had decided not to change the rationale as it might suggest proportionate consolidation.

A Committee member agreed not to mention consolidation procedures but suggested to remove the reference in the draft tentative agenda decision that the reference in IFRS 11 would also apply if the joint operation was a separate vehicle. He said that the type of joint arrangement was irrelevant to apply this reference.

One Committee member asked whether it would be helpful to include a paragraph in the tentative agenda decision that a joint operator should not recognise shared revenue from a sale of the joint operation that was made to another joint operator.

When the Chairman asked whether any Committee members objected to publishing the tentative agenda decision with the proposed modifications, nobody objected.

The Technical Manager said that Agenda Decision F was about the accounting treatment when the joint operator’s share of output purchased differed from its share of ownership interest in the joint operation. He asked the Committee whether they agreed with the draft for the tentative agenda decision.

A Committee member said that the proposed tentative agenda decision introduced an equalisation mechanism. This had raised concerns in him as this had not been discussed by the Committee and it was unusual in practice. He proposed deleting the paragraph that contained the reference to the mechanism. A fellow Committee member said that he would not delete the whole paragraph but would agree deleting any reference to the equalisation mechanism.

Several Committee members expressed different views about deleting and retaining the paragraph. When the Chairman asked how many of the Committee members would object to abandoning the paragraph, seven of the 14 Committee members objected. The Chairman concluded that the paragraph would be retained and asked whether the reference to equalisation provisions should instead be deleted. Four members were in favour of deleting the reference. The Chairman therefore concluded that the reference would also be retained. He asked the Committee members whether they objected to publishing the tentative agenda decision. Nobody objected.

The Technical Manager continued with Agenda Decision G which concerned accounting by the joint operator in its separate financial statements. He asked the Committee whether they agreed with publishing the tentative agenda as drafted. All agreed.

He went on to Agenda Decision H. The draft tentative agenda decision addressed accounting by a joint operation that was a separate vehicle. He asked whether the Committee members agreed with the current wording.

One Committee member said that in her view, the examples in the draft tentative agenda decision did not add any value as they were incomplete and raised questions. She proposed deleting the examples. When asked by the Chairman, 13 of the 14 Committee members supported this. Nobody objected to publishing.

The Technical Manager reminded the Committee that they had received a request to clarify the accounting treatment for issues related to the remeasurement of the net defined benefit liability (asset) (the ‘net DBL’) in the event of a plan amendment or curtailment in IAS 19. The Committee had tentatively agreed to develop an amendment to require an entity to take account of the remeasurement of the net DBL at the event date when determining net interest for the post-event period and use the updated actuarial assumptions for the calculation of current service cost and net interest for the post-event period. The Committee had decided that the proposed amendment fulfilled the criteria for the Annual Improvement Process. Several Committee members had asked whether an entity was also required to remeasure the net DBL if a significant market fluctuation had occurred. IAS 19 neither required nor permitted to remeasure the net DBL if a significant market fluctuation occurred during the annual period. However, the staff noted that IAS 19 required an entity to remeasure the net DBL if there was a material change in circumstances including changes in market prices and interest rates up to the end of the reporting period. Staff therefore proposed to modify the wording for the amendment.

One Committee member said that preparers would not see the reference quoted by staff as a remeasurement that occurred during a period. The reference was instead providing guidance on whether assumptions needed revision on a reporting date when an actuarial valuation had been performed before the reporting date. The reference in the standard was therefore only applicable on reporting dates. He would prefer amending the guidance in IAS 34 on calculation of pension costs as it already contained a reference to significant market fluctuations.

Another Committee member said that he agreed adjusting the fair value of the DBL in case of a curtailment but he disagreed updating all actuarial assumptions unless there was a material market fluctuation that affected all entities in the market to ensure comparability.

A Committee member was concerned about the cost implications of the proposed amendment. He said that every time a significant market fluctuation occurred, all remeasurements of the net DBL would have to be reflected in the income statement. This could prove costly in his view, as this also affected the segmentation of profits.

A fellow Committee member said that he would prefer going back to the original proposal which stated that if there was a remeasurement trigger, the remeasurement should include updated actuarial assumptions. He said that he would refrain from stating that significant market fluctuation was a remeasurement trigger.

An observing Board member said the issue was not a sweep issue to her and recommended forwarding it to the IASB.

The Director of Implementation Activities said that he had observed in the discussion that the reference in IAS 19 relating to remeasurement of the net DBL might be applied differently in practice. One Committee member replied that in his view, the reference was applied as written.

The Chairman asked the Committee which of its members supported to return to the original scope of the issue, i.e. event-driven situations excluding significant market fluctuations. All 14 members supported that.

The Technical Manager introduced the agenda paper that addressed two issues which had been discussed over several meetings by the Interpretations Committee, two issues that had been discussed by the IASB but had been put on hold and three new issues that had not yet been discussed by the Interpretations Committee but would be the focus of this session.

The first issue concerned the question of whether certain cases of ‘loss of control of a subsidiary’ met the criteria for classifying the subsidiary as ‘held for sale’ under IFRS 5. The staff had analysed that it needed to be determined whether the loss of control over a subsidiary involved a sale plan. The absence of a sale plan would negate ‘held for sale’ classification in the staff’s view.

The staff had further analysed three cases that were identified by the submitter. If, in the case of dilution, the parent decided not to subscribe to new shares issued by the subsidiary, staff concluded that there had been a sale but that they would require additional facts to assess whether there had also been a sale plan. A call option held by a non-controlling shareholder constituted a sale plan in the staff’s view as it was a binding agreement. However, it could not be concluded that the sale would occur within one year and therefore it would not be classified as ‘held for sale’. In the case of a modification of the shareholders’ agreement, the subsidiary would also not be classified as ‘held for sale’ as no change in ownership interest had occurred in this case.

The staff concluded that IFRS 5 contained sufficient guidance on this issue and therefore recommended the Committee not taking it onto its agenda.

The Chairman said that a loss of control always led to a remeasurement at fair value. A classification as ‘held for sale’ under IFRS 5 would lead to an earlier fair value measurement. The Director of Implementation Activities agreed but said that IFRS 5 would only require fair value measurement if the fair value was below the carrying value. The Chairman agreed and said that in his view, the dilution case would be interesting as the amount of shares would not change. The Director of Implementation Activities replied that the analysis had been performed focusing on a deemed sale which was consistent with a previous agenda decision.

An observing IASB member said that IFRS 5 was unclear as to whether the driver behind the classification was a sale or if it was any loss of control. She said if it was any loss of control, the analysis in the agenda paper would be different. A fellow Board member said that in his view, IFRS 5 focused on sales and not on the loss of control. He disagreed with the staff’s interpretation that a decision not to subscribe to new shares was similar to a sale.

A Committee member agreed with that and said that a modification of a share plan was similar to the dilution as in both cases the entity had decided not to take any actions against the loss of control. In the case of the call option he said that the option in the fact pattern had an exercisable period of three years and therefore staff concluded that a sale might not be completed within one year. He asked whether the conclusion would change if the call option was only exercisable during one year.

Another Committee member disagreed with the staff’s conclusion that there was sufficient guidance in IFRS 5 with regard to whether an actual sale needed to occur. In his view there was no difference between a sale of shares in a controlled subsidiary and not subscribing to new shares issued by the subsidiary. In the case of the call option he said that it was not relevant when the call option was exercised as the loss of control had already occurred when the option became exercisable.

A fellow Committee member agreed and proposed amending IFRS 5 to make the accounting treatment on a loss of control without disposal consistent with the accounting treatment of a loss of control that involved a sale. In her view, the issues in the agenda paper were too specific for the Interpretations Committee to address. One Committee member agreed and said that IFRS 5 was applicable to disposals by sale or otherwise. He said it should be clarified what ‘otherwise’ meant. Another Committee member pointed out that the Basis for Conclusions on IFRS 5 stated that the loss of control was a significant economic event.

The Chairman concluded that many Committee members found IFRS 5 unclear which meant that a tentative agenda decision needed new analysis. He proposed to continue analysis on the issues before they were forwarded to the Board. The observing IASB members expressed agreement with this procedure.

The Chairman concluded that it was not helpful in his view to discuss the other issues at this point and suggested bringing all issues back to the Committee at the next meeting.

The Technical Manager introduced the agenda paper that addressed accounting for liabilities arising from uncertain tax positions. The agenda paper focused on the scope, the unit of account and an approach for a measurement method. Setting the scope for specific situations would be an arbitrary bright line in the staff’s view. Moreover, this would be unnecessary if a recognition threshold was applied. Therefore, all uncertain tax positions should be in the scope of the project but they should only be recognised if it was probable that the entity would pay some amount to a tax authority. This would be consistent with IAS 12 and the Conceptual Framework. As regards unit of account an entity should apply judgement. If a decision on a specific position was likely to affect, or be affected by, other positions, all those positions should be treated as one unit of account. As regards a measurement approach, an entity should apply judgement between the expected value and the most likely amount on the basis of which method it expected to better predict future cash flows for each case. This would be similar to the approach in IFRS 15 Revenue from Contracts with Customers. The staff noted that no standard referred to a ‘more likely than not’ amount.

Staff recommended developing an interpretation on uncertain tax positions on the basis of the analysis provided in the agenda paper.

One Committee member welcomed the direction of the project but said he proposed deleting the reference to the probability threshold. He said that current tax should be recognised under IAS 12 and that it was unnecessary in his view to explicitly mention the probability threshold for the uncertain part of current tax. He agreed with the proposed judgement on unit of account.

A Committee member also agreed with the staff recommendation and would like for the draft interpretation to explain which accounting methodology was applied and why. He said that guidance would also be needed on uncertain tax positions that were not income taxes but he was uncertain as to whether this could be included in the project.

Another Committee member pointed out that the unit of account depended on the tax regime under which the entity was taxed and that the Committee should be careful issuing guidance around that topic. Whilst agreeing with the measurement approach he warned that this could mean a default position of the Interpretations Committee for other issues as well.

One Committee member disagreed with the recommendation of issuing an interpretation with regard to measurement. To him the measurement guidance in IAS 12 was clear and therefore introducing the proposed measurement approach would require an amendment to IAS 12. He warned that IFRS 15 should not be used as a Conceptual Framework.

A fellow Committee member agreed with the staff looking to IFRS 15 for measurement. However, she would prefer not going into much detail on the measurement bases. She reminded the Committee that the original question was on whether a cash amount paid to the tax authorities was an asset. In her view, the amount was similar to a deposit to the tax authorities and the issue was whether this deposit could offset the liability for an uncertain tax position. The deposit was fully recoverable. She would like for this (deposit) issue to be distinguished from the issue discussed in the agenda paper.

A Committee member said that the scope should be clear as to whether also uncertainties in deferred taxes (for example an uncertain tax basis) were included.

For one Committee member the guidance was clear. He said that the issue was scoped out of IAS 37 and therefore only IAS 12 could be applied. IAS 12, he said, had a ‘probable’ recognition threshold and clear guidance on measurement. Therefore, he was uncertain as to whether there were any differences in practice and whether a big project was needed at all.

Another Committee member disagreed and said that the measurement principle in IAS 12 needed interpretation in his view.

One Committee member said that the US GAAP guidance should not be ignored when drafting an interpretation and disagreed with the reference in the agenda paper that the proposed accounting treatment would be more costly. She said that the introduction of guidance on that topic to US GAAP had not increased costs in her view. As regards measurement she proposed to let preparers elect the measurement technique on a position by position basis as each position was different in her view.

The Chairman disagreed with the comment made earlier by one Committee member that the measurement guidance would have to be amended to introduce the proposed approach. He believed it was a better articulation of what was already written and therefore an interpretation. Several observing IASB members expressed disagreement with that.

One Committee member said that he would like to include guidance from IFRS 15 about the expected value in the interpretation.

Another Committee member suggested providing illustrative examples on how to apply judgement on the unit of account issue.

The Chairman suggested approaching the FASB to gain some insights into how the FASB had arrived at its guidance. Otherwise he concluded that the Committee wanted to pursue the interpretation and suggested that staff commenced drafting. The Committee supported that.

The Senior Technical Manager reminded the Committee that they had received a request to clarify the accounting for long-term supply contracts of raw materials when the purchaser of the raw materials agreed to make significant prepayments to the supplier. The submitter had asked whether the purchaser should recognise interest income, resulting in an increase of the cost of inventories. IAS 2 stated that when an arrangement effectively contained a financing element, that element was recognised as interest expense over the period of the financing. IFRS 15 reconfirmed this. A majority of respondents in an outreach to national standard-setters had indicated that the prevalent practice was not to accrete interest in long-term payments. The staff recommended further outreach based on the distinction made in IFRS 15 between prepayments to suppliers that arose from a financing component and those that arose from operational considerations.

A Committee member said that he agreed with the staff’s recommendation as it needed to be clear how widespread the issue was. However, he warned that IFRS 15 was not the Conceptual Framework. He also said that IFRS 15 was fairly new and had not been applied by anybody yet.  Another Committee member said that the issue was very widespread and therefore agreed with performing further outreach. A fellow Committee member agreed and said it should be clear whether the background for such a transaction was financial or operational.

One Committee member said that not only interest should be examined but also foreign currency. A Committee member agreed and said it would not be simple to identify a financing component. She recommended involving the revenue transition resource group (TRG).

An observing IASB member welcomed the outreach and said that it should be examined what justified the difference between the amount that would be paid at contract inception and the amount that would be paid only on delivery.

The Chairman wondered whether it would be useful to set up potential examples that were clearly financial or clearly operational and ask constituents to comment on those. The Senior Technical Manager disagreed and said that she would prefer to speak to people in detail and that refining the issue was an iterative process.

An observing Board member pointed out that IFRS 15 was talking about ‘significant’ finance components only.

The Chairman summarised that there was broad support for the staff recommendation.

The Technical Manager informed the Committee that the agenda paper summarised the comments received on the tentative agenda decision. She said that both respondents had agreed with the tentative agenda decision and therefore recommended that the tentative agenda decision should be finalised without amendments.

One Committee member agreed but suggested to combine this with the project on disclosure of information about subsidiaries with material non-controlling interests. When asked by the Chairman, the Director of Implementation Activities said that this would be feasible. A Committee member said that if that would be done, she would like to see a reference in the IFRIC Update that the Committee was supportive of the tentative agenda decision as it might be longer until the combined agenda decision was finalised.

A Committee member said that he would prefer to finalise this tentative agenda decision on its own. The Chairman said that there would be a problem if the agenda decision on subsidiaries would be inconsistent. The Committee member replied that there were no disagreements on the other tentative agenda decision.

The Chairman asked if any Committee member would object to publishing with the provision that the Committee would revisit to ensure that the agenda decisions were consistent. Nobody objected.

The Technical Manager introduced the agenda paper by saying that it concerned the comments received on the tentative agenda decision. Of the four respondents, two agreed with the tentative agenda decision. One respondent disagreed with the reference in the tentative agenda decision that there was no diversity in practice. They would prefer the rationale to be that the issue was too broad. The submitter of the issue expressed disagreement in the fourth comment letter and recommended adding the issue to the Committee’s agenda.

The Technical Manager recommended finalising the tentative agenda decision with the amendment that the issue was too broad as suggested by one of the respondents.

The Chairman wondered whether the Committee was comfortable saying that the issue of distinction between inventory and property, plant and equipment was too broad for it to address. The ESMA representative shared those concerns.

Two Committee members expressed their disagreement with the tentative agenda decision and proposed to take the issue onto the Committee’s agenda.

The Chairman asked the Committee whether they wanted to perform further analysis to better articulate the differences in practice. Five of the 14 members voted in favour. He then asked who preferred stopping the project. Nine members voted for stopping.

The Chairman suggested articulating the cost benefit problem the Committee saw with this issue as further analysis would require extensive work. He asked if any of the Committee members objected to including that in the tentative agenda decision.  Two Committee members objected.  One of those members said that he disagreed with the amendment as it suggested that the Committee rejected items because it would require extensive work. The Chairman disagreed and replied that one of the agenda criteria was whether an issue could be resolved in a reasonable amount of time with the resources given. The Committee member said that he would not disagree if that was the wording in the final agenda decision. The Chairman concluded that either way the wording in the staff proposal needed to be amended as the scope was very clear and not too broad. The SEC representative was concerned about the diversity between industries on that matter and proposed to perform outreach on some (instead of all) industries. The Director of Implementation Activities replied that in his view it was different accounting instead of diversity as the fact patterns were different. The Senior Director for Technical Activities supported that and said that there was no evidence that similar economic circumstances were accounted for differently.

The Chairman asked if any member, except the two who would like to continue the project, objected to draft the agenda decision along those lines. One of those two Committee members who had objected before said that he still did not see a valid reason for not taking the project onto the agenda and emphasised further analysis would be required. The Chairman acknowledged that but concluded that the wording would be revised as proposed by the Senior Director for Technical Activities.

The technical manager reminded the Committee that in July 2014, they had discussed a request to clarify accounting for the net proceeds from selling any items produced whilst bringing an item of property, plant and equipment (PPE) to the location and condition necessary for it to be capable of operating in the manner intended by management. The submitter had asked whether the amount by which the net proceeds received exceeded the costs of testing should be recognised in profit or loss, or as a deduction from the cost of the PPE.  The IFRS IC had issued a tentative agenda decision that excess proceeds should be recognised in profit or loss. The Committee received nine comment letters on this tentative agenda decision. Some respondents disagreed with the tentative agenda decision because of the implications it might have for the extractive industry. In contemplation of these comment letters, the staff recommended to add the item to the Committee’s agenda.

One Committee member agreed with performing further work. However, she disagreed with the reference in the agenda paper that the availability of an asset for use was linked to the capacity.

 One Committee member agreed with the staff recommendation but wondered whether the scope should be broadened to include activities that were necessary to bring the asset in the condition required for its intended use. The Director of Implementation Activities said that staff had already thought about that and had therefore included a point into their recommendation about proceeds received on activities other than testing.

Another Committee member said that the problem was when an asset was available for use as intended by management and that this should be the question asked. She warned to not get into unit of account questions (e.g. some components might be ready for use earlier than others) as the Committee had decided before not to address those questions. The Chairman asked whether an asset was not ready for its intended use only because the market did not justify producing at capacity. A Committee member replied that the point at which the asset was available for intended use was in her view not the question at hand.

One Committee member said that the testing phase was either to refine the product or waiting for regulatory approval. All other phases would not be testing in his view. He was concerned that after clarifying IAS 16 the next question would be to clarify IAS 38. Therefore it should be carefully considered whether there should be an interpretation.

A Committee member suggested not focusing on the implications for the extractive industry and instead supported the focus on availability for use. Another Committee member warned not to go into very much detail in the agenda decision and instead focus on principles. One Committee member suggested an agenda decision that was based on the fact that diversity in practice had good reasons.

Another Committee member suggested liaising with the utilities industry as the comment letter from the International Energy Accounting Forum pointed out several issues in this industry as well. One Committee member added that transportation service concession arrangements also had significant issues in this area.

The Chairman asked whether the Committee wanted to reverse the previous position and ask staff to perform further work to pursue guidance of a kind that was yet to be determined. Twelve Committee members favoured this approach. The Director of Implementation Activities said that staff would add guidance on when an asset was available for use.

The technical manager reminded the Committee that the topic had been discussed in July. The topic comprised two issues. The first issue was about the rate that should be used to translate an entity’s net investment in foreign operations when there were multiple exchange rates. The second issue regarded the rate that should be used when there was a long-term lack of exchangeability. The Committee had decided not to take these issues onto its agenda. This tentative agenda decision had received four comment letters. They did not provide any new information on the first issue and staff therefore recommended to finalise the tentative agenda decision on this issue without modifications. Two comment letters addressed the second issue, including a comment letter from the submitter of the issue. Both expressed disagreement with the tentative agenda decision. One respondent said that IAS 21 lacked guidance on when different items in the financial statements were potentially translated using different exchange rates. They also pointed out that applying a more advantageous official exchange rate could be treated similar to a government grant. Other issues included the introduction of a third official exchange rate. This had happened earlier in the year in Venezuela with the introduction of SICAD II. If this exchange rate was widely used, the issue at hand would be alleviated; however there was no evidence of this so far. Staff therefore recommended finalising the tentative agenda decision and that the IASB should consider addressing the issue through a narrow-scope amendment to IAS 21.

One Committee member agreed with the staff recommendation but disagreed with the reference in the agenda paper that use of SICAD II would alleviate the problem. She said that this exchange rate was not accessible. She also objected to the reference in the tentative agenda decision that paragraph 26 of IAS 21 was applied by extension. In her view paragraph 26 was applicable by itself and not by extension. The technical manager replied that paragraph 26 was applied on the local operations level and therefore the extension was to also apply it on a consolidation level. The Committee member said it should be ensured that it was not read as ‘by analogy’.

Another Committee member also expressed agreement with the staff recommendation. However, he believed that the issue was the interaction between IAS 21 and IAS 29 in his view. He said that IAS 29 worked for statutory accounts but not for consolidated accounts. He therefore recommended that the exchange rate in IAS 21 should be aligned with the exchange rate in IAS 29. As regards multiple exchange rates he said that economically there was only one exchange rate and all more advantageous exchange rates were subsidies in his view.

One Committee member disagreed with the last paragraph of the draft agenda decision. He said that the reference to disclosure requirements was not helpful to establish the argument why this item was not added to the agenda.

A fellow Committee member agreed and said that he was in favour of finalising the tentative agenda decision as there was no significant diversity in practice that was not justified by different circumstances. He agreed that there was an issue with the interaction of IAS 21 and IAS 29 but said that this would have to be addressed at the Board level.

An observing IASB member reported that a fellow Board member had thought that it might be helpful if the Committee acknowledged that paragraph 26 of IAS 21 could be extended to derive a solution for the issue.

When called to a vote 13 of the 14 Committee members were in favour of finalising the tentative agenda decision. He asked the Committee if they would prefer to keep the last paragraph in the draft agenda decision. 12 Committee members voted in favour of retaining the last paragraph.

The technical manager said that the agenda paper addressed the question of whether the holder of an equity instrument with a central bank should derecognise its investments on the exchange of that instrument for another equity instrument with different terms. The Committee had decided in July not to take the issue onto its agenda. Three comment letters had been received on the tentative agenda decision. One respondent disagreed with the tentative agenda decision and requested that the Committee referred the broader issue to the IASB. However, the IASB and the IFRS IC had already considered addressing the broader issue and decided not to initiate a project.

One Committee member agreed with the tentative agenda decision but would like for the Committee to recommend to the Board to address the issue outside of a broader derecognition project.  Another Committee member disagreed with the tentative agenda decision as it was a widespread issue in her view. A fellow Committee member agreed with that but said he would support finalising the tentative agenda decision nonetheless as the fact pattern was very specific.

When taking a vote, 13 Committee members agreed with the finalisation of the tentative agenda decision.

The Chairman said that a recommendation to the Board needed to include an analysis. A Committee member said that an analysis would only make sense if the Board had capacity to initiate a project. The Chairman said that this could be discussed in a small-group meeting.

One observing Board member said that the Board needed to be convinced that the issue could be addressed in a narrow-scope project otherwise they might suggest to go through the agenda consultation.

None of the Committee members objected to this procedure.

The Senior Technical Manager introduced the agenda paper concerning a structured entity that was created to lease a single asset to a single lessee. The structured entity was the lessor in an operating lease. The submitter had asked whether the lessee’s right of use of the asset and its right to exercise a purchase option gave the lessee power over the structured entity’s relevant activities. The submitter put forward two views:

Under View A, the lessee’s right to use the leased asset affected the residual value of the leased asset and thus the returns of the structured entity. Hence, under View A, the operating lessee directed the relevant activities of the structured entity.

Under View B, the right of use of the leased asset did not give the lessee power over the structured entity. The submitter noted that the lease would contain covenants to ensure that the lessee did not damage the leased asset. The relevant activities were therefore monitoring the default of the receivable and the use of the asset and managing the sale or re-lease of the asset if the purchase option was not exercised by the lessee.

An outreach had resulted that there was no diversity in practice. View A had had little or no support amongst the constituents consulted.

In addition to the questions submitted, the staff analysis considered the effect on the relevant activities of the structured entity of the lease being an operating lease. The analysis also examined whether other requirements of control were met and what the intention of IFRS 10 and IAS 17 was.

As a result of the analysis, the staff concluded that they were in View B. The returns of the structured entity would arise from the residual value of the asset, the credit risk on lease receivables and the financing risks on its interest outflows. In the staff’s view, the lessee did not have power over those relevant activities.

The staff recommended that the Committee should not take the issue onto its agenda as there was no significant diversity in practice and the standard gave sufficient guidance to make the consolidation assessment.

One Committee member agreed with the staff recommendation. He said that there was not enough information in the fact pattern but he tended to think that IFRS 10 would provide the solution if all information was available. He suggested to add the purchase option to the tentative agenda decision as otherwise it would be a very trivial case. He was concerned about the reference in the draft tentative agenda decision that the lessee did not control because the transaction was an operating lease. He said that there could be operating leases that led to control. Another Committee member agreed and suggested to delete the sentence where it was suggested that the classification of the lease influenced the control assessment. An observing Board member agreed as well and said that a lease would not influence the control assessment as it was a right to use a particular asset.  Another Board member replied that a lessee could nonetheless control an entity.

Several Committee members expressed support for issuing a tentative agenda decision with the modification proposed. The Chairman concluded that this should be the next step.

The Senior Technical Manager said that the agenda paper revolved around what the relevant activities of a structured entity were. The structured entity in the paper was financed by a number of lenders and the lease was a finance lease. In the event of default the junior lender had the right to dispose of the leased asset. The submitter asked whether the junior lender controlled the structured entity in this transaction. Once again, the submitter provided two views. Under View A the junior lender controlled the structured entity because the sale of the asset on default was the activity that had the greatest effect on the return. Under View B, the right to sell the asset on default was a protective right that did not confer power on the junior lender. The outreach revealed that there was not much information as the transaction was quite rare but some constituents said that they would see the rights as protective. The staff analysis included an assessment of the relevant activities of the structured entity, assessing the junior lender’s right to sell the asset and an examination on whether the other requirements of control were satisfied.

The staff concluded that there was no evidence of diversity in practice and therefore they recommended the Committee to not take this issue onto its agenda.

A Committee member agreed with the staff recommendation as it was a very specific fact pattern and it was not wide-spread. She said that similarly to the previous agenda item the classification of the lease should not drive the conclusion in the control assessment. The Chairman agreed that the agenda decisions should be consistent.

One Committee member said that it was widespread in her view as the issue did not only occur in leasing arrangements. An observing Board member said that the purpose and design of the structure should be taken into consideration and for her it looked like this design was elected to mitigate credit risk. She said that IFRS 10 provided enough guidance to assess control in such cases.

The Chairman said that his sense was that the Committee did not want to add this item to the agenda but that it wanted to articulate the rationale that there was no reason to believe that IFRS 10 did not provide enough guidance on those issues. One Committee member objected by saying that the standard did not provide enough guidance in her view and that there was inconsistency in practice. When asked by the Chairman, none of the other Committee members supported that view.

The Project Manager introduced the agenda paper which related to a request for clarification received by the Interpretations Committee. The submitter asked what exchange rate should be used to translate a non-refundable cash payment received in advance for the sale of goods or services. She indicated that IAS 21 stated that a foreign currency transaction shall be recorded, on initial recognition in the functional currency, by applying to the foreign currency amount the spot exchange rate between the functional currency and the foreign currency at the date of the transaction (paragraph 21 of IAS 21). The date of a transaction was the date on which the transaction first qualifies for recognition in accordance with IFRSs (paragraph 22 of IAS 21). However, IAS 21 did not provide guidance as to how to identify the date of the transaction. She said that the submitter identified three views: a) View A: revenue would be recognised using the exchange rate at the date the contract was entered into or the date the contract become enforceable if later; (b) View B: revenue would be recognised using the exchange rate used to recognise the related deferred revenue on receipt of the cash prepayment and (c) View C: revenue would be recognised using the spot rate at the date of recognition of the revenue (i.e. on transfer of the goods or services). She said that based on their outreach they had identified mixed practice between views B or C. They had also raised the issue to the global preparers’ forum and they found similar concerns.  The staff had concluded that IAS 21 was not clear and they believed that view B was more appropriate because it reflected the economics of the situation; when an entity received an advanced payment it would not have further exposure to foreign exchange risks, it would also reflect that the obligation to transfer goods or services was created. The staff concluded that the issue should be added to its agenda to add an interpretation of IAS 21.

Several Committee members expressed agreement with the staff recommendation and agreed that View B reflected the economics of the transaction and acknowledged that there was diversity in practice.

One member said that he agreed with the staff recommendation because the standard was not clear, he also agreed that view B reflected better the economics of the transaction, he said at that point in time, the foreign exchange risks fell within the control of the entity. He said that it would be more challenging to apply view C. He also said that an additional issue could be if in the future there were requirements to disclose open performance obligations, it would not be clear what exchange rate should be applied.

Another Committee member said that they also had to address the presentation of foreign exchange differences.

Another Interpretation Committee member said that the staff should analyse whether a prepayment was variable consideration under IFRS 15. She said that it would also be necessary to analyse how view B would be applied to long term contracts. The Project Manager responded that in their view foreign exchange movements were not variable consideration.

Several Committee members indicated that the issue should be referred to the revenue TRG (Transition Resource Group for Revenue Recognition).

Some Committee members indicated that in the case presented there was only one transaction; while other members understood that there could be two transactions. One member said that an advance prepayment could be made as a hedging strategy to protect against foreign exchange issues, in his view an alternative solution could be between View B and C.

One Committee member said that the issue raised several questions, for example whether deferred revenue was a monetary item. He said that it could be addressed simply but there could be other issues with IFRS 15 which could be more complex.

The Chairman indicated that the issue should be referred to the TRG first because it was an IFRS15 issue. Some members asked whether the TRG would carry out outreach activities, one member said that he understood that the TRG publications were not binding. The Senior Director of Technical Activities agreed that the TRG publications were not binding but still they could identify other problems. He said that it would be important to determine what the transaction was.  One IASB Board member said that the TRG would carry out some outreach from its own members. 

The Chairman concluded that the staff should proceed, the focus should be on IAS 21, and if they found issues about IFRS 15 then the staff should refer them to the TRG. He also said that the starting point in developing an interpretation should be view B. The Implementation Director also clarified that they would contact the TRG to let them know of the issue.

The Project Manager introduced the agenda paper. It referred to a request for clarification received by the Interpretations Committee about the requirement for the selection of the applicable tax rate for the measurement of deferred tax relating to an investment in an associate in a multi-tax rate jurisdiction. The submitter had asked how the tax rate should be selected when local tax regulations prescribed different tax rates for different manners of recovery. The staff noted that paragraph 51 of IAS 12 indicated that deferred taxes should reflect the tax rate consistent with the expected manner of recovery or settlement. He said that if an entity expected to receive one part of the capitalised profit as dividend, and another part as sell or liquidation, then different tax rates would be applied.

He also indicated that according to the respondents there was diversity in practice. He said that many respondents indicated that the rate for dividends should be used unless there was a clear plan to sell. On the other hand, other respondents indicated that the tax rate applicable to a sale should be used unless there was evidence that dividends would be received. While others indicated that there would be a bifurcation between the amount expected to be recovered by dividends and by sale or liquidation. The staff had concluded that the responses reflected different fact patterns instead of diversity in practice. The staff believed that the standard was clear and consequently, the staff concluded not to add the issue to its agenda.

Several Committee members expressed concern for using the term “capitalised profits” in the draft tentative agenda decision. One member said that it should be changed because the requirement was to recognise temporary differences which could be greater or less than the capitalised profits.

One Committee member said that although the principle was clear, it would be difficult to exercise judgement because an entity would not know how the temporary difference would reverse, because the entity did not have control of the investee. The Project Manager indicated that the assessment should be made based on past experience to which the Interpretation Committee member said that in general an entity did not have that information.

The Chairman said that in this agenda decision the staff reached its conclusion that there was no diversity because they were actually different facts and circumstances. He asked whether they should make a reference to diversity in practice in the agenda decision. He would prefer to remove that reference. Some members agreed because they said that IAS 12 contained sufficient guidance while others indicated that they did not have sufficient information to reach that conclusion. The Chairman indicated that he was concerned by the lack of consistency in their approach as to whether or not to make references to diversity in practice in their agenda decisions. The Senior Director of Technical Activities would prefer to mention that there was diversity in the application of the principle instead of diversity in practice, and he said that the reference to diversity in practice would involve both application of the principle and facts and circumstances.

The Chairman called a vote and only five members agreed to take out the reference to diversity in practice of the agenda decision. He concluded that they would articulate the wording based on the comments expressed by the Senior Director of Technical Activities, i.e. by reference to the fact that there was diversity in the application of the standard.

The Project manager introduced the agenda paper which related to a request for clarification received by the Interpretation Committee. She explained that a longevity swap transferred the risk of pension scheme members living longer (or shorter) than expected. The swap transfers this risk from the pension scheme to an external party (usually an insurance company or a bank). If a defined benefit plan entered into a longevity swap, it would pay fixed amounts and it would receive variable amounts. These amounts were settled on a net basis. The amounts under the variable leg were calculated as the amounts actually paid to beneficiaries. The question was how the longevity swap under a defined benefit plan should be treated. The submitter had identified the following views. View 1: The longevity swap was part of plan assets that should be measured at fair value. View 2: The swap should be split into a variable leg and a fixed leg.

The Project manager indicated that they did not find the issue to be widespread and they would not recommend adding the issue to the agenda. She said that when that transaction was applied, the predominant approach was to apply paragraph 8 and 113 of IAS 19 and IFRS 13.

The Chairman asked whether the staff was recommending that it was a plan asset that should be measured at fair value. The Project manager confirmed his assessment.

Several Committee members agreed with the staff recommendation. However, some expressed concern as to why the staff concluded that the issue was rare. One member also said that it would be important to clarify in the agenda decision that they noted that the predominant practice was to reflect the transaction as a plan asset.

One Committee member expressed concern because he found the approach of saying to apply paragraph 8 and 113 would be simplistic. He said that those paragraphs would be applied in any circumstances even though there could be different accounting outcomes (for example bifurcation). He suggested clarifying that fair value would be applied as part of a single instrument of the plan asset.  That suggestion was supported by other members.

The Chairman called to vote and twelve members approved the staff recommendation with further considerations of wording.

The Implementation Director presented agenda paper 18. He indicated that there was only one relevant issue to mention which was the presentation of negative interest rates. He said that the staff was working on that and they would bring back the topic to be discussed in the next meeting in January. He also said that there were no new issues added.

No significant comments were made.

The Project Manager introduced the agenda paper which related to a request for clarification received by the Interpretations Committee. The submitter asked about the application of the fair value option by a venture capital organisation, or a mutual fund, unit trust and similar entities including investment-linked insurance funds. The question was whether the application of the fair value option was an investment-by-investment choice or an accounting policy choice to be applied consistently. The submitter noted that the IASB had revised IAS 28 in 2011. Before the revision, the fair value option appeared as a scope exemption in IAS 28; however, that paragraph was moved to the body of IAS 28 as a result of the revision. The submitter claimed that before the revision in 2011, entities had an explicit option whereby they could choose to measure investees using the equity method, or the fair value option, on an investment-by-investment basis. However, after the revision, it had become less obvious whether the entity still had the same option.

The staff concluded that this was an unintended consequence of the amendments introduced in 2011 and the staff recommended amending IAS 28 through an annual improvement to allow the fair value option on an investment-by-investments basis.

Several Interpretation Committee members expressed agreement with the staff proposal, because they indicated that the issue was an unintended consequence of the amendment of IAS 28. Some IASB Board members also expressed agreement with the proposal.

One Committee member expressed concern as to whether the annual improvement approach would be the best. However, he agreed with the staff recommendation. The Implementation Director clarified that they had selected this path because their only intention was to make a clarification.

One IASB Board member said that she would like the clarification to be clear in terms of the terminology used. The term fair value option would be confusing because it would be the term used in IFRS 9.

One Committee member asked what preparers should do before the annual improvements were approved. The Project manager responded that what they were doing was just a clarification so entities would be allowed to use the option on an investment-by-investment basis.

The Chairman concluded that entities were not currently precluded from applying the fair value option on an investment-by-investment basis if they already had such an accounting policy choice. One member stated that that fact should be identified in the agenda decision.

The Chairman concluded that they agreed with the staff recommendation.

The Project Manager introduced the agenda paper which related to a request for clarification received by the IFRS Interpretations Committee (‘Interpretations Committee’) on the classification of the liability in the financial statements of a bank for prepaid cards issued by the bank. He indicated that the prepaid card had the following features:  (a) no expiry date; (b) could not be refunded, redeemed or exchanged for cash; (c) redeemable for goods or services only; (d) redeemable only at selected merchants, and depending upon the card programme, ranges from a single merchant to all merchants that accept a specific card; and no back-end fees, which meant that the balance on the prepaid card did not reduce unless spent by the holder. The submitter requested clarification on whether the liability was a non-financial liability because the bank did not have an obligation to deliver cash to the card holder. Consequently, an entity would be able to apply IFRS 15 Revenue from Contracts with Customer on customers’ unrecognised rights. However, the staff believed that the liability for pre-paid cards could meet the definition of a financial liability because the issuing bank had an obligation to deliver cash to the merchant. They believed that the bank could apply the guidance on IFRS 9 or IAS 39.

The agenda paper described that there were instances in which the cardholders did not spend/redeem the entire amount on the prepaid card and consequently unspent balances remained into perpetuity. These unspent balances were often referred to as breakages. The submitter specifically had requested the Interpretations Committee to clarify how (and whether) these breakages could be recognised in profit or loss in accordance with the new revenue recognition standard.

The Project Manager indicated that they had discussed the issue with entities based in US and Canada that were issuers of prepaid cards and had international operations. The staff assessed that the volume and value was small outside the US, although the market was still growing. In addition, the FASB had added the issue to its agenda which would be taken on by the EITF. He said that most members stated a preference for prepaid cards to be considered a financial liability but they would allow the breakage to be recognised.

The staff recommended that they believed that the existing guidance in IAS 32 or IFRS 9 was enough and no amendment was needed.

The Chairman asked the project manager to clarify that if there was no expiry date and no fees then there was no de- recognition. The Project Manager confirmed that assessment.

One Committee member said that there was a range of possible situations, for example prepaid cards could only be used in multiple merchants, in other instances prepaid cards could only be used in a single merchant, or there was also another feature such as a customer loyalty program where the point could be cashed with the issuer or a with third party. He believed that IFRS 15 and IFRS 9 would provide different answers and he did not find it clear how to draw the line. The Project Manager responded that it would be necessary to analyse the terms and restrictions attached to the card and whether an issuer could avoid paying cash.  The Interpretations Committee member further indicated that in the case of a customer loyalty program there was an obligation to pay cash; however IFRIC 13 and IFRS 15 would indicate to measure the financial liability with breakage.  He said that he was concerned as to how the agenda decision would be written to narrow the scope to avoid capturing other transactions.

The Implementations Director clarified that they had only analysed the situation where there was an obligation to deliver cash. The Chairman pointed out that it did not seem to be clear; he found it difficult to draw the line.  The Implementations Director indicated that additional fact-patterns could be analysed.

Some Committee members indicated that they agreed with the staff recommendation because they found the fact pattern clear in that it was a financial liability; however, they were concerned as to how to differentiate that fact pattern from others. 

Several Committee members expressed further concerns as to why the transaction was not in scope of IFRS 15 because these were services offered to customers. One member said that there would be a different accounting outcome depending on whether the analysis starts from IFRS15 or IFRS9. The Project Manager indicated that the fees that the bank was entitled to probably would not have been the face value of the card.

Another Committee member said that if it was a revenue transaction (because the bank earned a fee for issuing a card), then it should be measured with breakage, but he further indicated that it was not clear how to differentiate that fact pattern from other fact patterns; for that reason he did not agree with the agenda decision as drafted because there could be unintended consequences for other transactions that fell in the scope of IFRS15.  He said that further analysis was needed.

Another Committee member said that they had identified the same issue with traveller’s cheques.  She would like to know what the view on breakage by the EITF was.  The Implementations Director clarified that EITF had not yet finalised their discussions.

Another Committee member expressed similar concerns; she said that if there was a service provided to the card scheme provider, she asked whether there could be a variable fee; also she believed that there should be an IFRS 15 analysis; she also said that a broader analysis was needed not limited to the fact pattern presented in the agenda. For example it would be important to understand to whom the bank had an obligation.

The Chairman concluded that it seemed that the conclusion was appropriate for the specific situation presented; however, they did not know the EITF position and there were also concerns for other similar situations.  On the other hand, he said that he would not support analysing again the traveller’s cheques issue.  One IASB Board member said that she agreed with his conclusion, she said that the analysis presented in the agenda paper seemed appropriate but she understood that some Interpretation Committee members were asking for further analysis to capture other situations and evaluate whether they were financial liabilities under IAS 32 as well. One Interpretation Committee member clarified that he believed that he agreed that the situation presented was a financial liability; however, the issue was regarding measurement and whether the analysis should start in IFRS 15, he said that under IFRS15 it would still be a financial liability but an entity would consider breakage.  He said that in such case the bank would be acting as an agent, but still would be a contractual obligation to pay cash.

The Chairman said that if somebody would sell a car with a finance arrangement, then an entity would apply IFRS 15 first and then the finance item would be analysed. He further recommended the staff to continue working on this issue and asked the staff to consider the issues raised during the session.