IAS 2 Inventories—Costs Necessary to Sell Inventories: In February 2021, the Committee discussed a submission about whether an entity includes all costs necessary to make the sale or only those that are incremental to the sale as the “estimated costs necessary to make a sale” when determining the net realisable value of inventories. In the meeting, most of the Committee members agreed with the analysis and conclusion that IAS 2 does not allow an entity to limit such costs to only those that are incremental but raised concern that such a conclusion may contradict with predominate practice. The responses from the comment letters are similar and some respondents requested additional clarifications.
IAS 10 Events after the Reporting Period—Preparation of Financial Statements when an Entity is No Longer a Going Concern: In February 2021, the Committee discussed a submission asking firstly, whether an entity can prepare financial statements for prior periods on a going concern basis if it was a going concern in those periods and had not previously prepared financial statements for those periods; and secondly, if it had previously prepared financial statements for the preceding period on a going concern basis, whether it is required to restate comparative information in respect of the preceding period to reflect the basis of accounting used in preparing the current period's financial statements. In the meeting, the Committee members agreed with the answer “yes” to the first question and “no” to the second question. Most of the respondents to the tentative agenda decision agreed with the staff analysis. There were some respondents who disagreed with some aspects of the analysis and/or requested clarifications.
The staff continue to support their views on the above two agenda decisions through analysis of these comments and concluded that the tentative agenda decisions should be finalised with no change.
IFRS 9 Financial Instruments—European Central Bank’s Third Targeted Longer-Term Refinancing Operations Programme: The Committee received a submission asking how banks account for the European Central Bank (ECB)’s Targeted Longer-Term Refinancing Operations (TLTRO). Specifically, the submission asked whether the TLTRO III tranches are loans at a below-market interest rate which should be accounted for as a government grant. Moreover, it asked how banks calculate the applicable effective interest rate, account for changes in estimated cash flows due to the revised assessment of meeting the conditions attached to the liability and account for changes in cash flows related to the prior period that result from the bank’s lending behaviour or from changes in the TLTRO III conditions determined by the ECB.
The staff analysed the general criteria of a government grant in IAS 20 and explained that the Committee is not in a position to provide a view as to whether the TLTRO III contains a government grant because the assessment involves non-accounting questions. For the matters related to calculating the effective interest rate and estimation of future cash flows, the staff considered that they are too narrow for the Committee to consider in isolation and should be addressed as part of the Board's post-implementation review of the classification and measurement requirements of IFRS 9 ("PIR").
The staff recommended not to add a standard-setting project and instead issue a tentative agenda decision on this issue.
IFRS 16 Leases— Power Purchase Agreements in a Gross Pool Electricity Market: The Committee received a request about an electricity retailer’s (customer) accounting for a power purchase agreement (“PPA”) in a gross pool electricity market. The request asked whether, applying IFRS 16:B9(a), the customer has the right to obtain substantially all the economic benefits from the use of the windfarm throughout the 20-year term of the PPA. The staff analysed that the PPA provides the customer with neither the right to obtain electricity from the windfarm nor the obligation to purchase any particular amount of electricity either from the windfarm of the grid, and accordingly, the customer has no right to obtain substantially all the economic benefits from the use of the windfarm.
The staff recommended not to add a standard-setting project and instead issue a tentative agenda decision on this issue.
Work in progress: There is no new matter currently under analysis.
The full agenda for the meeting and our comprehensive pre-meeting summaries can be found here.