The Board characterised its discussion as educational and focused on whether a definitive principle on linkage could be developed whereas contracts that should be linked and contracts that shouldn't be linked are accounted for appropriately. That is, the Board acknowledged that there are circumstances when separate contracts should be linked (e.g. brag-a-watt energy contracts) and circumstances when separate contracts should not be linked even though they are in contemplation of one another (e.g. variable rate debt with an interest rate swap to fixed).

The Board noted that a principle on linkage should require that the transferor look also to the rights of the transferee to determine whether the separate contracts have economic substance apart from each other. One member noted (and several others agreed) that linkage may be too broad and that a more appropriate principle would be one of identifying "interdependent transactions".

The Board addressed a situation where a series of contracts were structured so that for tax purposes the contract was a liability at the subsidiary level and equity at the consolidated level. While the Board did not conclude, there was significant opposition to the fact that the classification could be different between entities in the same consolidated group. The Board will discuss this further at a future meeting.

The Board then focussed on the following situations and expressed individual views on whether the criteria developed by the staff appropriately linked or appropriately did not link the transactions:

• Forward to buy a fixed number of own shares and a second forward to deliver a fixed number of own shares for a variable amount of own shares based on the value of the shares: —Without linkage, both contracts are individually accounted for as derivative instruments under proposed amendments to IAS 39. With linkage, the combined package is equity; however, the portion related to the present value of cash flows would be carved out of equity and recorded as a liability (under the proposed amendments to IAS 39).
• Non-financial asset is sold to a third party with a repurchase option on that specific asset for sales price plus interest: —Board determined that this series of transactions is not substantive as the transferee does not truly own the asset, but in substance has received collateral for its receivable.
• Non-financial asset is sold to a third party with a repurchase option on a similar asset for sales price plus interest.
• Sale of energy forward to buy and sell at the same price: —The Board stated this is a gross vs. net issue and should be addressed in the concepts on revenue recognition, not linkage.
• Company A makes a fixed loan to Company B, while Company B makes a variable loan to Company A. The substance of this agreement is that both have entered into an interest rate swap: —The Board recognised that this model occurs from the mixed attribute model in current IFRS literature. That is, the loans are at cost, but the swap is a fair value. Several members believe these two contracts should not be linked.
• Company A issues floating rate debt to Bank B and at the same time enters into a contract with Bank B to swap the floating rate debt to fixed: —The Board expressed concern that linkage may be used to override a derivative being accounted for under IAS 39. Therefore, several Board members believe these contracts should not be linked.

The Board concluded that the next step in this project would be to develop a general principle out the criteria noted by the staff. The Board asked the IFRIC to continue to work on this project so that such principle developed can be tested during the IAS 32/39 re-deliberations. The intention, however, is that at some point, the IASB will take the project over from the IFRIC.