Improvements - Remaining Issues
Date recorded:
IAS 21
The Board discussed:
- The level to which goodwill should be allocated for foreign currency translation purposes; and
- The guidance that should be provided on goodwill allocation issues.
The staff recommended the following wording to be added to the Basis for Conclusions:
"The Board was persuaded by the reasons set out in paragraph BC29 and decided that goodwill is treated as an asset of the foreign operation and translated at the closing rate. Consequently, that goodwill should be allocated to the level of each functional currency of the acquired foreign operation. Accordingly, the level to which goodwill is allocated for foreign currency translation purposes may be different to the level at which the goodwill is tested for impairment. Entities should follow the requirements in IAS 36 Impairment of Assets to determine the level at which goodwill should be tested for impairment."
The Board agreed and consequently no additional guidance will be provided on goodwill allocation.
IAS 32 and 39
The Board considered a proposal that a financial instrument be classified as an equity instrument rather than a financial liability only if both conditions (a) and (b) are met:
- (a) The instrument includes no obligation:
- (i) to deliver cash or other financial assets; or
- (ii) to exchange financial assets or financial liabilities under conditions that are potentially unfavourable to the entity.
- (b) If the instrument will or may be settled in the entity's own equity instruments, it is:
- (i) a non-derivative that includes no obligation for the entity to deliver a variable number of its own equity instruments; or
- (ii) a derivative that will be settled by the entity exchanging a fixed amount of cash or of other financial assets for a fixed number of its own equity instruments (other than its own equity instruments that are themselves contracts for the future receipt or delivery of equity instruments)
- emphasising that a hedge qualifies for hedge accounting only if it is expected to be highly effective in achieving offsetting changes in fair value or cash flows attributable to the hedged risk; and
- specifying that 'the highly effective' prospective effectiveness test is passed if expected effectiveness is in the range of 80 to 125 percent (that is, the same test that IAS 39 requires for assessing whether a hedge has been effective retrospectively).
- (a) The instrument includes no obligation: