IFRIC Update

Date recorded:

The IFRIC Chairman gave an over view of IFRIC member appointments and other movements as well as an update on IFRIC activities.

IAS 1 Requirements for Classification of Expenses by Nature or Function

At its October 2004 meeting, the IFRIC discussed a potential agenda topic of whether to tighten the requirements in paragraph 88 of IAS 1 Presentation of Financial Statements for the presentation of an analysis of expenses by nature or function. The purpose of that tightening would be to prevent opportunistic mixing of functional and natural classifications of expenses in the analysis, and thus enhance the comparability of such analyses.

Some Board members noted that this issue stems from the fact that 'operating profit' is not defined.

The staff's recommendation in this regard was to develop the following additional guidance (or similar) for inclusion after IAS 1.88:

In accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, expenses are classified in such a manner that each class of expenses represents what it purports to represent and are classified consistently from period to period. For example, under a functional classification:

  • inventory write-downs are included in cost of sales;
  • termination benefits are included in the same class as other employee benefits; and
  • impairment losses on assets are included in the same class as depreciation or amortisation in respect of the same assets.

The Board disagreed with this proposal because it is too simplistic and goes beyond the content of BC13 of IAS 1 (e.g. inventory write-downs are not necessarily part of cost of sales because they may relate to inventory still on hand).

The Board suggested that IFRIC should develop an Interpretation on this issue to highlight better, the content of BC13 of IAS 1 or a minimalist basis.

Other IFRIC matters

The Board considered and approved the following draft Interpretations for issue, subject to editorial changes discussed:

  • D8 Members' Shares in Co-operative Entities and Similar Instruments
  • D4 Rights to Interests Arising from Decommissioning, Restoration and Environmental Rehabilitation Funds

The Board suggested that the amendment to IAS 39 proposed in this draft Interpretation should be made effective for periods beginning on or after 1 January 2006 (different from the rest of the draft) due to 'stable platform' concerns. The staff would seek concurrence from IFRIC members on this issue and then proceed with issuance of the document.

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