IFRIC Update

The Board was presented the IFRIC Update from the May 2006 IFRIC meeting. There were no comments.

D18 Interim Reporting and Impairment

IFRIC's draft interpretation D18 Interim Financial Reporting and Impairment was discussed at the May 2006 IFRIC meeting. During that meeting, the IFRIC agreed on certain changes to the Interpretation arising from comments from constituents and decided that a revised draft should be presented at the June 2006 IASB meeting for approval. The Board had only minor editorial comments, and voted unanimously in favour to approve the Interpretation for publication.

IAS 32 Financial Instruments: Presentation - Classification of a Financial Instrument as Liability or Equity

At the March 2006 IFRIC meeting the IFRIC discussed the role of contractual and economic obligations when classifying a financial instrument under IAS 32. At that meeting the IFRIC decided to reject taking an issue on their agenda as they thought it was clear that a contractual obligation is necessary in order to classify a financial instrument as a liability and that an economic obligation, by itself, would not result in a financial instrument being classified as a financial liability.

At the May 2006 meeting the IFRIC discussed the final wording for a rejection note but failed to reach consensus on the stated reasons for rejection. The item was therefore withdrawn by the Chairman of IFRIC and the issue was brought to the Board. The IFRIC thought it would be helpful if the Board confirmed the following position taken by the IFRIC:

"the IFRIC agreed that IAS 32 is clear that a contractual obligation was necessary in order that a financial instrument be classified as a liability (ignoring the classification of financial instruments that may or will be settled in the issuer's own equity instruments). Such a contractual obligation could be explicitly established or could be indirectly established. However, the obligation must be established through the terms and conditions of the instrument. The IFRIC agreed that IAS 32 is clear that economic compulsion, by itself, would not result in a financial instrument being classified as a liability."

The Chairman of IFRIC commented that it would be easier to get this statement through IFRIC if it was supported by the Board. The Board observed that it was bound by what they had said in relation to the Improvements Project, where they had decided that a liability was defined by the terms and conditions of a contractual arrangement.

The Board voted to support the IFRIC statement.