IAS 39 - Reclassification of financial instruments into and out of at fair value through profit or loss

One Board member and the financial instruments staff noted that the proposed annual improvement in respect of this issue, as agreed at the June meeting, was inconsistent with the fair value option.

The Board agreed to clarify paragraph 9 (a) (ii) and (iii) of IAS 39 Financial Instruments so that no changes to the basis of accounting for non-derivative financial instruments should be permitted after initial recognition (other than those required in paragraphs 50 - 54 of IAS 39) if an entity changes the way in which it manages the instrument.

This results in paragraphs 50A (c) and 50A(d) being deleted from the proposed amendment and the definition of financial assets and financial liabilities at fair value through profit and loss being amended as follows:

• (a) It is classified as held for trading. A financial asset or financial liability is classified as held for trading if it is:
  • (i) it is acquired or incurred principally for the purpose of selling or repurchasing it in the near term;
  • (ii) on initial recognition it is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking; or
  • (iii) it is a derivative (except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument).

IAS 19 - Replacement of the term 'fall due' with expected to be settled'

This proposed amendment to IAS 19 Employee Benefits was intended to introduce consistency between the terms used in the definitions and the terms used in paragraph 8.

The staff recommended that the focus should be on the timing of the entitlement of the employee rather than the expected timing of the use of the benefit.

The Board agreed that the term 'fall due' should therefore be replaced with the term 'to which the employee becomes wholly entitled'.

IAS 33 - Impact of forward purchase contracts on EPS calculation

The Board agreed, with one dissent, that shares subject to repurchase should be accounted for as a participating debt instrument and that as such, dealt with as a separate class of participating instruments in accordance with the two class method for the calculation of EPS.

The Board agreed, with one dissent, that shares subject to repurchase in accordance with a gross physically settled forward purchase contract with remittance of dividends should be accounted for as a non-participating debt instrument and that as such, dealt with as a separate class of non-participating instruments in accordance with the two class method for the calculation of EPS.

The Board's understanding was that these approaches would give the same EPS result for both IFRS and US GAAP. The Board agreed that the EPS calculations for forward purchase contracts with a choice of gross physical or net settlement, gross physically settled written put options and written put options with a choice of gross physical or net settlement should be consistent with that described above for gross physical settled forward purchase contracts. The Board acknowledged this gives a different EPS result from US GAAP and agreed that this should be identified as a known difference between IFRS and US GAAP in the Basis for Conclusions on IAS 33.

The Board did not conclude on the following issues which were raised by the staff paper:

• Whether dividends paid in respect of shares subject to repurchase in accordance with a gross physically settled forward purchase contract should be presented as an expense in profit or loss
• Whether a liability for discretionary dividends payable in respect of shares subject to repurchase in accordance with a gross physically settled forward purchase contract should be recognised when the dividends are declared, irrespective of whether those dividends are presented as a finance expense in profit or loss or as an equity distribution.
• Where the shareholder to whom the dividends are paid and the counterparty from the entity receives the remittance of the dividends are different parties, whether at the date that the dividends are declared, the liability for the dividends payable and the receivable for the dividends to be remitted qualify for an offset presentation.

IAS 41 - Miscellaneous wording revisions arising from the ballot process

The Board agreed that IAS 41 Agriculture should be amended as follows, with the exception that the final sentence should be clarified in respect of when that part of the grant retained should be recognised in profit or loss:

36 Terms and conditions of government grants vary. For example, a government grant may require an entity to farm in a particular location for five years and require the entity to return all of the government grant if it farms for less fewer than five years. In this case, the government grant is not recognised in profit or loss as income until the five years have passed. However, if the terms of the government grant allows part of the government grant it to be retained based on according to the passage of time, the entity recognises the government grant that part in profit or loss as income on a time proportion basis.