IFRIC - Approval of Final Interpretations

Date recorded:

The IFRIC coordinator and staff presented to the Board requests for ratification of two Interpretations:

  • Net Investment in a Foreign Operation
  • Agreements for the Construction of Real Estate

It was noted that both Interpretations have been approved by IFRIC with no objections.


Net Investment in a Foreign Operation

The Interpretation would provide guidance on how to apply IAS 21 The Effects of Changes in Foreign Exchange Rates and IAS 39 Financial Instruments: Recognition and Measurement with regard to hedging of and hedge accounting for net investments in foreign operations.

One Board member highlighted that this has been a particularly difficult interpretation as the underlying issue is complex itself and expressed his acknowledgement of the work done by the IFRIC staff and other contributors.

The chairman then asked the Board members if they would ratify the Interpretation. The Board agreed unanimously.

The staff then discussed a related issue arising from the proposed amendments to IAS 39 regarding exposures qualifying for hedge accounting. In May 2008 the Board reaffirmed its decision that these amendments should be applied retrospectively. The Interpretation would require prospective application. Furthermore it was noted that it is unclear if the Board would require retrospective application for future changes to the hedge accounting requirements. The Board then discussed in length the principles both the Board and the IFRIC apply when they decide whether to require retrospective or prospective application.

While the Board reaffirmed its decision to require retrospective application of the amendments to IAS 39 for the reasons stated in the redeliberations of the Exposure Draft, it was agreed (with one Board member dissenting) that the effective date should be postponed to annual periods beginning on or after 1 July 2009. This was mainly done to allow entities to revisit their hedge designations and avoid restatements of the comparative period.


Agreements for the Construction of Real Estate

The IFRIC coordinator then moved on to present the second Interpretation for ratification. Agreements for the Construction of Real Estate would provide guidance on how to apply IAS 11 Construction Contracts and IAS 18 Revenue to real estate agreements.

The IFRIC staff highlighted that there have been changes to the flow chart that is part of the Interpretation and that specific disclosure requirements for 'continuous transfers' were added that are similar to the disclosures required by IAS 11.

Furthermore it was noted that this Interpretation would not lead to convergence with US GAAP. One Board member noted that regarding this issue there had never been convergence between US GAAP and IFRS. Another Board member asked why there is no 'no analogies' paragraph in the Interpretation. The staff explained that IFRIC considered the guidance given in the Interpretation would also be appropriately applicable to other transactions outside the real estate sector, but broadening the scope would have consumed much more time. So it has been decided to implicitly allow analogising by not explicitly prohibiting it, but to make clear in the Basis for Conclusion that there are boundaries for analogising.

A Board member asked why the interpretation would have to be applied retrospectively. The staff answered that IFRIC considered it important that the revenue figures are comparable.

The Chairman then took the vote on the Interpretation. The Board agreed unanimously.

The staff then asked the Board if re-exposure was required. It noted although the near-final version changed compared to the ED, this was done to reflect comments from constituents. However, the staff highlighted that these changes would not change the answers derived from applying the Interpretation and hence, recommended not to re-expose the Interpretation.

The Board agreed.

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