Annual Improvements to IFRSs – 2010-2012
IAS 16 Property, Plant and Equipment - Revaluation model and proportionate restatement
The IFRS Interpretations Committee (the "Committee") proposed amendments to clarify guidance related to the use of the revaluation method. The proposed amendments related to the guidance in paragraph 35(a) of IAS 16 regarding the computation of the accumulated depreciation at the date of the revaluation, in which the Committee recommended that the IASB should amend paragraph 35(a) of IAS 16 and paragraph 80(a) of IAS 38 Intangible Assets through Annual Improvements to reflect the fact that restatement of accumulated depreciation is not always proportionate to the change in the gross carrying amount of the asset.
The Board noted that the determination of the accumulated depreciation does not depend on the selection of the valuation technique used for the revaluation. They also noted that the accumulated depreciation is computed as the difference between the gross and the net carrying amounts. Consequently, in instances in which the revalued amounts for the gross and net carrying amounts both reflect observable data, restatement of the accumulated depreciation is not proportionate to the change in the gross carrying amount of the asset. Thus, the Board tentatively decided to include the proposed amendments in the next Improvements to IFRSs exposure draft.
IAS 24 Related Party Disclosures - Key management personnel
The Board discussed a proposed amendment to clarify the disclosure requirements for related party transactions that are identified when a management entity provides key management personnel (KMP) services to a reporting entity in the specific circumstances where the management entity does not control, jointly control or have significant influence over the reporting entity.
While IASB members agreed that the Committee's proposal addressed the submission request, many Board members were concerned that the proposed amendment to IAS 24 would not require disclosure of a direct payment to the employee of a management entity who performs KMP services (as opposed to a payment made to the management entity which employs the employee, which would require disclosure). The staff noted that the intention of the amendment was to require disclosure of the fee paid by the reporting entity to the management entity and the aggregate amount of direct transactions between the persons providing the KMP services and the reporting entity; thus, direct payments to an employee of a management entity would be disclosed.
The Board therefore asked the staff to consider these concerns and to bring the proposals back to a future meeting which provides clarity in the proposed amendment wording.
IFRS 2 Share-based payment - Vesting and non-vesting conditions
The Board discussed a proposed amendment to the definitions of service conditions and performance conditions by separating the description of a performance condition and service condition from the definition of vesting conditions and setting out new definitions of performance condition and service condition.
The amendment clarifies that: a performance target is defined by reference to the entity's own operations or activities; a performance target may relate either to the performance of the entity as a whole or to some part of the entity, such as a division or an individual employee; in order to constitute a performance condition, any performance target needs to have an explicit or implicit service requirement for the duration of the period for which the performance target is being measured; and if the employee fails to complete a specified service period, then the employee fails to satisfy a service condition regardless of what the reason for failure is.
One Board member expressed concern that the amendment would result in an entity's termination of employment of an employee would be treated as a forfeiture event (as opposed to a cancellation) given that the employee is unable to satisfy the service condition. This Board member believed this case to be a cancellation since it was out of the control of the employee. Another Committee member expressed concern with addressing only a portion of IFRS 2 issues through an annual improvement project, as he believed the scope of an IFRS 2 project should be expanded given significant diversity in applying this standard.
However, when put to a vote, the Board tentatively agreed with the Committee's recommendations to include the proposed amendment in the next Improvements to IFRSs exposure draft.
IFRS 8 Operating Segments - Reconciliation of segment assets in IFRS 8
The Board discussed a proposed amendment to clarify in paragraph 28(c) of IFRS 8 that a reconciliation of the total of the reportable segments' assets to the entity's assets should be disclosed only if a measure of total assets for each reportable segment is regularly provided to the chief operating decision maker. This clarification would make this paragraph consistent with paragraphs 23 and 28(d) of IFRS 8. With no debate, the IASB tentatively agreed with the Committee's recommendation to include the proposed amendment in the next Improvements to IFRSs exposure draft.
IAS 7 Statement of Cash Flows - Classification of interest paid that is capitalised
The Board discussed proposed amendments to IAS 7 to clarify the classification in the statement of cash flows of interest paid that is capitalised into the cost of property, plant and equipment. The amendments would be to: propose that the example guidance in paragraph 16(a) of cash flows arising from investing activities should explicitly include interest paid that is capitalised into the cost of property, plant and equipment; and clarify that interest paid that is capitalised in accordance with IAS 23 Borrowing Costs should be classified in conformity with the classification of the underlying asset to which those payments were capitalised.
Multiple Board members expressed concern with operational issues arising from the Committee recommendation. Specifically, the Board members were uncertain how cash payments could be bifurcated to identify the portion relating to the capitalised cost of property, plant and equipment. However, as no bifurcation method (e.g., recognising the entire cash payment as attributable to the capitalised asset versus allocating the payment) was deemed superior to others, most Board members did not support providing any application guidance on bifurcating cash flows.
Another Board member expressed concerns with the wording of the amendment. Specifically, he noted that the wording started, 'payments of interest that are capitalised' - but payments of interest could not be capitalised. Thus, he preferred saying capitalised accruals of interest.
The Board tentatively decided to include the proposed amendments in the next Improvements to IFRSs exposure draft, subject to editorial amendments which would be considered off-line.
IAS 36 Impairment of Assets - Disclosure of the recoverable amount
The Committee previously received a request to address an inconsistency in the disclosure requirements for material impairments in IAS 36 when a discounted cash flow model is used in the calculation of the recoverable amount. The request, which would apply when entities recognise a material impairment loss or impairment reversal, proposed that disclosures be required of the discount rate used when discounted cash flows are used to calculate recoverable amount, whether this is based on fair value less costs to sell or value in use. Thus, the Board was asked to consider a proposed amendment to remove an inconsistency in the disclosure requirements of impairment losses in IAS 36.
The Board tentatively decided to include the proposed amendment in the next Improvements to IFRSs exposure draft.
IAS 1 Presentation of Financial Statements - Current/non-current classification of debt
The Board discussed a proposed amendment to clarify the meaning of 'unconditional right to defer settlement of the liability' in paragraph 69(d) of IAS 1. The proposed change (for prospective application) would be to amend the wording of paragraph 73 of IAS 1 to clarify that, for an existing loan that is due within 12 months after the reporting date to be classified as non-current, it must be refinanced with the same lender, at the same or similar terms.
One Board member felt strongly that material adverse change clauses existing in debt arrangements should be considered an impediment to non-current classification of debt, whereby the existence of such a clause which trigger a current debt classification. However, others felt that this issue was external to the scope of the Committee submission. Likewise, many Board members disagreed with the current classification conclusion when such clauses exist.
Another Board member expressed concern with the Committee's proposed IAS 1 amendment referencing 'the same or similar terms', when no application guidance is provided as to what constitutes similar terms. This Board member believed that guidance should refer to the change in underlying cash flows both before and after the refinance. Other Board members, having a similar concern, believed that a Basis for Conclusion should be drafted to accompany the amendment and explain further the basis of the proposal.
The Board tentatively decided to include the proposed amendment in the next Improvements to IFRSs exposure draft, subject to additional explanations being given in the Basis for Conclusions.
IAS 12 Income Taxes — Recognising deferred tax assets for unrealised losses on available-for-sale debt securities
The staff presented proposed amendments to IAS 12 relating to how an entity determines whether to recognise a deferred tax asset relating to unrealised losses on available-for-sale debt securities ('AFS debt securities'). The amendment clarifies that separate assessment should be made for each type of taxable profit if tax law specifically distinguishes a specific type of profit (e.g., capital gain) from other types of taxable profit; an action that results in reversal of existing deductible temporary differences without creating or increasing taxable profit in the future is not a tax planning opportunity; and taxable profit against which realisation of a deferred tax asset is assessed is the amount before reversal of deductible temporary differences.
With no debate, the Board tentatively decided to include the proposed amendments in the next Improvements to IFRSs exposure draft.
Other issues considered for amendments within the scope of the Annual Improvements process
Following the Committee's recommendation, the Board agreed that the four issues listed below did not meet the criteria for inclusion in Annual Improvements:
- IFRS 2 Share-based Payment — modification of a share-based payment from cash-settled to equity-settled
- IAS 27 Consolidated and Separate Financial Statements — contributions to a jointly controlled entity or an associate
- IAS 28 Investments in Associates — purchase in stages-fair value as deemed cost
- IAS 28 Investments in Associates — equity method.
However, one Board member did express concern with not addressing equity method issues under IAS 28 given that the Committee's outreach seemed to indicate that diversity exists and it is a prevalent issue. The Board also asked the Committee to further analyse whether and where changes in the net assets of an associate, other than the investor's share of profit or loss distributions and other comprehensive income, should be recognised in the investor's financial statements and to recommend how the Board might address this issue in the short-term.
- IAS 7 — Statement of Cash Flows
- IFRS 2 — Share-based Payment
- IFRS 8 — Operating Segments
- IAS 12 — Income Taxes
- IAS 1 — Presentation of Financial Statements
- IAS 16 — Property, Plant and Equipment
- IAS 24 — Related Party Disclosures
- IAS 27 — Consolidated and Separate Financial Statements (2008)
- IAS 28 — Investments in Associates (2003)
- IAS 36 — Impairment of Assets