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IFRS implementation issues

Date recorded:

The IASB considered narrow-scope amendments to IAS 19/ IFRIC 14, IAS 19, IAS 28, and IFRS 10/ IAS 28.

NARROW-SCOPE AMENDMENTS TO IAS 19 EMPLOYEE BENEFITS AND IFRIC 14 IAS 19 – THE LIMIT ON A DEFINED BENEFIT ASSET, MINIMUM FUNDING REQUIREMENTS AND THEIR INTERACTION

Availability of a refund of a surplus from a defined benefit plan when an independent trustee has unilateral powers

The IFRS Interpretations Committee (“IFRS IC”) received a request to clarify whether a trustee’s power to augment benefits or to wind up a plan affects the employer’s unconditional right to a refund and thus restricts recognition of an asset in accordance with IFRIC 14.  Following discussions on the issue, the IFRS IC decided to propose narrow-scope amendments to IAS 19 and IFRIC 14.  The Technical Manager introduced the agenda paper and asked the IASB members whether they agreed with the proposed narrow-scope amendments and transition provisions.

One IASB member noted that, with respect to the transition provisions, she had a preference for a requirement for prospective rather than retrospective application.  She noted that issues around the change in measurement of the asset could be viewed and understood more as a change in estimate, and that it was a complex enough mechanic to apply without having to go back and apply it.

The Director of Implementation Activities noted that the transition provisions in the agenda paper were staff recommendations.  He noted that the staff saw retrospective application as providing greater comparability between entities and that the expectation was that all the estimates required would have already been made at the relevant points in time and therefore, the staff did not believe that retrospective application would be asking for additional information that the company would not have already obtained.

Several IASB members asked for clarification as to whether the amendments were in the context of a closed plan.

The Director of Implementation Activities explained that the question had originally come to the Interpretations Committee in the context of a closed plan, but it was not being said as applying only in the context of a closed plan.  He noted that there were still 3 different criteria [in IFRIC 14] in which an asset could be realised.  He further noted that the Interpretations Committee was looking at the issue in the context of when one of those criteria was already closed off to you, i.e. the reduction of future contributions, and so therefore, the Interpretations Committee was focusing on when this could actually be realised.  If future contributions could be reduced, then that would still be a factor to be considered in assessing your ability to get the benefit of the asset.

All fourteen IASB members agreed with the staff recommendations in the agenda paper to propose narrow-scope amendments to IAS 19 and IFRIC 14, adding guidance in line with the conclusions of the Interpretations Committee; and with the staff recommendation on transition provisions and first-time adopters.

NARROW-SCOPE AMENDMENTS TO IAS 19 EMPLOYEE BENEFITS

Remeasurement at a plan amendment, curtailment or settlement

This agenda paper discusses the proposed amendments to IAS 19 in response to the request received by the IFRS Interpretations Committee to clarify the calculation of current service cost and net interest when a plan amendment or curtailment occurs and an entity remeasures the net defined benefit liability (asset) in accordance with paragraph 99 of IAS 19.  The Technical Manager introduced the paper and asked the IASB members whether they agreed with the recommendations in the agenda paper.

An IASB member commented with respect to the Interpretations Committee’s conclusion in paragraph 19 that addressing the issue on significant market fluctuations might be too broad for it to deal with.  She noted that if it was a real issue in practice that needed to be addressed, it would be better addressed as part of these amendments than as a follow on.  However, she also acknowledged that this could also be considered an IAS 34 issue rather than an IAS 19 issue.  She asked whether it would be feasible to ask the Interpretations Committee to reconsider their conclusion.

The Director of Implementation Activities noted that the Interpretations Committee had already had an extensive discussion to arrive at their conclusion.  An IASB member who had been present at the Interpretations Committee meeting where this issue was discussed noted that the staff recommendation had been to clarify this point, but the Interpretations Committee pushed back on this as it would be a pretty significant change in terms of what people were currently doing.  She further noted that the Interpretations Committee could see the point, but in the context of something that was relatively narrow and uncontroversial, did not want to extend the issue to something much more significant.

Another IASB member observed that there could be a movement in the market that met the definition of a significant market fluctuation, but then it would rebound shortly after, and that he was concerned about the consequences of such movements to the financial statements.  Accordingly, he noted that, particularly in the case of a long term pension plan, he favoured disclosure of the effects, but because this was a complex process that involved a lot of judgement, advocated that the process should only occur on an annual basis, with disclosure updates for significant market fluctuations, which would be in compliance with IAS 34.

Another IASB member questioned why the proposal was [upon settlement] to recalculate the liability completely for all changes in assumptions and then use the new interest rate after that change, when the IASB had received comments from one of the standard setters saying that was going too far and that all those changes should not be taken into account.  He questioned what the reason was for updating everything, what the burden on preparers would be, and the cost/benefit of doing so.  He further questioned whether, if a settlement changed the liability by 0.1%, would all assumptions need to be updated?

The Director of Implementation Activities responded, and noted that materiality would need to be looked at, and that if there had not been a material change to the pension plan, then there would not be a material settlement.

Eleven of the fourteen IASB members agreed with the recommendations in the agenda paper to propose narrow-scope amendments to IAS 19, adding guidance in line with the conclusions of the Interpretations Committee; and with the staff recommendation on transition provisions and first-time adopters.

ANNUAL IMPROVEMENTS - IAS 28 INVESTMENTS IN ASSOCIATES AND JOINT VENTURES

Proposal for an Annual Improvement:  Measuring investees at fair value through profit or loss: an investment-by-investment choice or a consistent policy choice

The Technical Manager introduced the agenda paper, and asked the IASB members whether they agreed with the recommendations set out in the agenda paper.

An IASB member noted that, while she did not favour having a mix of equity accounting and fair value measurements in financial statements; she agreed with the recommendation on the grounds that the Annual Improvement was trying to address an unintended change in the standard that was caused by rewording in the 2011 revisions to IAS 28.  She observed that the proposal was for the Annual Improvement to be applied retrospectively, and noted that this was typically not done in situations where fair value measurements were being introduced due to the risk of hindsight.  However, she noted that, in this case there was a presumption that retrospective application was appropriate because the expectation was that the entities to which this applied would likely have had the fair value information previously.  She suggested emphasising this point in the Basis for Conclusions.

Another IASB member noted that he also agreed with the recommendation on the grounds that the Annual Improvement was really only reinstating what was in IAS 28 previously.  However, he noted that, as he had expressed in previous discussions on the topic, he was not in favour of allowing an accounting policy choice.  Another IASB member suggested that it should be made clear that the accounting policy choice is irrevocable for the entity that it has been chosen for, to reduce the risk of cherry picking.

Ten of the fourteen IASB members agreed with the recommendations set out in the agenda paper:

a) that this issue should be resolved by an Annual Improvement, as recommended by the Interpretations Committee

b) that a similar amendment should be made in relation to application of the equity method by a non-investment entity investor to an investment entity associate or joint venture; and

c) with the proposed transition requirements and the conclusion that no specific additional relief is required for first-time adoption

SALE OR CONTRIBUTION OF ASSETS BETWEEN AN INVESTOR AND ITS ASSOCIATE OR JOINT VENTURE: NARROW-SCOPE AMENDMENT TO IFRS 10 AND IAS 28

Interaction with existing paragraph 32 of IAS 28

This session was devoted to discussing an unintended consequence that arose from the interaction of the narrow-scope amendment “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture: Amendments to IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures”, issued in September 2014 and the existing requirements of IAS 28.  The proposed amendments to IFRS 10 and IAS 28 to resolve the conflict are summarised in paragraphs 16 through 18 of the agenda paper.  The Technical Manager introduced the session and asked the IASB members whether they had any comments on the proposed amendment to IAS 28 and IFRS 10, and whether the IASB members agreed with the staff proposal to combine these amendments with the amendments to IAS 28 that have already been balloted.

One IASB member noted that while he did not disagree with the proposed amendment, he believed that the IASB really needed to provide an example in the Exposure Draft with the debits and credits as, for most people, it was difficult to conceptualise the entries without having a good example.

Another IASB member noted that he agreed with the recommendation, and clarified with the staff that the reference to ‘investment’ in the wording added to paragraph 25(b) of IFRS 10 [in Appendix A of the agenda paper] was really to an investee, and not just to an investment.

Another IASB member agreed that the staff recommendation was the only way to rectify the issue that had arisen.  However, he expressed concern that the issue of remeasurement of the residual interest was only discussed after the Exposure Draft had been issued and that he did not believe that the decision the IASB made on this issue was exposed to constituents.  He suggested asking constituents a question on this issue in the upcoming Exposure Draft to provide them with a chance to comment on the IASB’s treatment of residual interests.

Another IASB member noted that she did not agree with asking a question in the upcoming Exposure Draft on the remeasurement issue as it would be reopening an issue that the IASB had already made a decision about.  She suggested that the IASB focused on the point they had been asked to amend, to get back to what the IASB had intended when the amendments had been published in September.   She also suggested that, for the avoidance of doubt, where the wording states that an adjustment should be made subsequent to initial recognition, that it should say “immediately following” to make it clear that this adjustment immediately follows the first entry.

Another IASB member suggested that the IASB include in the Exposure Draft a deferral of the mandatory effective date of the amendments published in September 2014 until the effective date of the amendment being discussed because the issue that had been raised pertained to the September 2014 amendments.   She also noted that she believed that this was a clarification in the standard, and that it was important to highlight this point in the Exposure Draft.  Another IASB member agreed with the comments with respect to this being a clarification, and suggested the IASB could include this as a clarification in the Basis for Conclusions.

All fourteen IASB members agreed with the proposed amendment to IAS 28 and IFRS 10.

All fourteen IASB members agreed with the staff proposal to combine these amendments with the amendments to IAS 28 that have already been balloted.

Correction list for hyphenation

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