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IFRS Implementation issues

Date recorded:

The purpose of this session was to discuss the following:

Foreign Currency Transactions and Advance Consideration — Ratification of the Interpretation (Agenda Paper 12A)

Background

The purpose of the session was to ask the Board to ratify the Interpretation Foreign Currency Transactions and Advance Consideration. The Interpretation clarifies that in a transaction involving an advance payment or receipt of consideration, the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income is the date on which an entity initially recognises the non-monetary asset or non-monetary liability arising from advance consideration.

The Interpretation has an effective date of 1 January 2018, with earlier application permitted. Transition relief has also been provided for first-time adopters.

Staff recommendation

The Staff recommended that the Board ratifies the Interpretation.

Discussion

The Board approved the Staff’s recommendation.

IFRS 9 Financial Instruments and IAS 28 Investments in Associates and Joint Ventures—Long-term interests (Agenda Paper 12B)

Background

The IFRS Interpretations Committee had developed a draft Interpretation to address whether an entity applies IFRS 9, in addition to IAS 28, to long-term interests in an associate or joint venture that, in substance, form part of the net investment in the associate or joint venture, but to which the equity method is not applied (long-term interests). At the September 2016 Board meeting, the Board objected to the release of the Interpretation on grounds that it strayed into the mechanics of the equity method and went much further than the original question which narrowly focused on the scope of IFRS 9. Nevertheless, the Board agreed with the technical conclusions reached by the IC.

The purpose of this session was to discuss alternative ways to provide this clarification.

Staff recommendation

The Staff recommended the following:

  1. Proposing an amendment to IAS 28 as part of the Annual Improvements Project to state explicitly that IFRS 9 applies to long-term interests;
  2. Requiring retrospective application of the proposed amendments but permitting an entity not to restate comparative information unless the entity chooses to restate on initial application of IFRS 9 (same for insurance entities electing to apply the temporary exemption from IFRS 9); and
  3. The amendment would include a tentative effective date of 1 January 2018 with earlier application permitted.

Discussion

The Board approved the Staff’s recommendation, subject to redrafting.

One Board member was reluctant to amend IAS 28 now when that standard was subject to a research project as it might give rise to unintended consequences. Furthermore, he disagreed with amending IAS 28 without addressing the more fundamental issue of equity accounting. A number of other Board members heard his concerns; however, they noted that stakeholders had asked the Board not to put off issuing necessary amendments on grounds that a particular standard was subject to a long term project intended to address bigger issues. Besides, as the proposed interpretation sought to interpret the existing requirements of IFRS 9 and IAS 8, as opposed to creating a new requirement, they agreed with the Staff’s recommendation.

IAS 16 Property, Plant and Equipment – Proceeds and costs of testing PPE: should net proceeds reduce the cost of PPE? (Agenda Paper 12C)

Background

The IFRS Interpretations Committee has held several meetings to discuss the issue of whether the net proceeds from selling items produced while testing an item of PPE under construction in excess of the cost of testing should be recognised in profit or loss or reduce the cost of PPE. Appendix I provides a summary of the IC’s meetings on this issue.

The Interpretations Committee’s recommendation

In the IC’s September 2016 meeting, the IC recommended the following:

  • Proposing amendments to IAS 16 which would prohibit the deduction of proceeds from selling items produced while making an item of PPE available for use from the cost of that PPE as they believe that this is the most straight-forward way of addressing the diversity in practice;
  • Requiring prospective application of the proposed amendments to items of PPE made available for use from the beginning of the earliest comparative period when first applying the amendments due to cost/benefit reasons; and
  • Not providing transition relief for first-time adopters beyond the deemed cost exemption already in IFRS 1.

Staff recommendation

The Staff recommended that the Board develop the amendments as proposed by the Interpretation Committee.

Discussion

The Board approved the Staff’s recommendation.

One Board member was strongly against publishing the Interpretation without its giving further guidance on cost allocation for circumstances in which PPE and inventory were produced concurrently before the PPE was capable of operating in the manner intended by management. The Staff responded that this issue was discussed by the IFRIC and that the respondents from industries that were perceived to be most affected by this believed that there was sufficient guidance on cost allocation.

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