In the May 2007 IFRIC Update the IFRIC published its tentative agenda decision regarding the application of two paragraphs of IAS 39 Financial Instruments: Recognition and Measurement:

• AG 33(d)(iii) – The issue particularly relates to assessing the economic environment in which the transaction takes place in the context of determining whether a currency is commonly used in contracts to buy or sell non-financial items.
• Paragraph 11A – The issue relates to whether the fair value option in this paragraph can be applied to all contractual arrangements with one or more embedded derivatives, including contractual arrangements with hosts outside the scope of IAS 39.

The IFRIC reviewed the responses to both tentative agenda decisions. In the light of the issues raised by respondents, the IFRIC agreed that the staff needed additional time to analyse those issues further to be in a position to recommend any action to the IFRIC.

The staff presented a paper outlining the outcomes of research into the issues raised:

• Both the original commentators on the tentative agenda decision and the national standard setters contacted subsequently confirmed that considerable confusion regarding the application of AG33(d) exists in their jurisdictions. Consequently, they expect diversity in practice.
• In relation to the fair value option in paragraph 11A, respondents confirmed the information provided by the original commentators on the tentative agenda decision. That is, the fair value option in paragraph 11A is being applied to contracts with embedded derivatives and non-financial hosts provided they meet the conditions in that paragraph. However, the staff research seems to indicate that this application is limited almost entirely to 'normal' purchase and sale contracts that are not otherwise within the scope of IAS 39. Some respondents indicate that they are not aware of paragraph 11 A being applied to any other types of contracts.

The IFRIC discussed the two issues and noted that the issues are interrelated. Staff was directed to pursue the project further and prepare a paper to be presented to the Board. The paper is initially to be brought back to the IFRIC at a future meeting.

The IFRIC also deferred to a future meeting its decision on whether to confirm the tentative agenda decision.