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IAS 39 — Meaning of 'significant or prolonged'

Date recorded:

In March 2009 the IFRIC received a request to add an item to its agenda to provide guidance on the conceptual meaning of 'significant or prolonged' in the context of recognising impairment on available-for-sale equity securities in accordance with IAS 39.

The staff expressed concern about the timing of any response from IFRIC given the board's project on financial instruments, and would recommend not adding the issue to the agenda. They did note, however, that there is clear diversity in practice.

Some IFRIC members thought that this issue should be one of judgement, although they had seen in practice 'rules' which interpreted the requirements of IAS 39 as being 9 months and 20%. This was considered to be moving away from judgement. Another IFRIC member supported the introduction of 'bright lines' on the basis that this would solve the issue quickly and provide comparability.

Other IFRIC members noted that the view of some people is that markets always recover and therefore the one the question is whether the entity will be able to hold the investment for long enough for the market to recover. Another IFRIC member asked if the same entity was in the market buying equity investments? At least this would support their view. The response was no.

It was noted by another IFRIC member that recovery is not considered in IFRSs. Another IFRIC member noted that the reason for the problem is that the impairments cannot be reversed. Could the IFRIC recommend to the Board to change that requirement? The Chairman noted that this depends on what measurement basis the board decides in the new exposure draft, and this is yet to be decided. Impairment may not be needed at all.

The IFRIC agreed not to take the issue on to the agenda.

The IFRIC were then asked if they would like to highlight inappropriate practices in the agenda decision. The IFRIC agreed, but noted that it should be made clear that whatever is included within the agenda decision are only examples. The IFRIC did not discuss exactly which examples to include within the agenda decision.

The Chairman also suggested that the IFRIC could issue the agenda decision not only in the IFRIC update, but also as a separate paper (including the same wording) and request all national standard setters to comment on the issue. The objective would be to gain as much publicity for the issue as possible. They may also consider issuing a special press release. The staff noted that it is important to receive both positive and negative feedback on this issue.

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