IFRS 1 First-time adoption of International Financial Reporting Standards: Meaning of effective IFRSs

The Exposure Draft ED/2012/2 Annual Improvements to IFRSs 2011-2013 Cycle published in November 2012 (ED) included a proposal for an amendment to IFRS 1 to clarify the meaning of ‘each IFRS effective at the end of an entity’s first IFRS reporting period’, as used in paragraph 7 of IFRS 1.

Based on the analysis of the comment letters, Staff recommendation for the Committee was to recommend the IASB that it should proceed with the proposed amendment to the Basis for Conclusions of IFRS 1, which clarifies that: an entity has the choice between applying the old Standard or adopting a new one, i.e. the entity can early adopt a standard or just apply the one that is still in force.

One Committee member raised a concern about amending paragraph BC11 because it was ‘like changing history’. And, although the wording changes in this instance were quite minor, it was creating the precedent that she was concerned about. She did not have any problem with adding a new paragraph BC11A.

It was decided to leave BC11 unamended but instead to include an introduction to BC11A to explain a reason for adding it.

The Committee approved the final amendment to IFRS 1 (as modified by the drafting comments).

IFRS 3 Business Combinations: Scope exceptions for joint ventures

The Exposure Draft ED/2012/2 Annual Improvements to IFRSs 2011-2013 Cycle published in November 2012 (ED) included a proposal for an amendment to IFRS 3 to clarify the scope exception in paragraph 2 of the Standard for joint ventures.

Based on the analysis of the comment letters, the Staff recommendation to the Committee was to advise the IASB that it should proceed with the proposed amendment to paragraph 2 of IFRS 3, which proposes:

1. to exclude the formation of all types of joint arrangements as defined in IFRS 11 from the scope of IFRS 3, and
2. to clarify that the scope exception only applies to the accounting in the financial statements of the joint arrangement itself.

The Committee members were satisfied with the proposed wording of the amendment. However, a few wanted to change the proposed retrospective application of the amendment to make it prospective. The Committee agreed with the latter.

The Committee approved the final amendment to IFRS 3 with the changes in the application (prospective).

IFRS 13 Fair Value Measurement: Portfolio netting exception

The Exposure Draft ED/2012/2 Annual Improvements to IFRSs 2011-2013 Cycle published in November 2012 (ED) included a proposal for an amendment to IFRS 13 to clarify the scope of the exception for measuring the fair value of a group of financial assets and liabilities on the basis of the price that would be received to sell a net long or net short position for a particular risk exposure (the portfolio exception) as set in paragraph 52 of IFRS 13.

Based on the analysis of the comment letters, the Staff recommendation to the Committee was to advise the IASB that it should proceed with the proposed amendment to paragraph 52 of IFRS 13, which proposes clarifying that the portfolio exception applies to all contracts within the scope of IAS 39 and IFRS 9, regardless of whether they meet the definition of financial assets or financial liabilities in accordance with IAS 32.

The Committee members were satisfied with the proposed wording of the amendment. However, a question was raised about the retrospective application of the amendment given that IFRS 13 became mandatorily effective from 2013, with early application permitted. The Committee agreed to change the wording to the retrospective application to the extent of the ‘first application of IFRS 13’ for those who had adopted the standard early.

The Committee approved the final amendment to IFRS 13 with the changes in the application (as described in the previous paragraph).

IAS 40 Investment Property: Definition of a business

The Exposure Draft ED/2012/2 Annual Improvements to IFRSs 2011-2013 Cycle published in November 2012 (ED) included a proposal for an amendment to IAS 40 to clarify the interaction of IFRS 3 with IAS 40 when classifying property as investment property or owner-occupied property.

Based on the analysis of the comment letters, Staff recommendation for the Committee was to recommend the IASB that it should proceed with the proposed amendment to IAS 40, which proposes to clarify that:

1. judgement is needed to determine whether the acquisition of investment property is the acquisition of a single asset or of a group of assets, or is a business combination within the scope of IFRS 3; and
2. this judgement is not based on paragraphs 7-15 of IAS 40 but on the guidance in IFRS 3. The guidance in paragraphs 7-15 of IAS 40 relates only to the judgement needed to distinguish an investment property from an owner-occupied property.

The Committee approved the final amendment to IAS 40 as proposed without discussion.