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IAS 39 — Accounting for embedded foreign currency derivatives in host contracts – request for guidance on applying the ‘closely related’ criterion

Date recorded:

The agenda paper provided for the meeting offered an analysis of the comments received on the tentative agenda decision not to add to its agenda a request for guidance relating to the interpretation of ‘closely related’ criterion in paragraph 11 of IAS 39, and set out the wording for the final agenda decision.  The Technical Manager introduced the agenda paper and asked the Committee members whether they agreed with the staff recommendation for the agenda decision to be finalised without any further changes.

One Committee member noted that he believed the Committee could go ahead and finalise the agenda decision; however, he observed that one of the respondents expressed the view that the application of judgement should be stressed further in the agenda decision.  He noted that he believed there was a role for judgement, partly in defining the relevant population of, in this case, international film licences, and that even if one had perfect information, questioned what exact level of predominance would meet the routinely denominated test in the absence of a bright line.

The Technical Director responded, and noted that he agreed that there was always an element of judgement involved; however, he noted that he was concerned with stating that the assessment required more judgement as it would open up the issue a lot wider than what had been asked.  He noted that he believed that what was included in the agenda rejection was enough for people to come to a conclusion on the issue.

Another Committee member noted that he initially had the same thoughts as the first Committee member with respect to the role of judgement.  However, he noted that by virtue of the fact that the agenda decision focused on the fact that one had to assess the available evidence, he believed this implied judgement, and accordingly, noted that he was comfortable with the Interpretations Committee proceeding with finalising the agenda decision as is.

The Chairman also noted he was concerned that insertion of the word “judgement” where the respondent had suggested it seemed to be opening the door a whole lot wider than anyone intended.

All fourteen Committee members agreed with the staff recommendation for the agenda decision to be finalised without any further changes.

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