The issue related to the consumption of inventories by a service entity, in particular the assessment of net realisable value when the inventory is consumed as part of the service rendered. For example, cellular phone companies give subscribers free handsets in exchange for a fixed-term supply contract.
March 2004
The IFRIC noted that the same issues existed for commercial entities. The IFRIC concluded that this matter was one of assessing the recoverability of an asset without a direct cash flow. The IFRIC agreed that such entities use inventory to generate a future revenue stream. As such, they should be accounted for similar to other items of inventory.
IFRIC reference: IAS 2
The Committee considered a potential issue related to an apparent conflict within IAS 26. The organisation referring the issue to the IFRIC noted that it was apparent that IAS 26 was intended to address all types of retirement benefit plans and the scope of the Standard is sufficiently generic for it to be applied to plans other than those sponsored by employers. Indeed, IAS 26 paragraph 9 states:
Some retirement benefit plans have sponsors other than employers; this Standard also applies to the reports of such plans.
However, IAS 26 paragraph 8 defines “Retirement benefit plans” as: “arrangements whereby an enterprise provides benefits for its employees on or after termination of service…” [emphasis added].
March 2004
The IFRIC agreed that the wording of IAS 26 could be improved, but noted that the intention of the Standard (as expressed in paragraph 9) was clear. On balance, the IFRIC did not think that this was a priority issue, and suggested that the issue be addressed via editorial corrections to IAS 26 at an appropriate time.
IFRIC reference: IAS 26
The Committee considered a potential issue as to whether the production method of depreciation could be used under IAS 16 Property, Plant and Equipment if an asset is not consumed (worn down) directly in relation to the level of use. For example, if a road with a greater capacity than current demands is built, should depreciation in the initial period be lower than in later periods, if usage is expected to increase over the life of the asset?
May 2004
The IFRIC agreed that this was foremost a conceptual area, and decided not to add it to the IFRIC agenda. However, the IFRIC recommended that this topic be considered by the Board as part of the Concepts project.
IFRIC reference: IAS 16
The issue concerned the practical difficulty for some entities, especially government business entities, in identifying and disclosing related party transactions.
May 2004
The IFRIC agreed that the issue was one of detailed application, rather than principle, and that there was little scope for the IFRIC to issue a useful Interpretation consistent with IAS 24. Accordingly, the IFRIC declined to add the topic to its agenda.
IFRIC reference: IAS 24
The issue concerned the practical difficulty for some entities, especially government business entities, in identifying and disclosing related party transactions.
May 2004
The IFRIC agreed that the issue was one of detailed application, rather than principle, and that there was little scope for the IFRIC to issue a useful Interpretation consistent with IAS 24. Accordingly, the IFRIC declined to add the topic to its agenda.
IFRIC reference: IAS 24
The IFRIC considered a potential issue as to whether the recoverable amount of a cash-generating unit of an entity with extractive activities (typically a site) for which production has commenced should include the expected cash inflows from, and cash outflows necessarily incurred in, developing the site further in order to access undeveloped reserves over the life of the site.
May 2004
The IFRIC decided not to add this issue to its agenda, but requested it be considered by the Board during its redeliberation of ED 6 Exploration for and Evaluation of Mineral resources.
IFRIC reference: IAS 36
The issue was whether a plain vanilla non-redeemable preference share should be classified as a liability or equity.
May 2004
The IFRIC agreed that there was sufficient application guidance on this issue in IAS 32/39, and recommended that the issue not be added to the IFRIC agenda.
IFRIC reference: IAS 39
Is it appropriate to discount current taxes payable under IFRSs when an agreement with the taxing agency has been reached to permit the entity to pay such taxes over a period greater than twelve months?
June 2004
The general view of the IFRIC was that current taxes payable should be discounted when the effects are material. However, it was noted that there is a potential conflict with the requirements of IAS 20 Accounting for Government Grants and Disclosure of Government Assistance. As the IASB has tentatively decided to withdraw IAS 20, the members agreed that the issue of discounting current taxes payable should no longer be uncertain and that the topic need not be added to its agenda.
IFRIC reference: IAS 12
The IFRIC considered how to classify interest and penalties that arise from unpaid tax obligations.
How are interest and penalties that arise from unpaid tax obligations to be classified?
June 2004
The IFRIC decided that the disclosure requirements of IAS 12 and IAS 1 Presentation of Financial Statements provide adequate transparency of these items.
IFRIC reference: IAS 12
The IFRIC considered whether the tax on dividends under Estonian Income Tax Law should be recognised:
(a) in profit or loss, in accordance with paragraphs 52A and 52B of IAS 12 Income Taxes; or
(b) directly in equity, in accordance with paragraph 65A of IAS 12.
July 2004
IFRIC members expressed concern about taking onto its agenda a request to interpret a specific tax system, particularly as the features of the Estonian tax system are not particularly widespread or pervasive throughout the world. IFRIC members also noted that the Board of the IASC discussed the Estonian tax system during deliberations of amendments to IAS 12 in 2000.
IFRIC reference: IAS 12
IFRIC members considered the accounting for extended payment terms, such as six-month’s interest-free credit.
July 2004
IFRIC members were of the opinion that the accounting treatment was clear, and declined to add the issue to its agenda. IFRIC members agreed that IAS 39 Financial Instruments: Recognition and Measurement applies to the receivable in such circumstances, and that the effect of the time value of money should be reflected when this is material (IAS 39 paragraphs AG69-AG82). IFRIC members noted that the wording of IAS 18 Revenue paragraph 11 lacked clarity and needed to be improved.
IFRIC reference: IAS 18
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July 2004
IFRIC members agreed that prompt settlement discounts should be estimated at the time of sale, and presented as a reduction in revenues. IFRIC members agreed that it should not provide guidance on making such estimates, and declined to add the issue to the agenda.
IFRIC reference: IAS 18
The IFRIC was asked to consider providing guidance on the proper accounting by the contractee as a construction project develops from contract signature to completion.
September 2004
The IFRIC agreed not to add this topic to the agenda, as the issue was one of application rather than principle. Also, there was no convincing evidence of widespread problems in practice.
IFRIC reference: IAS 11
Paragraph IN5 of IAS 24 (as revised in 2003) states that a main change in IAS 24 (2003) from the previous version (1994) was that “The Standard requires disclosure of the compensation of key management personal”. The IFRIC was asked to consider whether, based on this introductory remark, it was possible to infer that IAS 24 (1994) did not require disclosure of compensation of key management personnel.
September 2004
The IFRIC noted that the comments in the Introduction of IAS 24 (2003) were made to highlight explicitly that disclosure of key management personnel was required, given that the 2002 Exposure Draft had proposed eliminating this disclosure. This was not a change from the requirements of IAS 24 (1994). IAS 24 (1994) had no specific exemption for the disclosure on management compensation. Accordingly, IAS 24 (1994) required an entity to disclose key management personnel compensation, given they met the definition of a related party. No interpretation was considered necessary.
IFRIC reference: IAS 24
The IFRIC was asked to supplement the minimum disclosures in paragraph 17 regarding “transactions and outstanding balances necessary for an understanding of the potential effect of [related party] relationships on the financial statements”. For example, it was suggested that an interpretation of paragraph 17 should specifically require disclosure of the purpose and economic substance of transactions, identity of related parties, extend of management involvement, special risks and the effect of such transactions on the financial statements.
IAS 24
The IFRIC agreed not to add this issue to its agenda, noting that the IASB, in its revisions to IAS 24 in 2003, debated the extent of specific minimum disclosure requirements and the suggested items were not included. The IFRIC did agree that, because of wider policy considerations, this issue might be appropriate for discussion at the Board and, perhaps, the Standards Advisory Council.
IFRIC reference: IAS 24
Paragraph IN5 of IAS 24 (as revised in 2003) states that a main change in IAS 24 (2003) from the previous version (1994) was that “The Standard requires disclosure of the compensation of key management personal”. The IFRIC was asked to consider whether, based on this introductory remark, it was possible to infer that IAS 24 (1994) did not require disclosure of compensation of key management personnel.
September 2004
The IFRIC noted that the comments in the Introduction of IAS 24 (2003) were made to highlight explicitly that disclosure of key management personnel was required, given that the 2002 Exposure Draft had proposed eliminating this disclosure. This was not a change from the requirements of IAS 24 (1994). IAS 24 (1994) had no specific exemption for the disclosure on management compensation.
Accordingly, IAS 24 (1994) required an entity to disclose key management personnel compensation, given they met the definition of a related party. No interpretation was considered necessary.
IFRIC reference: IAS 24
The IFRIC was asked to supplement the minimum disclosures in paragraph 17 regarding “transactions and outstanding balances necessary for an understanding of the potential effect of [related party] relationships on the financial statements”. For example, it was suggested that an interpretation of paragraph 17 should specifically require disclosure of the purpose and economic substance of transactions, identity of related parties, extend of management involvement, special risks and the effect of such transactions on the financial statements.
September 2004
The IFRIC agreed not to add this issue to its agenda, noting that the IASB, in its revisions to IAS 24 in 2003, debated the extent of specific minimum disclosure requirements and the suggested items were not included. The IFRIC did agree that, because of wider policy considerations, this issue might be appropriate for discussion at the Board and, perhaps, the Standards Advisory Council.
IFRIC reference: IAS 24
The IFRIC considered whether under IAS 39 an entity should recognise an impairment on a group of loans if its loss expectation at initial recognition of the loans has not changed, but the entity could estimate reliably, based on past history, that loss events occurred after initial recognition, but before the reporting date.
October 2004
The IFRIC considered whether under IAS 39 an entity should recognise an impairment on a group of loans if its loss expectation at initial recognition of the loans had not changed, but the entity could estimate reliably, based on past history, that loss events occurred after initial recognition, but before the reporting date.
The IFRIC agreed that the interpretation of the Standard was clear and that an entity should recognise such an incurred impairment loss that is supported by objective evidence, which might not have been reported before the entity’s reporting date. However, an impairment loss could not be recognised if relevant events had not been recognised. The IFRIC recommended that the IASCF education team should consider this issue for possible inclusion in educational material.
IFRIC reference: IAS 39
The IFRIC considered whether future credit losses should be included in determining effective interest rates.
October 2004
The IFRIC agreed that IFRSs was clear on this issue. Paragraph 9 of IAS 39 states that when calculating effective interest rate an entity shall not consider future credit losses. Also, IAS 39 Implementation Guidance issue B26 provides further guidance on the matter.
IFRIC reference: IAS 39
The IFRIC considered whether under IAS 39 a non-financial instrument can be separated into price risk components, with the component that relates to an efficient, liquid and regulated commodity exchange being designated as the hedged item (rather than the price risk of the entire non-financial item).
October 2004
The IFRIC agreed that IAS 39 paragraphs 82 and AG100 provide clear guidance on the matter. The IFRIC also noted that to allow separation of a non-financial asset into price risk components with the separate components being designated as the hedged item would require an amendment to IAS 39 rather than an Interpretation.
IFRIC reference: IAS 39
The IFRIC considered whether, when a single hedging instrument is designated as a hedge of more than one type of risk, the effectiveness test can be carried out for the total hedged position, which incorporates all risks identified, if these risks are inextricably linked in the hedging instrument.
October 2004
The IFRIC agreed that IAS 39 was clear on the matter. The Standard does not require separate effectiveness testing when a single hedging instrument is designated as a hedge of more than one type of risk. The IFRIC also noted that the issue is neither widespread nor pervasive at present
IFRIC reference: IAS 39
The IFRIC considered two issues regarding first-time adoption of IFRSs. The first issue was whether the ‘impracticability’ exception under IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors should also apply to first time adopters.
The second issue was whether a specific exception should be granted to first-time adopters to permit entities to translate all assets and liabilities at the transition date exchange rate rather than applying the functional currency approach in IAS 21 The Effects of Changes in Foreign Exchange Rates.
October 2004
On the first issue, the IFRIC agreed that there were potential issues, especially with respect to ‘old’ items, such as property, plant and equipment. However, those issues could usually be resolved by using one of the transition options available in IFRS 1.
On the second issue, the IFRIC agreed that the position under IFRS 1 and IAS 21 was clear, and that there was no scope for an Interpretation on this topic that would provide any relief.
IFRIC reference: IFRS 1
The IFRIC considered three related questions on the application of IAS 2 which had been referred to it by the Urgent Issues Group (UIG) of the Australian Accounting Standards Board:
(a) whether discounts received for prompt settlement of invoices should be deducted from the cost of inventories or recognised as financing income;
(b) whether all other rebates should be deducted from the cost of inventories. The alternative would be to treat some rebates as revenue or a reduction in promotional expenses; and
(c) whether volume rebates should be recognised only when threshold volumes are achieved, or proportionately where achievement is assessed as probable.
November 2004
On (a), the IFRIC agreed that settlement discounts should be deducted from the cost of inventories. Because the requirements under IFRS were sufficiently clear, the IFRIC agreed that the matter should not be added to the agenda.
On (b), the IFRIC agreed that IAS 2 requires only those rebates and discounts that have been received as a reduction in the purchase price of inventories to be taken into consideration in the measurement of the cost of the inventories. Rebates that specifically and genuinely refund selling expenses would not be deducted from the costs of inventories. Because the requirements under IFRS were sufficiently clear, the IFRIC agreed that the matter should not be added to the agenda.
On (c), the IFRIC agreed that there was insufficient evidence of diversity in practice to warrant the matter being added to the agenda.
IFRIC reference: IAS 2
The IFRIC considered a question on the application of IAS 11 Construction Contracts and IAS 18 Revenue that had been referred to it by the Urgent Issues Group of the Australian Accounting Standards Board. The UIG was concerned that its Abstract 53 Pre-completion Contracts for the Sale of Residential Development Properties might not comply with IFRSs.
November 2004
The IFRIC agreed that pre-completion contracts might not meet the definition of construction contracts set out in IAS 11 because the contracts in question are not specifically negotiated for the construction of residential units. Rather, they are agreements for the purchase and sale of such units. In addition, when pre-completion contracts did not meet the definition, the guidance in IAS 18 would prohibit revenue recognition before legal title is transferred, if the risks and rewards of ownership did not pass to the buyer before then.
The IFRIC agreed that the issue should not be added to the agenda. The IFRIC noted that the definition of a construction contract in IAS 11 was sufficiently clear on this matter; it did not include typical pre-completion contracts and further guidance was not required. The IFRIC also has a project on its agenda seeking to clarify the criteria for combining and segmenting contracts. The features of pre-completion contracts that might have a relevance to the criteria for combining contracts could be considered as part of that project. The Board is also undertaking a project on revenue recognition, which will address revenue recognition on real estate transactions. The IFRIC agreed that, in the meantime, the guidance in the Appendix to IAS 18 is sufficient to prevent premature recognition of revenue on pre-completion contracts.
IFRIC reference: IAS 11, IAS 18
The IFRIC considered whether interest methods of depreciation were permissible under IFRSs. Use of such methods would permit an entity to depreciate an asset that is not a receivable in much the same way as if it were a receivable, with the result that the depreciated amount of the asset reflects the present value of future net cash flow expected from it.
November 2004
The IFRIC noted that, while deliberating certain issues related to service concessions, it had considered whether it would be appropriate to use an interest method of depreciation. In that discussion, it concluded that using an interest method of depreciation was not appropriate. The IFRIC concluded that there was nothing unique about assets leased under operating leases in service concessions that would cause it to reach a different conclusion about the use of interest methods of depreciation. It noted that the Basis for Conclusions in the future Interpretations on service concessions would include a discussion of its conclusions on interest methods of depreciation.
IFRIC reference: IAS 16, IAS 17
The IFRIC considered a question on the application of IAS 38 Intangible Assets that had been referred to it by the Urgent Issues Group of the Australian Accounting Standards Board. The UIG was concerned that its Abstract 42 Subscriber Acquisition Costs in the Telecommunications Industry might be inconsistent with IFRSs.
November 2004
IFRIC members expressed concern that the issues raised in UIG 42 applied in a broad range of situations and were not limited to the telecommunications sector. If the IFRIC did add this topic to its agenda, there were concerns about whether IFRIC would be able to reach a consensus view on a timely basis. The IFRIC also noted that this issue was related to several Board projects. Accordingly, the IFRIC tentatively agreed not to add this issue to its agenda.
IFRIC reference: IAS 38
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