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This page summarises all the issues where the (then) International Financial Reporting Interpretations Committee (IFRIC) finalised an agenda decision during the 2008 calendar year. |
An entity may provide payments to employees if they die while employed (‘death in service’ benefits). In some situations, IAS 19 requires these benefits to be attributed to periods of service using the Projected Unit Credit Method. The IFRIC received a request for guidance on how an entity should attribute these benefits to periods of service. The request noted that different treatments existed in practice.
An entity may provide payments to employees if they die while employed (‘death in service’ benefits). In some situations, IAS 19 Employee Benefits requires these benefits to be attributed to periods of service using the Projected Unit Credit Method. The IFRIC received a request for guidance on how an entity should attribute these benefits to periods of service. The request noted that different treatments existed in practice.
January 2008
The IFRIC noted that paragraph 67(b) of IAS 19 requires attribution of the cost of the benefits until the date ‘when further service by the employee will lead to no material amount of further benefits under the plan, other than from further salary increases.’
In the case of death in service benefits, the IFRIC noted that:
The IFRIC concluded that divergence in this area was unlikely to be significant. In addition, any further guidance that it could issue would be application guidance on the use of the Projected Unit Credit Method. The IFRIC therefore decided not to add the issue to its agenda.
IFRIC reference: IAS 19-8
The IFRIC received a request to clarify the measurement of the defined benefit obligation when pension promises are based on achieving specific performance targets. Performance targets may relate to various forms of pension promises ranging from additional pensionable earnings from performance bonuses to more complex arrangements relating to additional sponsor contributions or years of deemed service. The issue is how defined benefit plans with such features should be accounted for in accordance with IAS 19.
The IFRIC received a request to clarify the measurement of the defined benefit obligation when pension promises are based on achieving specific performance targets. Performance targets may relate to various forms of pension promises ranging from additional pensionable earnings from performance bonuses to more complex arrangements relating to additional sponsor contributions or years of deemed service. The issue is how defined benefit plans with such features should be accounted for in accordance with IAS 19 Employee Benefits.
January 2008
The IFRIC noted that paragraph 73 of IAS 19 states that ‘Actuarial assumptions are an entity’s best estimates of the variables that will determine the ultimate cost of providing post-employment benefits.’ Performance targets are variables that will affect the ultimate cost of providing the post-employment benefits. They should therefore be included in the determination of the benefit.
The IFRIC also noted that paragraph 67 of IAS 19 requires benefits to be attributed to periods of service according to the benefit formula, unless an employee’s service in later years will lead to a materially higher level of benefit than in earlier years. When benefits are affected by performance hurdles, the effect on the attribution of benefits must also be considered.
Given the requirements in IAS 19, the IFRIC did not expect divergence in practice and decided not to add the issue to its agenda.
IFRIC reference: IAS 19-10
The IFRIC received a request for guidance on the accounting for investment or insurance policies that are issued by an entity to a pension plan covering its own employees (or the employees of an entity that is consolidated in the same group as the entity issuing the policy). The request asked for guidance on whether such policies would be part of plan assets in the consolidated and separate financial statements of the sponsor.
The IFRIC received a request for guidance on the accounting for investment or insurance policies that are issued by an entity to a pension plan covering its own employees (or the employees of an entity that is consolidated in the same group as the entity issuing the policy). The request asked for guidance on whether such policies would be part of plan assets in the consolidated and separate financial statements of the sponsor.
January 2008
The IFRIC noted the definitions of plan assets, assets held by a long-term employee benefit fund and a qualifying insurance policy in IAS 19 paragraph 7.
The IFRIC noted that, if a policy was issued by a group company to the employee benefit fund then the treatment would depend upon whether the policy was a ‘non-transferable financial instrument issued by the reporting entity’. Since the policy was issued by a related party, it could not meet the definition of a qualifying insurance policy.
The IFRIC considered that the issue was too narrow in scope to develop an Interpretation and decided not to add the issue to its agenda.
IFRIC reference: IAS 19-9
The IFRIC received a request for guidance on which foreign exchange differences may be regarded as adjustments to interest costs for the purpose of applying IAS 23.
The IFRIC received a request for guidance on which foreign exchange differences may be regarded as adjustments to interest costs for the purpose of applying IAS 23 Borrowing Costs.
IAS 23 states that ‘Borrowing costs may include… exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs’ (emphasis added). The request asked for guidance both on the treatment of foreign exchange gains and losses and on the treatment of any derivatives used to hedge such foreign exchange exposures.
January 2008
The IFRIC noted that the principle set out in paragraph 8 of IAS 23 states ‘an entity shall capitalise borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset.’ The IFRIC also noted that paragraph 11 states ‘the determination of the amount of borrowing costs that are directly attributable to the acquisition of a qualifying asset is difficult and the exercise of judgement is required.’ Consequently, how an entity applies IAS 23 to foreign currency borrowings is a matter of accounting policy requiring the exercise of judgement. IAS 1 Presentation of Financial Statements requires clear disclosure of significant accounting policies and judgements that are relevant to an understanding of the financial statements.
The IFRIC noted that, notwithstanding the guidance in paragraphs 8 and 11 of IAS 23, the standard itself acknowledges that judgement will be required in its application and appropriate disclosure of accounting policies and judgements would provide users with the information they need to understand the financial statements. The IFRIC concluded that it was unnecessary to provide application guidance. The IFRIC also noted that, as part of its project to amend IAS 23, the Board specifically considered this issue and decided not to develop further guidance in this area. The IFRIC concluded that it should not develop guidance as the Board had already decided not to provide it.
The IFRIC therefore decided not to add the issue to its agenda.
IFRIC reference: IAS 23-1
The IFRIC received a request for guidance on the appropriate interpretation of IAS 39 paragraph 2(g). This paragraph exempts from the scope of IAS 39 ‘contracts between an acquirer and a vendor in a business combination to buy or sell an acquiree at a future date.’
The IFRIC received a request for guidance on the appropriate interpretation of IAS 39 paragraph 2(g). This paragraph exempts from the scope of IAS 39 ‘contracts between an acquirer and a vendor in a business combination to buy or sell an acquiree at a future date.’ The request asked whether this scope exception applies only to binding contracts to acquire shares that constitute a controlling interest in another entity within the period necessary to complete a business combination, or if it applies more widely. The request also asked for guidance on whether the scope exception could be applied to other similar transactions, such as those to acquire an interest in an associate.
January 2008
The IFRIC acknowledged that the wording in paragraph 2(g) of IAS 39 is ambiguous and could lead to diversity in practice.
For this reason, the IFRIC decided to ask the Board to clarify the standard, addressing in particular:
IFRIC reference: IAS 39-16
The IFRIC received a request for guidance on the treatment of some types of expenditure in the statement of cash flows. In practice some entities classify expenditures that are not recognised as assets under IFRSs as cash flows from operating activities while others classify them as part of investing activities.
The IFRIC received a request for guidance on the treatment of some types of expenditure in the statement of cash flows. In practice some entities classify expenditures that are not recognised as assets under IFRSs as cash flows from operating activities while others classify them as part of investing activities.
Examples of such expenditures are those for exploration and evaluation activities (which can be recognised, according to the applicable standard, as an asset or an expense). Advertising and promotional activities, staff training and research and development could also raise the same issue.
March 2008
The IFRIC concluded that the issue could be best resolved by referring it to the Board with a recommendation that IAS 7 should be amended to make explicit that only an expenditure that results in a recognised asset can be classified as a cash flow from investing activity. The IFRIC therefore decided not to add the issue to its agenda.
IFRIC reference: IAS 7-2
The IFRIC received a request to clarify whether some payments of benefits under a defined benefit plan are settlements as defined in IAS 19. The payments in question arise when an existing plan gives plan members the option to choose to receive a lump sum payment at retirement instead of ongoing payments.
The IFRIC received a request to clarify whether some payments of benefits under a defined benefit plan are settlements as defined in IAS 19. The payments in question arise when an existing plan gives plan members the option to choose to receive a lump sum payment at retirement instead of ongoing payments.
May 2008
The IFRIC noted that events that are covered by the actuarial assumptions underlying the measurement of the defined benefit obligation are not treated as settlements under IAS 19. The IFRIC decided not to add the issue to its agenda because there was little diversity in practice.
IFRIC reference: IAS 19-14
The IFRIC was asked to provide guidance on the accounting for the obligation to refund deposits on returnable containers. In some industries, entities that distribute their products in returnable containers collect a deposit for each container delivered and have an obligation to refund this deposit when containers are returned by the customer. The issue is whether the obligation should be accounted for in accordance with IAS 39 'Financial Instruments: Recognition and Measurement'.
The IFRIC was asked to provide guidance on the accounting for the obligation to refund deposits on returnable containers. In some industries, entities that distribute their products in returnable containers collect a deposit for each container delivered and have an obligation to refund this deposit when containers are returned by the customer. The issue is whether the obligation should be accounted for in accordance with IAS 39 Financial Instruments: Recognition and Measurement.
May 2008
The IFRIC noted that paragraph 11 of IAS 32 Financial Instruments: Presentation defines a financial instrument as ‘any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.’ Following delivery of the containers to its customers, the seller has an obligation only to refund the deposit for any returned containers.
In circumstances in which the containers are derecognised as part of the sale transaction, the obligation is an exchange of cash (the deposit) for the containers (non-financial assets). Whether that exchange transaction occurs is at the option of the customer. Because the transaction involves the exchange of a non-financial item, it does not meet the definition of a financial instrument in accordance with IAS 32. In contrast, when the containers are not derecognised as part of the sale transaction, the customer’s only asset is its right to the refund. In such circumstances, the obligation meets the definition of a financial instrument in accordance with IAS 32 and is therefore within the scope of IAS 39.
In particular, paragraph 49 of IAS 39 states that ‘the fair value of a financial liability with a demand feature (eg a demand deposit) is not less than the amount payable on demand, discounted from the first date that the amount could be required to be paid.’ The IFRIC concluded that divergence in this area was unlikely to be significant and therefore decided not to add this issue to its agenda.
IFRIC reference: IAS 37-2
The IFRIC was asked for guidance on the application of the effective interest rate method to a financial instrument whose cash flows are linked to changes in an inflation index. The submission suggested three possible approaches.
The IFRIC was asked for guidance on the application of the effective interest rate method to a financial instrument whose cash flows are linked to changes in an inflation index. The submission suggested three possible approaches.
The IFRIC noted that paragraphs AG6–AG8 of IAS 39 Financial Instruments: Recognition and Measurementt provide the relevant application guidance. Judgement is required to determine whether an instrument is a floating rate instrument within the scope of paragraph AG7 or an instrument within the scope of paragraph AG8.
July 2008
In view of the existing application guidance in IAS 39, the IFRIC decided not to add this issue to its agenda. However, the IFRIC referred the issue to the Board with a recommendation that the Board should consider clarifying or expanding that application guidance.
IFRIC reference: IAS 39-17
The IFRIC received a request for guidance on the application of paragraphs 33 and 34 of IAS 17, which state that ‘For operating leases, lease payments (excluding costs for services such as insurance and maintenance) are recognised as an expense on a straightline basis unless another systematic basis is representative of the time pattern of the user’s benefit, even if the payments are not on that basis.’ The request asked for guidance on what alternatives to straight-line recognition of lease expense might be appropriate.
The IFRIC received a request for guidance on the application of paragraphs 33 and 34 of IAS 17, which state that ‘For operating leases, lease payments (excluding costs for services such as insurance and maintenance) are recognised as an expense on a straightline basis unless another systematic basis is representative of the time pattern of the user’s benefit, even if the payments are not on that basis.’ The request asked for guidance on what alternatives to straight-line recognition of lease expense might be appropriate.
The IFRIC noted that guidance had previously been requested on this issue, and for the reasons elaborated on below, had not been added to the agenda.
September 2008
The IFRIC noted that IAS 16 Property, Plant and Equipment and IAS 18 Revenue require an entity to recognise the use of productive assets using the method that best reflects ‘the pattern in which the asset’s future economic benefits are expected to be consumed by the entity’ (emphasis added). In contrast, IAS 17 refers to the time pattern of the user’s benefit. Therefore, any alternative to the straight-line recognition of lease expense under an operating lease must reflect the time pattern of the use of the leased asset.
The IFRIC also noted that it did not expect significant diversity in practice regarding the application of this requirement.
The IFRIC therefore decided not to add this issue to its agenda.
IFRIC reference: IAS 17-3
The IFRIC received a request for guidance on how an entity should account for ongoing commission arrangements, referred to as trailing commissions, in the particular circumstances where the contractual obligation for the payment/receipt of the commission is not linked to the performance of any future service.
The IFRIC received a request for guidance on how an entity should account for ongoing commission arrangements, referred to as trailing commissions, in the particular circumstances where the contractual obligation for the payment/receipt of the commission is not linked to the performance of any future service.
An example of the type of arrangement in question is when a financial adviser directs its client’s funds to an investment manager’s product. The adviser receives an initial commission for the placement of the business with the investment manager and a further ongoing (trailing) commission provided that the client remains invested in the product for a specified time. The issue focuses on the accounting treatment by the financial adviser to the client.
September 2008
The IFRIC noted that similar arrangements are present in many industries. Consequently, the issue is widespread. In addition, the IFRIC is aware that practice in this area is diverse. Diversity arises in part because of difficulty in determining, considering all relevant circumstances including the terms of the contractual arrangement, whether the entity is required to provide any future service to be entitled to receive the commission. Diversity also arises because IAS 18 and IAS 39 have different recognition criteria and views differ on whether IAS 18 or IAS 39 is the relevant standard.
Given the complexity of the issues and the pervasive effect of any conclusions reached, the IFRIC concluded that it would not be able to reach a consensus on a timely basis. The IFRIC also noted that the Board was considering these issues in its projects on revenue recognition and liabilities. The IFRIC therefore decided not to add this issue to its agenda.
IFRIC reference: IAS 18-9 IAS 39-18
The IFRIC received a request for guidance on the extent of transaction costs to be accounted for as a deduction from equity in accordance with IAS 32 paragraph 37 and on how the requirements of IAS 32 paragraph 38 to allocate transaction costs that relate jointly to one or more transaction should be applied. This issue relates specifically to the meaning of the terms ‘incremental’ and ‘directly attributable’.
The IFRIC received a request for guidance on the extent of transaction costs to be accounted for as a deduction from equity in accordance with IAS 32 paragraph 37 and on how the requirements of IAS 32 paragraph 38 to allocate transaction costs that relate jointly to one or more transaction should be applied. This issue relates specifically to the meaning of the terms ‘incremental’ and ‘directly attributable’.
The IFRIC noted that only incremental costs directly attributable to issuing new equity instruments or acquiring previously outstanding equity instruments are related to an equity transaction in accordance with IAS 32. The IFRIC also noted that judgement will be required to determine which costs are related solely to other activities undertaken at the same time as issuing equity, such as becoming a public company or acquiring an exchange listing, and which are costs that relate jointly to both activities that must be allocated in accordance with paragraph 38.
September 2008
In view of the existing guidance, the IFRIC decided not to add this issue to its agenda. However, the IFRIC also noted that the terms ‘incremental’ and ‘directly attributable’ are used with similar but not identical meanings in many Standards and Interpretations. The IFRIC recommended that common definitions should be developed for both terms and added to the Glossary as part of the Board’s annual improvements project.
IFRIC reference: IAS 32-6
The IFRIC received a request for guidance on whether a discount must be applied to the quoted market price when establishing the fair value of a security quoted in an active market when there is a contractual, governmental or other legally enforceable restriction that prevents the sale of the security for a specified period.
The IFRIC received a request for guidance on whether a discount must be applied to the quoted market price when establishing the fair value of a security quoted in an active market when there is a contractual, governmental or other legally enforceable restriction that prevents the sale of the security for a specified period. Guidance was requested only in situations in which the restriction applied to the current holder of the security and would not transfer to another entity.
November 2008
The IFRIC noted that any guidance it could provide would be in the nature of implementation guidance rather than an Interpretation. In its view, any additional guidance that is necessary should be provided by the Board in its project on fair value measurement.
The IFRIC therefore decided not to add this issue to its agenda.
IFRIC reference: IAS 39-19
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