The IFRIC received a request to add an item to its agenda to provide guidance on the circumstances in which a non-contractual customer relationship arises in a business combination.
The IFRIC received a request to add an item to its agenda to provide guidance on the circumstances in which a non-contractual customer relationship arises in a business combination.
IFRS 3 Business Combinations (as revised in 2008) requires an acquirer to recognise the identifiable intangible assets of the acquiree separately from goodwill. An intangible asset is identifiable if it meets either the contractual-legal criterion or the separable criterion in IAS 38 Intangible Assets. Contractual customer relationships are always recognised separately from goodwill because they meet the contractual-legal criterion. However, non-contractual customer relationships are recognised separately from goodwill only if they meet the separable criterion.
The IFRIC noted that the IFRS Glossary defines the term ‘contract’. Paragraphs B31─B40 of IFRS 3 provide application guidance on the recognition of intangible assets and the different criteria related to whether they are established on the basis of a contract. The IFRIC also noted that paragraph IE28 in the illustrative examples accompanying IFRS 3 provides indicators for identifying the existence of a customer relationship between an entity and its customer and states that a customer relationship ‘may also arise through means other than contracts, such as through regular contact by sales or service representatives.’
The IFRIC concluded that how the relationship is established helps to identify whether a customer relationship exists but should not be the primary basis for determining whether the acquirer recognises an intangible asset. The IFRIC noted that the criteria in paragraph IE28 might be more relevant. The existence of contractual relationships and information about a customer’s prior purchases would be important inputs in valuing a customer relationship intangible asset but should not determine whether it is recognised.
March 2009
In the light of the explicit guidance in IFRS 3, the IFRIC decided that developing an Interpretation reflecting its conclusion is not possible. Noting widespread confusion in practice on this issue, the IFRIC decided that it could be best resolved by referring it to the IASB and the FASB with a recommendation to review and amend IFRS 3 by:
IFRIC reference: IFRS3R – 1
The Committee considered two issues arising from EITF Issue No. 08-6 'Equity Method Investment Accounting Considerations': (1) how an impairment assessment of an underlying indefinite-lived intangible asset of an equity method investment should be performed (2) how to account for a change in an investment from the equity method to the cost method
The IFRIC staff noted that the FASB’s Emerging Issues Task Force (EITF) recently added to its agenda, EITF Issue No. 08-6 Equity Method Investment Accounting Considerations. EITF 08-6 addresses several issues resulting from the recently concluded joint project by the IASB and FASB on accounting for business combinations and accounting and reporting for noncontrolling interests that culminated in the issue of IFRS 3 (as revised in 2008) and IAS 27 (as amended in 2008) and FASB SFAS 141(R) and SFAS 160.
March 2009
The IFRIC noted that IAS 28 provides explicit guidance on two issues:
IFRIC reference: IAS 28-1
The IFRIC received a request for guidance on the application of paragraph 16A(c) of IAS 32. The request asked for guidance on the classification of an entity’s puttable instruments that are subordinate to all other classes of instruments when the entity also has perpetual instruments that are classified as equity.
The IFRIC received a request for guidance on the application of paragraph 16A(c) of IAS 32, which states that ‘All financial instruments in the class of instruments that is subordinate to all other classes of instruments have identical features’. The request asked for guidance on the classification of an entity’s puttable instruments that are subordinate to all other classes of instruments when the entity also has perpetual instruments that are classified as equity.
The IFRIC noted that a financial instrument is first classified as a liability or equity instrument in accordance with the general requirements of IAS 32. That classification is not affected by the existence of puttable instruments. As a second step, if a financial instrument would meet the general definition of a liability because it is puttable to the issuer, the entity considers the conditions in paragraphs 16A and 16B of IAS 32 to determine whether it should be classified as equity. Consequently, the IFRIC noted that IAS 32 does not preclude the existence of several classes of equity.
The IFRIC also noted that paragraph 16A(c) applies only to ‘instruments in the class of instruments that is subordinate to all other classes of instruments’. Paragraph 16A(b) specifies that the level of an instrument’s subordination is determined by its priority in liquidation. Accordingly, the existence of the put does not of itself imply that the puttable instruments are less subordinate than the perpetual instruments.
March 2009
Given the requirements in IAS 32, the IFRIC did not expect significant diversity in practice to develop. Therefore the IFRIC decided not to add this issue to its agenda.
IFRIC reference: IAS 32R-1
The IFRIC received a request to consider whether regulated entities could or should recognise a liability (or an asset) as a result of rate regulation by regulatory bodies or governments.
The IFRIC received a request to consider whether regulated entities could or should recognise a liability (or an asset) as a result of rate regulation by regulatory bodies or governments.
At the IFRIC meeting in November 2008, the IFRIC considered detailed background information, an analysis of the issue and an assessment of the issue against its agenda criteria. The IFRIC noted that:
March 2009
The IFRIC concluded that the agenda criteria were not met, mainly because divergence in practice does not seem to be significant. In addition, there is now a project on rate regulated activities on the Board’s active agenda. Therefore, the IFRIC decided not to add the issue to its agenda.
IFRIC reference: IAS 37-3
The IFRIC was asked: (1) How the derecognition tests in IAS 39 should be applied to groups of financial assets, in particular, when a group of financial assets should be considered similar (2) When the pass-through tests in IAS 39 should be applied to a transfer of a financial asset.
The IFRIC was asked:
At its meeting in July 2006, the IFRIC decided to refer these issues to the Board for clarification. The Board discussed these issues at its meeting in September 2006 and the Board’s observations were communicated to the IFRIC at its meeting in November 2006. The IFRIC decided not to add the issue to the agenda. A tentative decision was published in the November 2006 IFRIC Update.
March 2009
At its meeting in January 2007, the IFRIC decided to add a limited scope project on derecognition to its agenda. However, the project has been inactive pending the availability of staff resources.
Subsequently, the Board has accelerated its project to develop a replacement for the sections of IAS 39 that would have been interpreted by this IFRIC issue. The Board expects to issue a new standard on this topic no later than 2010. Therefore the IFRIC decided to remove this issue from its agenda.
IFRIC reference: IAS 39-2
The IFRIC received a submission containing a proposal on how a discount rate should be determined when fair value is established using a valuation technique.
The IFRIC received a submission containing a proposal on how a discount rate should be determined when fair value is established using a valuation technique. The submission noted that both the credit spread and liquidity spread components of the discount rate might not be observable in inactive markets. The submission suggested that, in such circumstances, the liquidity spread should not exceed that of a non-tradable loan or receivable which is comparable to the security being measured and that a model-based valuation should aim to calculate the value of a financial instrument that market participants would agree on if they were acting in a rational manner.
The IFRIC noted that IAS 39 states that the objective of using a valuation technique is to establish what the transaction price would have been on the measurement date in an arms length exchange motivated by normal business considerations. Therefore, that measurement incorporates all factors that market participants would consider in setting a price and is consistent with accepted economic methodologies for pricing financial instruments. Accordingly, the IFRIC concluded that any suggestion that a valuation technique should consider factors differently from the way a market participant would be expected to consider them so as to arrive at a price that is different from the price a marketparticipant would determine, as appeared to be the case in the approach proposed in the submission, would not be consistent with IAS 39.
March 2009
After its tentative agenda decision was published, the IFRIC received a further letter from the authors of the submission clarifying that:
The IFRIC also noted that any guidance it could provide would be in the nature of implementation guidance rather than an interpretation. In addition, the IASB has published the report of its Expert Advisory Panel which explains how experts measure and disclose the fair values of financial instruments in inactive markets and a staff summary on the use of judgement to measure those values when markets are no longer active. The issue relates directly to the subjects that were discussed at the joint IASB/FASB round tables held in November and December. In the IFRIC’s view, any new or amended guidance that is necessary should be provided as a result of the Board’s joint activities with the FASB and its fair value measurement project. Therefore the IFRIC decided not to add this issue to its agenda.
IFRIC reference: IAS 39-20
The IFRIC received a request for guidance on whether a tax based on tonnage capacity can be considered an income tax in accordance with IAS 12. The IFRIC noted that the term ‘tonnage tax’ is applied to a variety of tax regimes. In some jurisdictions, shipping companies are permitted to choose to be taxed on the basis of tonnage transported, tonnage capacity or a notional profit instead of the standard corporate income tax regulations.
The IFRIC received a request for guidance on whether a tax based on tonnage capacity can be considered an income tax in accordance with IAS 12. The IFRIC noted that the term ‘tonnage tax’ is applied to a variety of tax regimes. In some jurisdictions, shipping companies are permitted to choose to be taxed on the basis of tonnage transported, tonnage capacity or a notional profit instead of the standard corporate income tax regulations. In some jurisdictions, this choice is irrevocable.
May 2009
The IFRIC has previously noted that IAS 12 applies to income taxes, which are defined as taxes that are based on taxable profit, and that the term ‘taxable profit’ implies a notion of a net rather than a gross amount. Taxes either on tonnage transported or tonnage capacity are based on gross rather than net amounts. Taxes on a notional income derived from tonnage capacity are not based on the entity’s actual income and expenses.
Consequently, the IFRIC noted that such taxes would not be considered income taxes in accordance with IAS 12 and would not be presented as part of tax expense in the statement of comprehensive income. However, the IFRIC also noted that, in accordance with paragraph 85 of IAS 1 Presentation of Financial Statements, an entity subject to tonnage tax would present additional subtotals in that statement if that presentation is relevant to an understanding of its financial performance. Given the requirements of IAS 12, the IFRIC decided not to add the issue to its agenda.
IFRIC reference: IAS 12-7
The IFRIC received a request for more guidance on the extent of required disclosures relating to property, plant and equipment temporarily idle or assets under construction when additional construction has been postponed. In accordance with paragraph 74(b) of IAS 16, an entity is required to disclose the amount of expenditures recognised in the carrying amount of an item of property, plant and equipment in the course of its construction. Paragraph 79(a) encourages an entity to disclose the amount of property, plant and equipment that is temporarily idle.
The IFRIC received a request for more guidance on the extent of required disclosures relating to property, plant and equipment temporarily idle or assets under construction when additional construction has been postponed. In accordance with paragraph 74(b) of IAS 16, an entity is required to disclose the amount of expenditures recognised in the carrying amount of an item of property, plant and equipment in the course of its construction. Paragraph 79(a) encourages an entity to disclose the amount of property, plant and equipment that is temporarily idle.
The IFRIC also noted that paragraph 112(c) of IAS 1 Presentation of Financial Statements requires an entity to provide in the notes information that is not presented elsewhere in the financial statements that is relevant to their understanding. The IFRIC noted that disclosure regarding idle assets might be particularly relevant in the current economic environment. Consequently, the IFRIC expected that entities would provide information in addition to that specifically required by IAS 16 whenever idle assets or postponed construction projects become significant.
May 2009
Given the requirements of IAS 16 and IAS 1, the IFRIC did not expect significant diversity in practice and decided not to add this issue to its agenda. However, the IFRIC recommended that the Board should undertake a review of all disclosures encouraged (but not required) by IFRSs with the objective of either confirming that they are required or eliminating them.
IFRIC reference: IAS 16-3
The IFRIC was asked to clarify how a real estate developer should account for selling and marketing costs incurred during construction that relate to the specific real estate construction project.
The IFRIC was asked to clarify how a real estate developer should account for selling and marketing costs incurred during construction that relate to the specific real estate construction project. Following the guidance in IFRIC 15 Agreements for the Construction of Real Estate, revenue from the construction project described in the request will be recognised as a ‘sale of goods’ in accordance with IAS 18 Revenue rather than in accordance with IAS 11 Construction Contracts.
Examples of such selling and marketing costs include:
The IFRIC noted that IAS 2 Inventories does not permit selling costs to be capitalised as inventory if the real estate units are considered to be inventory. Similarly, IAS 16 Property, Plant and Equipment does not permit these costs to be capitalised as property, plant and equipment unless they are directly attributable to preparing the asset to be used. The IFRIC also noted that paragraph 20 of IAS 11 excludes selling costs from the costs of a construction contract.
However, the IFRIC noted that other standards conclude that some direct and incremental costs recoverable as a result of securing a specifically identifiable contract with a customer may be capitalised in narrow circumstances. For example, IAS 11 (paragraph 21 on pre-contract costs) and IAS 18 (Appendix paragraph 14(b)(iii) on investment management fees), among others, may include relevant guidance. In those narrow circumstances, if additional requirements are met, capitalised costs may represent an identifiable intangible asset arising from contractual or other legal rights in accordance with IAS 38 Intangible Assets. (The IFRIC noted that no standards permit an entity to capitalise advertising or other costs incurred in attempting to obtain customer contracts.)
May 2009
Because the accounting for such costs varies depending on specific facts and circumstances, the IFRIC noted that it is not possible to reach a conclusion on the appropriate accounting for broad categories of selling and marketing costs in all circumstances. Therefore, the IFRIC decided not to add this issue to the agenda.
IFRIC reference: IAS 38-7
The IFRIC was asked for guidance on how an issuer should account for a financial liability that contains participation rights by which the instrument holder shares in the net income and losses of the issuer.
The IFRIC was asked for guidance on how an issuer should account for a financial liability that contains participation rights by which the instrument holder shares in the net income and losses of the issuer. The holder receives a percentage of the issuer’s net income and is allocated a proportional share of the issuer’s losses. Losses are applied to the nominal value of the instrument to be repaid on maturity. Losses allocated to the holder in one period can be offset by profits in subsequent periods.
The IFRIC considered the issue without reconsidering the assumptions described in the request, namely that the financial liability:
May 2009
The IFRIC noted that paragraphs AG6 and AG8 of IAS 39 provide the relevant application guidance for measuring financial liabilities at amortised cost using the effective interest rate method. The IFRIC also noted that it is inappropriate to analogise to the derecognition guidance in IAS 39 because the liability has not been extinguished. Because specific application guidance already exists, the IFRIC decided not to add this issue to its agenda.
IFRIC reference: IAS 39-21
The IFRIC was asked whether a loan amount resulting from a loan syndication that the originator intends to sell in the near term must always be classified as held for trading. The question arises when loans are originated with an intention of syndication but the arranger fails to find sufficient commitments from other participants (failed syndications).
The IFRIC was asked whether a loan amount resulting from a loan syndication that the originator intends to sell in the near term must always be classified as held for trading. The question arises when loans are originated with an intention of syndication but the arranger fails to find sufficient commitments from other participants (failed syndications). The arranger then tries to sell the surplus loan amount to other parties in the near term rather than holding it for the foreseeable future.
May 2009
The IFRIC noted that the definitions of loans and receivables and financial asset or financial liability at fair value through profit or loss in paragraph 9 of IAS 39 determine the classification of a loan in such circumstances. The definition of loans and receivables explicitly requires a loan (or portion of a loan) that is intended to be sold immediately or in the near term to be classified as held for trading on initial recognition.
Paragraph AG14 of IAS 39 describes characteristics that generally apply to financial instruments classified as held for trading. The IFRIC noted, however, that these general characteristics are not a prerequisite for all instruments the standard requires to be classified as held for trading.
The IFRIC also noted that, in accordance with paragraph 50D of IAS 39, an entity would be permitted to consider reclassifying the surplus loan amount that it no longer intended to sell.
Given the specific requirements in IAS 39, the IFRIC did not expect significant diversity in practice. Therefore the IFRIC decided not to add this issue to its agenda.
IFRIC reference: IAS 39-22
The IFRIC received a request for guidance on how an entity should determine an appropriate discount rate when the fair value of biological assets is estimated as the present value of expected net cash flows. The request noted that IAS 41 provides only limited guidance in these circumstances.
The IFRIC received a request for guidance on how an entity should determine an appropriate discount rate when the fair value of biological assets is estimated as the present value of expected net cash flows. The request noted that IAS 41 provides only limited guidance in these circumstances.
The IFRIC noted that the objective of fair value measurement in IAS 41 is consistent with that in other standards, and paragraph 21 was amended in May 2008 to clarify that in determining the present value of net cash flows, an entity includes the net cash flows that market participants would expect the asset to generate.
When an entity incurs an initial cost with respect to a biological asset, paragraph 24 of IAS 41 notes that that cost may approximate fair value when little biological transformation has taken place since the cost was incurred. In these situations the IFRIC noted that the discount rate selected would be expected to result in a value that approximates that cost.
The IFRIC also noted that IAS 39 and other material recently published by the Board provide extensive guidance on estimating fair values for assets that do not have readily observable prices in active markets that would also be relevant for biological assets.
May 2009
The IFRIC noted that any guidance it could provide would be in the nature of implementation guidance rather than an interpretation. The IFRIC also noted that given the guidance already available in IFRSs it did not expect significant diversity in practice and decided not to add this issue to its agenda.
IFRIC reference: IAS 41-2
The IFRIC received requests to clarify the treatment of acquisition-related costs that the acquirer incurred before it applies IFRS 3 'Business Combinations' (as revised in 2008) that relate to a business combination that is accounted for according to the revised IFRS.
The IFRIC has received requests to clarify the treatment of acquisition-related costs that the acquirer incurred before it applies IFRS 3 Business Combinations (as revised in 2008) that relate to a business combination that is accounted for according to the revised IFRS.
In accordance with the revised IFRS 3, because acquisition-related costs are not part of the exchange transaction between the acquirer and the acquiree (or its former owners), they are not considered part of the business combination. Therefore, except for costs to issue debt or equity securities that are recognised in accordance with IAS 32 and IAS 39, the revised IFRS 3 requires an entity to account for acquisition-related costs as expenses in the periods in which the costs are incurred and the services are received. In contrast, IFRS 3 (as issued in 2004) required the acquisition-related costs to be included in the cost of a business combination.
July 2009
The IFRIC noted that more than one interpretation of how the requirements of the two IFRSs interact is possible. Accordingly, the IFRIC concluded that an entity should disclose its accounting policy for such costs and the amount recognised in the financial statements. Because this is a transitional issue that will not arise for accounting periods beginning on after 1 July 2009, the IFRIC decided not to add the issue to its agenda.
IFRIC reference: IFRS 3R-2
The IFRIC has received requests to clarify whether IFRS 3 'Business Combinations' (as revised in 2008) must be applied from the beginning of an annual period if it is adopted early.
The IFRIC has received requests to clarify whether IFRS 3 Business Combinations (as revised in 2008) must be applied from the beginning of an annual period if it is adopted early.
The IFRIC noted that paragraph 64 of IFRS 3 (as revised in 2008) requires the revised IFRS to be applied for the whole annual period if it is applied early.
The IFRIC also noted that the question of whether an entity can decide during a reporting period to apply a revised IFRS early is not unique to the revised IFRS 3. The IFRIC observed that this question should be answered in accordance with the general principles in IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. Accordingly, if an entity chooses to apply the revised IFRS 3 early, it must apply it to all business combinations that occurred in the annual period in which the revised IFRS is first applied.
July 2009
The IFRIC concluded that relevant guidance on the early application of the revised IFRS 3 exists in IFRSs and it did not expect divergence in practice. Therefore, the IFRIC decided not to add the issue to its agenda.
IFRIC reference: IFRS 3R-3
The IFRIC received a request for guidance on whether investments in shares or units of money market funds that are redeemable at any time can be classified as cash equivalents.
The IFRIC received a request for guidance on whether investments in shares or units of money market funds that are redeemable at any time can be classified as cash equivalents.
The IFRIC noted that paragraph 7 of IAS 7 states that the purpose of holding cash equivalents is to meet shortterm cash commitments. In this context, the critical criteria in the definition of cash equivalents set out in paragraph 6 of IAS 7 are the requirements that cash equivalents be ‘convertible to known amounts of cash’ and ‘subject to insignificant risk of changes in value’.
The IFRIC noted that the first criterion means that the amount of cash that will be received must be known at the time of the initial investment, ie the units cannot be considered cash equivalents simply because they can be converted to cash at any time at the then market price in an active market. The IFRIC also noted that an entity would have to satisfy itself that any investment was subject to an insignificant risk of changes in value for it to be classified as a cash equivalent.
July 2009
Given the guidance in IAS 7, the IFRIC did not expect significant diversity in practice because the purpose of holding the instrument and the satisfaction of the criteria should both be clear from its terms and conditions.
Accordingly, the IFRIC decided not to add this issue to its agenda.
IFRIC reference: IAS 7-3
The IFRIC received a request to clarify the guidance in IAS 27 (as amended in 2008) for accounting for transaction costs incurred in the acquisition or disposal of non-controlling interest (NCI) that does not result in the loss of control of an entity.
The IFRIC received a request to clarify the guidance in IAS 27 (as amended in 2008) for accounting for transaction costs incurred in the acquisition or disposal of non-controlling interest (NCI) that does not result in the loss of control of an entity.
July 2009
The IFRIC noted that the amended IAS 27 requires transactions with NCI to be treated as equity transactions. Paragraphs 106(d)(iii) and 109 of IAS 1 Presentation of Financial Statements state that changes in equity resulting from transactions with owners in their capacity as owners (such as equity contributions, reacquisitions of the entity’s own equity instruments and dividends) and transaction costs directly related to such transactions are not part of the income and expense generated by the entity’s activities during that period.
Accordingly, the IFRIC concluded that relevant guidance exists in IFRSs applicable to such transactions. Because it did not expect significant divergence in practice given the existing guidance, the IFRIC decided not to add the issue to its agenda.
IFRIC reference: IAS 27-8
The Committee considered two further issues arising from EITF Issue No. 08-6 'Equity Method Investment Accounting Considerations': (1) how the initial carrying amount of an equity method investment should be determined (2) how an equity method investee’s issue of shares should be accounted for.
The IFRIC staff noted that the FASB’s Emerging Issues Task Force (EITF) had added to its agenda EITF Issue No. 08-6 Equity Method Investment Accounting Considerations.
EITF 08-6 addresses several issues resulting from the joint project by the IASB and FASB on accounting for business combinations and accounting and reporting for non-controlling interest that culminated in the issue of IFRS 3 (as revised in 2008) and IAS 27 (as amended in 2008) and SFAS 141(R) and SFAS 160.
At its meeting in May 2009, the IFRIC deliberated two of the issues considered in EITF 08-6:
The IFRIC noted that IFRSs consistently require assets not measured at fair value through profit or loss to be measured at initial recognition at cost. Generally stated, cost includes the purchase price and other costs directly attributable to the acquisition or issuance of the asset such as professional fees for legal services, transfer taxes and other transaction costs. Therefore, the cost of an investment in an associate at initial recognition determined in accordance with paragraph 11 of IAS 28 comprises its purchase price and any directly attributable expenditures necessary to obtain it.
July 2009
The IFRIC noted that paragraph 19A of IAS 28 provides guidance on the accounting for amounts recognised in other comprehensive income when the investor’s ownership interest is reduced, but the entity retains significant influence. The IFRIC noted that there is no specific guidance on the recognition of a gain or loss resulting from a reduction in the investor’s ownership interest resulting from the issue of shares by the associate. However, the IFRIC also noted that reclassification of amounts to profit or loss from other comprehensive income is generally required as part of determining the gain or loss on a disposal. Paragraph 19A of IAS 28 applies to all reductions in the investor’s ownership interest, no matter the cause.
The IFRIC concluded that the agenda criteria were not met mainly because, given the guidance in IFRSs, it did not expect divergent interpretations in practice. Therefore, the IFRIC decided not to add these issues to its agenda.
IFRIC reference: IAS 28-1
The IFRIC received a request to provide guidance on situations in which a group has an investment in an associate, one part of which is held by a subsidiary that is an investment-linked insurance fund (or mutual fund, unit trust or venture capital organisation).
The IFRIC received a request to provide guidance on an issue arising from IAS 28. The issue relates to situations in which a group has an investment in an associate, one part of which is held by a subsidiary that is an investment-linked insurance fund (or mutual fund, unit trust or venture capital organisation). In its separate financial statements, in accordance with the scope exclusion in IAS 28, the investment-linked insurance fund subsidiary holding part of the investment in the associate has designated it at initial recognition as at fair value through profit or loss in accordance with IAS 39 Financial Instruments: Recognition and Measurement. The other part of the investment in the same associate is held by another group entity that accounts for its investment in accordance with IAS 28 using the equity method (or at cost, if certain conditions are met). The issue is whether both measurement bases can be used in the consolidated financial statements. Paragraph 6 of IAS 28 requires an entity to determine the existence of significant influence considering aggregate holdings, both direct and indirect.
Paragraph 24 of IAS 27 Consolidated and Separate Financial Statements (as amended in 2008) requires consolidated financial statements to be prepared using uniform accounting policies for like transactions and other events in similar circumstances. However, the IFRIC noted that some IFRSs allow different treatment of similar items when those items are used differently. For example, IAS 2 Inventories states that for inventories with a different nature or use, different cost formulas may be justified.
July 2009
The IFRIC noted that significant diversity exists in practice on this issue because of the apparently conflicting guidance within IAS 28 and between IAS 28 and other standards. Consequently, the IFRIC decided that it could be best resolved by referring it to the IASB. Therefore, the IFRIC decided not to add this issue to its agenda.
IFRIC reference: IAS 28-2
The IFRIC received a request to consider whether guidance was needed on how impairment of investments in associates should be determined in the separate financial statements of the investor.
The IFRIC received a request to consider whether guidance was needed on how impairment of investments in associates should be determined in the separate financial statements of the investor.
The IFRIC noted that IAS 36 Impairment of Assets provides clear guidance that its requirements apply to impairment losses of investments in associates when the associate is accounted for using the equity method. However, in its separate financial statements, the investor may account for its investment in an associate at cost. The IFRIC concluded that it is not clear whether in its separate financial statements the investor should determine impairment in accordance with IAS 36 or IAS 39 Financial Instruments: Recognition and Measurement.
July 2009
In view of the existing guidance in IFRSs, the IFRIC concluded that significant diversity is likely to exist in practice on this issue. The IFRIC decided that it could be best resolved by referring it to the IASB. Therefore, the IFRIC decided not to add this issue to its agenda.
IFRIC reference: IAS 28-3
The IFRIC received a request to provide guidance on whether updates to annual fair value disclosures are required in condensed interim financial reports.
The IFRIC received a request to provide guidance on whether updates to annual fair value disclosures are required in condensed interim financial reports.
The IFRIC noted that in accordance with IAS 34, an interim financial report provides an update on the latest complete set of annual financial statements. When an event or transaction is significant to an understanding of the changes in an entity’s financial position or performance since the last annual financial period, in accordance with IAS 34 its interim financial report should provide an explanation of, and update to, the information included in the financial statements for the last annual financial period.
July 2009
The IFRIC concluded that IAS 34 provides sufficient guidance to enable entities to decide whether updates to fair value disclosures are required in interim financial reports and decided not to add the issue to its agenda as it did not expect diversity in practice.
IFRIC reference: IAS 34-2
The IFRIC received a request for guidance on how to apply the guidance in Q&A F.2.1 in the Guidance on Implementing IAS 39 'Whether a derivative can be designated as a hedged item' when an entity issues fixed interest rate foreign currency debt and then swaps it into floating interest rate local currency debt using a cross currency interest rate swap.
The IFRIC received a request for guidance on how to apply the guidance in Q&A F.2.1 in the Guidance on Implementing IAS 39 Whether a derivative can be designated as a hedged item when an entity issues fixed interest rate foreign currency debt and then swaps it into floating interest rate local currency debt using a cross currency interest rate swap. The entity also enters into a local currency pay-fixed, receive-variable interest rate swap, which has a shorter duration than that of the cross-currency interest rate swap. The submission asks whether the guidance in Q&A F.2.1 prevents cash flows attributable to a derivative from being designated as the hedged cash flow in a hedge relationship.
The IFRIC noted that paragraph 77 of IAS 39 states that two or more derivatives may be viewed in combination and jointly designated as the hedging instrument, including when the risk(s) arising from some derivatives offset(s) those arising from others (emphasis added). Consequently, the IFRIC noted that although IAS 39 permits a combination of derivatives to be jointly designated as the hedging instrument in a hedging relationship, it does not allow a ‘synthetic hedged item’ created by combining one derivative with a nonderivative financial instrument to be designated as the hedged item in a hedging relationship with another derivative.
July 2009
Given the requirements in IAS 39, the IFRIC concluded that any guidance it could provide would be in the nature of implementation guidance rather than an interpretation. Therefore, the IFRIC decided not to add this issue to its agenda.
IFRIC reference: IAS 39-23
The IFRIC received a request to provide guidance on the meaning of ‘significant or prolonged’ (as described in paragraph 61) in recognising impairment on available-for-sale equity instruments in accordance with IAS 39.
The IFRIC received a request to provide guidance on the meaning of ‘significant or prolonged’ (as described in paragraph 61) in recognising impairment on available-for-sale equity instruments in accordance with IAS 39.
The IFRIC agreed with the submission that significant diversity exists in practice on this issue. The IFRIC concluded that some of this diversity is the result of differing ways the requirements of IAS 39 are being implemented, some of which were identified in the submission.
The IFRIC noted some applications in particular that are not in accordance with the requirements of IAS 39. For example:
July 2009
The IFRIC noted that the applications that are not in accordance with the requirements of IAS 39 it discussed were examples only and were unlikely to be an exhaustive list of all the inconsistencies with the standard that might exist in practice.
The IFRIC also noted that the determination of what constitutes a significant or prolonged decline is a matter of fact that requires the application of judgement. The IFRIC noted that this is true even though an entity may develop internal guidance to assist it in applying that judgement consistently. The IFRIC further noted that an entity would provide disclosure about the judgements it made in determining the existence of objective evidence and the amounts of impairment in accordance with paragraphs 122 and 123 of IAS 1 Presentation of Financial Statements and paragraph 20 of IFRS 7 Financial Instruments: Disclosures.
Although the IFRIC recognised that significant diversity exists in practice, it noted that the Board has accelerated its project to develop a replacement for IAS 39 and expects to issue a new standard soon. Therefore, the IFRIC decided not to add this issue to its agenda.
IFRIC reference: IAS 39-24
The IFRIC received a request to add an item to its agenda to provide guidance on the treatment of costs incurred to comply with the requirements of the European Regulation concerning the Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH).
The IFRIC received a request to add an item to its agenda to provide guidance on the treatment of costs incurred to comply with the requirements of the European Regulation concerning the Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH). The Regulation came into force in part on 1 June 2007 and companies have begun to account for the first costs incurred to comply.
At its meetings in March and May 2009 the IFRIC considered detailed background information, an analysis of the issue, current practice and an assessment of the issue against its agenda criteria. The IFRIC noted that IAS 38 includes definitions and recognition criteria for intangible assets that provide guidance to enable entities to account for the costs of complying with the REACH regulation.
July 2009
The IFRIC concluded that any guidance it could develop beyond that already given would be more in the nature of implementation guidance than an interpretation. For this reason, the IFRIC decided not to add the issue to its agenda.
IFRIC reference: IAS 38-6
The IFRIC received requests to clarify whether an entity should apply the measurement choice in paragraph 19 of IFRS 3 Business Combinations (as revised in 2008) to all components of non-controlling interest (NCI). Paragraph 19 states that, for each business combination, the acquirer shall measure any NCI in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets.
The IFRIC received requests to clarify whether an entity should apply the measurement choice in paragraph 19 of IFRS 3 Business Combinations (as revised in 2008) to all components of non-controlling interest (NCI). Paragraph 19 states that, for each business combination, the acquirer shall measure any NCI in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets.
In addition to minority interests as defined in IFRS 3 (issued in 2004), the definition of NCI includes, for example, options or warrants over an acquiree’s own shares that are classified as equity and the equity component of a convertible instrument. Some believe that if an entity chooses to measure NCI as a proportionate share of the acquiree’s identifiable net assets, it should apply this measurement to all components of the acquiree’s equity. The consequence would be that instruments other than those equivalent to minority interest would be measured at nil on acquisition.
November 2009
The IFRIC noted that it would be appropriate that the measurement choice should apply only to instruments currently entitled to a proportionate share of the acquiree’s net assets. However, because IFRSs do not provide sufficient guidance to resolve this issue an amendment to revised IFRS 3 is required. Therefore, the IFRIC decided not to add the issue to its agenda but to recommend that the Board amend IFRS 3 to address the issues identified as a part of the annual improvements project.
IFRIC reference: IFRS 3R-4
The IFRIC received requests to clarify the measurement of unreplaced and voluntarily replaced share-based payment awards of an acquiree in a business combination. IFRS 3 'Business Combinations' (as revised in 2008) contains requirements for outstanding acquiree share-based payment awards that the acquirer is obliged to replace or that expire as a consequence of the business combination. However, IFRSs do not provide requirements for other acquiree share-based payment awards. As a consequence, divergent interpretations have developed in practice as to how those awards should be accounted for.
The IFRIC received requests to clarify the measurement of unreplaced and voluntarily replaced share-based payment awards of an acquiree in a business combination. IFRS 3 Business Combinations (as revised in 2008) contains requirements for outstanding acquiree share-based payment awards that the acquirer is obliged to replace or that expire as a consequence of the business combination. However, IFRSs do not provide requirements for other acquiree share-based payment awards. As a consequence, divergent interpretations have developed in practice as to how those awards should be accounted for.
November 2009
The IFRIC noted that when an acquirer does not replace unexpired share-based payment awards of the acquiree or voluntarily issues share-based payment awards to replace such awards, at least some portion of the amount recognised for those awards should be regarded as part of the consideration transferred in the business combination. However, because IFRSs do not provide sufficient guidance to resolve this issue an amendment to IFRS 3 (as revised in 2008) is required. Therefore, the IFRIC decided not to add the issue to its agenda. However, the IFRIC recommended that the Board amend revised IFRS 3 to address the issues identified as a part of the annual improvements project.
IFRIC reference: IFRS 3R-5
The IFRIC received a request for guidance on how a disposal group should be recognised at the lower of its carrying amount and fair value less costs to sell when the difference between the carrying amount and fair value less costs to sell exceeds the carrying amount of non-current assets.
The IFRIC received a request for guidance on how a disposal group should be recognised at the lower of its carrying amount and fair value less costs to sell when the difference between the carrying amount and fair value less costs to sell exceeds the carrying amount of non-current assets.
The IFRIC noted paragraph 23 of IFRS 5 Non-current Assets Held for Sale and Discontinued Operations requires the impairment loss recognised for a disposal group to be allocated to reduce the carrying amount of the non-current assets of the group that are within the measurement requirements of IFRS 5. This can result in a conflict between IFRS 5’s requirement to recognise the disposal group at fair value less costs to sell and its limitation on the assets to which that loss can be allocated. Consequently, the IFRIC noted that divergence could arise in practice.
November 2009
The IFRIC also noted that the issue could be widespread in the current economic environment. The IFRIC concluded that the issue relates to the basic requirements of IFRS 5 and therefore could not be addressed by an interpretation. For this reason, the IFRIC decided not to add the issue to its agenda. However, the IFRIC recommended that the Board considers an amendment to IFRS 5 to address this issue.
IFRIC reference: IFRS 5-3
The IFRIC received a request for guidance on what borrowings comprise “general borrowings” for purposes of capitalisation of borrowing costs in accordance with IAS 23.
The IFRIC received a request for guidance on what borrowings comprise “general borrowings” for purposes of capitalisation of borrowing costs in accordance with IAS 23.
IAS 23 paragraph 14 states that
“To the extent that an entity borrows funds generally and uses them for the purpose of obtaining a qualifying asset, the entity shall determine the amount of borrowing costs eligible for capitalisation by applying a capitalisation rate to the expenditures on that asset. The capitalisation rate shall be the weighted average of the borrowing costs applicable to the borrowings of the entity that are outstanding during the period, other than borrowings made specifically for the purpose of obtaining a qualifying asset” (emphasis added).
The request asked for guidance on the treatment of general borrowings used to purchase a specific asset other than a qualifying asset as defined in the standard.
The IFRIC noted that because paragraph 14 of IAS 23 refers only to qualifying assets, some conclude that borrowings related to specific assets other than qualifying assets cannot be excluded from determining the capitalisation rate for general borrowings. Others note the general principle in paragraph 10 that the borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are borrowing costs that would have been avoided if the expenditure on the qualifying asset had not been made.
The IFRIC noted that paragraph 11 of IAS 23 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.’
November 2009
The IFRIC noted that the standard itself acknowledges that judgement will be required in its application. In addition, the IFRIC concluded that any guidance it could provide would be in the nature of application guidance rather than an interpretation. The IFRIC also noted that the Board will consider whether to add this issue to the annual improvements project.
At its meeting in July, the Board noted that IAS 23 excludes only debt used to acquire qualifying assets from the determination of the capitalisation rate. The Board decided not to include this issue in the annual improvements project.
The IFRIC therefore decided not to add the issue to its agenda.
IFRIC reference: IAS 23-2
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