Notes from the IFRIC meeting

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04 Dec 2003

Presented below are the preliminary and unofficial notes taken by our observer at the second day of the 2-3 December 2003 meeting of the International Financial Reporting Interpretations Committee.Notes from the IFRIC Meeting3 December 2003 Rights of Use The Draft Interpretation was sent to the Board.

One Board member expressed concerns on the three criteria, as they appear to be internally inconsistent. The staff has redrafted the Interpretation, and IFRIC generally agreed on the amendments. Some IFRIC members expressed concerns that the draft is still unclear as to whether the asset being accounted for is a right of use or the underlying asset.

The staff was asked to redraft the Interpretation to address those concerns. Additionally, the staff should consider the relationship of this project to the one on concession agreements.

Emission Rights (Draft Interpretation D1)

Four issues were discussed during this meeting:

  • Whether IFRIC should propose the amendment of IAS 38 to the Board.
  • Measurement of inventory.
  • Additional guidance when there is no active market.
  • Disclosure.

The staff noted that EITF is taking this topic off their agenda.

The staff proposed that IFIRC create a new category of intangible asset – intangible asset that will be used to extinguish a liability – to be accounted for at fair value if there is an active market. Though some members expressed concerns, IFRIC generally agreed with the proposal because it solves a part of the mismatch problem (change in liability to income and change in asset to equity under current IAS 38). Two members still support the net approach; however the majority view supports the gross approach. If the IASB agrees to amend IAS 38, this would require re-exposure and, therefore, this Interpretation may not be part of the 2005 "stable platform".

IFRIC agreed that the final Interpretation should not address whether emission right payments should be a component of the cost of inventory. However, there was general agreement that emission payments should not be considered a penalty (and therefore prohibited from inclusion in the cost of inventory). Also, no additional guidance will be given on how to calculate the fair value of emission rights when there is no active market. The IFRIC will not require or encourage additional disclosures requested by respondents.

Some members asked the staff to redraft the scope of the Interpretation to clarify that it would not apply to potential new emission rights schemes that are not consistent with a cap and trade scheme.

The IFRIC discussed when the allowance should be first recognised under IAS 20 – when it is received or when it becomes receivable. The staff will consider this further.


The IFRIC agreed with the staff's proposal that the lease model is the most suitable model. Some members expressed concerns about the process and asked for a timeline with expected objectives for IFRIC at each meeting.

The staff presented several examples with which the IFRIC generally agreed. IFRIC asked the staff to explore and emphasise, in the draft Interpretation, the conditions that transform a contract from being accounted for under IAS 11 to being accounted for under IAS 17 (that is, what types of services may lead to a lease contract). IFRIC asked the staff to work on the componentisation and segmentation of contracts and to explore whether some contracts should be seen as "leaseback contracts" by analogy because the "rights" could be reversed. IFRIC asked the staff to look at alternative models as well.

It was noted that the revenue recognition issue would be dealt at future meeting. The staff will come back with a new analysis at the next meeting. Given the significance of this project and the breadth of issues to be addressed, this issue should be considered a long-term project.

This summary is based on notes taken by observers at the IFRIC meeting and should not be regarded as an official or final summary.

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