This site uses cookies to provide you with a more responsive and personalised service. By using this site you agree to our use of cookies. Please read our cookie notice for more information on the cookies we use and how to delete or block them.
The full functionality of our site is not supported on your browser version, or you may have 'compatibility mode' selected. Please turn off compatibility mode, upgrade your browser to at least Internet Explorer 9, or try using another browser such as Google Chrome or Mozilla Firefox.

2003

Notes from the IFRIC meeting

03 Dec 2003

The International Financial Reporting Interpretations Committee is meeting on 2 and 3 December 2003 at the IASB's offices in London.

Presented below are the preliminary and unofficial notes taken by our observer at the first day of the meeting.

Notes from the IFRIC Meeting2 December 2003

Onerous Contracts: Operating Leases and Other Executory Contracts

IFRIC was asked to develop an Interpretation addressing how the guidance on onerous contracts in IAS 37 should be applied to certain issues not currently being addressed by the IASB's convergence project. The issues relate to whether a contract is onerous if it is used in production and how the determination of onerous should be identified. The staff developed two approaches, the impairment approach and the liability approach.

The impairment approach views the contract as an unrecognised asset that should be reviewed for impairment under IAS 36. The liability approach views the obligation under the contract as a provision under IAS 37. Depending on the model used (IAS 36 or IAS 37 models), there could be a difference with the discount rate chosen and whether a fair value or value-in-use notion is used, leading to significantly different measurements.

After discussing on the Board's progress on IAS 37 and the two views, IFRIC concluded that this issue (which was basically rejected by the IASB as being too difficult and requiring a fundamental rewrite to IAS 37) is better addressed at the Board level. Therefore, this item was removed from the IFRIC agenda.

IAS 29, Financial Reporting in Hyperinflationary Economies

The staff came back to the Board with a draft Interpretation including an example clarifying the restatement principles under IAS 29. The staff proposed a retrospective approach as it is required under IAS 29. Several IFRIC members were concerned that the proposed approach was impractical, as many entities will not be able to retrace the information. Additionally, it was inconsistent with the notion that balances are not restated for the effects of inflation during periods of normal inflation – so why restate 40 years of balances if the most recent year is considered hyperinflationary?

Therefore, IFRIC concluded that the staff should explore paragraph 16 of IAS 29, to allow entities to use an independent valuation of fair value when information is not available. It was noted that first-time adopters will be allowed to chose the prospective approach by using the alternative treatment under IFRS for PP&E (revaluation at the day of transition). The IFRIC concluded that these choices would not set an accounting policy to revalue the assets continuously.

Reports to IFRIC

The staff presented the IFRIC members with an update of prior items discussed that were sent to the IASB.

Allocation of Benefits to Periods of Service

The staff asked whether they should address guidance on how to allocate the benefits to periods of service – specifically, whether future salaries should be included in the measurement of the plan liability. The IFRIC previously could not interpret IAS 19 in a manner it thought appropriate and therefore had previously asked the IASB to amend IAS 19. The staff noted that there will not be a short-term amendment to IAS 19 given the delay in the performance reporting project. Therefore IFRIC is being asked whether it wants to address this issue again.

There was general agreement that IAS 19 requires the inclusion of future salaries in the measurement. However, the IFRIC was uncomfortable with that answer. It was noted that the EITF agreed that future salaries should not be used to measure the liability, although it questioned the logic of how the EITF came to that decision.

The IFRIC reaffirmed its position that it will not address this issue since (a) it is not a priority issue, (b) IAS 19 appears clear enough to interpret, and (c) any proposed interpretation by IFRIC would require an amendment to IAS 19 which would not happen anytime soon.

Differences between Voluntary Redundancy Benefits and Early Retirement Benefits

The staff asked IFRIC whether it would want the staff to raise an issue to the agenda committee on the accounting distinction between voluntary redundancy benefits and early retirement benefits (IAS 19 vs. IAS 37 models). The IFIRC asked the staff to analyse existing plans, as it seems that many included both elements. The agenda committee was asked to develop the questions and scope of the project.

Multi-employer Plans

The IFRIC discussed a draft interpretation on when the exception from defined benefit accounting (and therefore the application of defined contribution accounting) can be used for multi-employer plans that meet the definition of a defined benefit plan. Several members expressed concern with the model proposed for various reasons (including divergence with US GAAP and disagreement on when information will not be available). The IFRIC decided to issue the current draft (with minor amendments and clarifications) for exposure.

Recognition and Measurement of Biological Assets

There is general concern that paragraph 21 of IAS 41 is internally inconsistent. The first part of paragraph 21 clarifies the principle that the objective of the measurement is fair value. However, the second part, read literally, seems to require the exclusion of a major portion of the fair value calculation, potential future growth of the biological assets. There was general agreement among IFRIC members that the goal is fair value and therefore, the potential (risk adjusted) growth should be considered. The IFRIC concluded to request the IASB clarify this paragraph in its improvements to IAS 41.

The IFRIC also discussed whether and when obligations to replant or restore land (for instance after deforestation) should be included in the cost of the assets produced today in accordance with paragraph 22 of IAS 41. Some IFRIC members believe a model similar to decommissioning in IAS 16 (and interpreted by IFRIC D2) should by applied, while other members believe an obligation to replant should not be recognised unless an obligation exists and that the asset should be subjected to an impairment test. This issue will be discussed at a future meeting.

Plans with a Guaranteed Minimum Return on Contributions

The IFRIC was asked to give final comments on a draft interpretation on the accounting for both variable and fixed guaranteed minimum returns on contributions. Some members continue to believe such plans should be viewed as defined contribution plans with an embedded derivative (the embedded derivative being the guaranteed return). The IFRIC concluded that most defined benefit plans could be viewed in that way and confirmed its decision that IAS 19 could not be interpreted as such.

There was concern as to the proper mechanics in applying the standard that the staff and certain IFRIC members will further explore outside of the IFRIC meeting. If significant, this issue may be brought back at a future meeting. Notwithstanding the measurement issue, the IFRIC voted to submit the exposure draft to the IASB for approval to be issued.

Changes in Decommissioning, Restoration and Similar Liabilities

The IFRIC discussed the comment letters received on Exposure Draft D2, Changes in Decommissioning, Restoration and Similar Liabilities. Based on the overwhelming support for a prospective approach (as opposed to the retrospective approach proposed in D2), the IFRIC agreed to change the position. The effects of this decision will be explored at future IFRIC meetings.

The IFRIC retained its position that changes in the discount rate should be accounted for similarly to changes in cash flows. However, this would now also be on a fully prospective basis.

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

GAO study on audit firm rotation

02 Dec 2003

The US General Accounting Office (GAO) has published its report on Public Accounting Firms – Required Study on the Potential Effects of Mandatory Audit Firm Rotation.

The study was mandated by the Sarbanes-Oxley Act of 2002.

"GAO believes that mandatory audit firm rotation may not be the most efficient way to strengthen auditor independence and improve audit quality considering the additional financial costs and the loss of institutional knowledge of the public company's previous auditor of record, as well as the current reforms being implemented. The potential benefits of mandatory audit firm rotation are harder to predict and quantify, though GAO is fairly certain that there will be additional costs."

Click to Download the GAO Study (PDF 575k).

International convergence update: Australia

02 Dec 2003

We have posted the latest Australian Accounting Alert, International Convergence Update. .

We have posted the latest Australian Accounting Alert, International Convergence Update.

Preliminary revised version of IAS 21 is available

01 Dec 2003

The IASB is making available on-line to subscribers the "preliminary final" texts of Standards being revised in the Improvements Project.

Subscribers can now download IAS 21, The Effects of Changes in Foreign Exchange Rates, from the IASB Website. The IASB has previously released the preliminary final texts of IASs 2, 10, 16, 24, and 33.

EFRAG asks IASB to reconsider IAS 39 decision

01 Dec 2003

The European Financial Reporting Advisory Group (EFRAG) has asked the IASB to reconsider a decision about accounting for offsetting internal derivative contracts used to manage foreign currency risk.

In September, the IASB concluded that internal hedges that are used in the same type of hedge relationship and are offset on a net basis with external contracts to manage foreign currency risk should not be eligible for hedge accounting under the revised IAS 39. EFRAG has recommended that the IASB adopt the US treatment, which permits hedge accounting. Click to download the EFRAG Letter (PDF 35k).

Preliminary revised version of IAS 16 is available

29 Nov 2003

The IASB is making available on-line to subscribers the "preliminary final" texts of Standards being revised under the Improvements Project.

The preliminary final version of IAS 16, Property, Plant and Equipment, is now available on IASB's Website. The IASB has previously made available the preliminary final texts of IASs 2, 10, 24, and 33.

New Australian accounting alert posted

28 Nov 2003

We have posted the latest Australian Accounting Alert, Accounting Requirements for Tax Consolidation to Be Revised. .

We have posted the latest Australian Accounting Alert, Accounting Requirements for Tax Consolidation to Be Revised.

Deloitte comment letter on macro hedging

27 Nov 2003

We have posted the Deloitte comment letter on the IASB Exposure Draft 'Fair Value Hedge Accounting for a Portfolio Hedge of Interest Rate Risk'.

November EITF Roundup posted

26 Nov 2003

We have posted the (PDF 137k).

This issue covers the issues discussed, consensuses reached, and administrative matters discussed at the 12-13 November 2003 meeting of FASB's Emerging Issues Task force.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.