IFRIC D3: Determining Whether an Arrangement Contains a Lease (Rights of Use)

The staff is organising discussions with preparers and will be circulating a series of proposed questions to be discussed at these meetings.

The staff proposed, based on comments received in the exposure process and subsequent comments from IFRIC members, to converge with EITF 01-8. IFRIC members confirmed their support for this general direction, but a number of members expressed concern as to the rule based nature of EITF 01-8.

The staff made the following recommendations relating to comments received:

• That a requirement to reassess whether an arrangement contains a lease be included in line with the EITF 01-8 requirement to reassess in certain circumstances. In response to a query it was noted that the change in circumstances was event driven, and consequently a lease comes into existence or ceases to exist and therefore there is no retrospective effect. IFRIC members supported that proposal.
• That the retrospective transition requirements be retained. Several IFRIC members expressed concern as to this requirement.
• The effective date would be 1 January 2006. It was noted that this could be affected by the decision on transitional arrangements.
• That the interpretation clarify that it does not address when a component of an asset is itself an asset for the purpose of applying IAS 17. The IFRIC members concurred.
• That the proposals not be re-exposed. IFRIC agreed.

A vote to confirm these decisions was delayed until the second day of the meeting because a quorum was not present.

IFRIC D4: Interests in Decommissioning and Environmental Rehabilitation Funds

The staff asked the IFRIC to consider four models:

• 1. Account for all assets arising from decommissioning funds in accordance with IAS 39.
• 2. Account for all assets arising from decommissioning funds in accordance with IAS 37.
• 3. Account for rights to reimbursement in services in accordance with IAS 37 and rights to reimbursement in cash in accordance with IAS 39 as an available-for-sale financial asset. This alternative has two sub-alternatives, namely that changes in the fair value of the IAS 37 asset could be recognised either in profit or loss or in equity.
• 4. Account for rights to reimbursement in services in accordance with IAS 37 but recognise an additional asset for any rights to benefits in addition to reimbursement.

The staff recommended the third alternative with changes in fair value of the IAS 37 asset being recognised in equity. It was noted that any asset recognised in accordance with IAS 39 would not be subject to an asset cap, whereas the asset recognised under IAS 37 would be subject to an asset cap.

After discussion the IFRIC requested the staff to pursue an approach that retained the basic D4 model but accounted for the amount subject to the IAS 37 asset cap as a financial asset or an intangible asset.

The IFRIC requested the staff to obtain more information as to the nature and workings of these funds prior to proceeding. This they believed would assist them in determining the nature of the asset.

IAS 27 Consolidation: Control by a Fiduciary

The IFRIC noted a summary of the discussion and decisions of this topic at the May Board meeting. Any further IFRIC involvement in this project would only be determined after the June Board meeting.

Employee Benefit Plans with a Promised Return on Contributions or Notional Contributions (Money Purchase Plans with a Minimum Guarantee)

The IFRIC considered and commented on a proposed draft interpretation.

The IFRIC debated how the proposed interpretation would account for a plan that promised a return based on the S&P 500 plus 2% on a notional amount. It was agreed that the obligation would be measured based on the amount of the return at the balance sheet date.

A vote to approve the draft interpretation, which would be D7, for issue was delayed until the second day of the meeting because a quorum was not present.

Combining and Segmenting Construction Contracts

The IFRIC considered a summary of the tentative decisions to date. The staff noted that there is an interaction between this project and the project on Service Concessions.

Obligating Event in the Light of the EU Directive on Waste Electrical and Electronic Equipment

The IFRIC discussed the German Accounting Interpretation Committee's (AIC) draft proposals on accounting for the impacts of the EU directive and in particular when an obligating event arises. It was noted that the AIC would proceed to develop its draft interpretation based on the outcome of the discussions.

The Directive requires that the costs relating to disposing of the relevant equipment are borne by those producers who are in the market when the costs are incurred.

As there was uncertainty as to the workings of the directive, the IFRIC proceeded on the basis that the costs would be allocated based on the annual market share of the relevant producers. On this assumption, the IFRIC leaned toward concluding that the creation of the market share in the period in which the costs are incurred is the final aspect of the obligating event, and no provision should be recognised in prior periods. The cash outflows should, however, be considered in an impairment test on the related production assets.

It was agreed that the AIC would proceed on this basis.

Activities of Other Interpretation Bodies

The IFRIC noted a report on these activities.

Report of the Agenda Committee

The IFRIC noted the minutes of the Agenda Committee meeting.

The IFRIC considered adopting the following agenda items:

• Discounting of current taxes.
• Classification of interest and penalties on income taxes.

The staff recommended that neither item be adopted. The IFRIC agreed that the items would not be adopted onto the current agenda.

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