D8 Members' Shares in Co-operative Entities

Title

On the issue of the title of the draft Interpretation, IFRIC agreed to a title that reads: "Members Shares in Co-operative Entities and Similar Instruments" so as to allow analogous reference as well as clear functioning of the hierarchy in IAS 8 but still making it obvious that the only issue dealt with specifically by IFRIC was that of members' shares in co-operative entities.

Clarification of the application of the prohibition on redemption

Certain constituents have raised concerns that the interpretation could have the unintended consequence of classifying certain members' accounts, when members' act as customers, as equity instead of liabilities. In particular UK building societies are subject to regulations ('nature limits') that require broadly that at least 50% of a society's borrowings are in the form of member share deposits. In all other respects, member share deposits behave as chequing accounts in a bank. However, application of D8 could inadvertently lead to the classification of such members' accounts as equity.

To address this issue, IFRIC agreed with the Staff recommendation that the application of the prohibition on redemption be clarified by distinguishing between:

• conditional restrictions that prevent redemption only if a condition is met, and even then only until the condition is not met. These do not prevent a liability coming into existence and therefore do not lead to equity classification of members' shares, and
• unconditional restrictions that prevent redemption in all circumstances. These prevent a liability coming into existence and therefore lead to equity classification of members' shares;

Staff brought to IFRIC's attention, suggestions by certain constituents to consider a concept of restrictions or prohibitions based on their permanence. IFRIC concurred with the Staff view that this would be difficult to achieve as this concept is not dealt with in IAS 32.

Subsequent measurement of the liability for redemption of members' shares

IFRIC agreed not to deal with this issue in the D8 project.

Distinction between 'reclassification' and 'extinguishment'

IFRIC agreed with the Staff recommendation to remove BC17 but to make other drafting changes to clarify this issue.

Use of portfolio approach

IFRIC discussed the concern raised by some commentators regarding the applicability of the portfolio approach and agreed to clarify by way of example, that the portfolio approach would be applicable.

Transition

IFRIC underscored its decision to retain the proposed effective date of 1 January 2005 after discussing some suggestions from commentators which included staggered implementation and deferral. It was re-affirmed that the co-operative groups had no problems with the proposed transitional requirements of D8.

In conclusion, staff indicated that D8, subject to certain drafting changes, would be forwarded to IASB members for a final vote at the Board's December meeting.

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

Scroll down for notes from 4 November 2004.