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Report from the IFRIC meeting 2 August 2005

  • IFRIC (International Financial Reporting Interpretations Committee) (blue) Image

03 Aug 2005

The International Financial Reporting Interpretations Committee (IFRIC) met at the IASB's offices in London on Monday and Tuesday, 1-2 August 2005. Presented below are the preliminary and unofficial notes taken by Deloitte observers at the second and final day of the meeting.Notes from the IFRIC Meeting2 August 2005 Draft of IFRIC D18 Distinction between defined benefit and defined contribution plans and allocation of future salary increases In June 2005, the IFRIC had considered a proposal for distinguishing between defined benefit and defined contribution plans.

The IFRIC had asked that the staff provide further information by way of example as to how the proposals would apply in the context of current salary plans and career average salary plans. At this meeting the staff provided examples, and a draft interpretation based on the three criteria they had developed. Those criteria were that the distinction should be determined with reference to whether the employer has an obligation in respect of future risks attaching to the benefits earned at the balance sheet date if an employee:

  • Stays in employment;
  • Retains plan membership; and
  • Stops accruing future service in the plan.

The IFRIC noted that being unfunded, did not, of itself, result in a plan being defined benefit, depending on the terms associated with late payment into the plan. Where a plan is unfunded and it ought to be funded, this may lead to it being defined benefit because the entity will be required to make up the returns the employee could have expected had the funds been invested on a timely basis.

The IFRIC agreed that the three criteria stated above do work in assisting entities to classify their employee benefit plans. Accordingly the IFRIC should proceed with finalising the draft interpretation, including a lot of the supplementary guidance which had been included in the meeting papers to assist respondents in understanding the principles.

The IFRIC agreed that the discussion of materiality within the draft interpretation was troublesome. It was noted that it is not always possible to separate two elements of a plan and account for them differently because the elements may be interactive, for example a contribution plan may be waived if a death in service benefit is paid out prior to the completion of a minimum service period. If there is some interaction between the elements, the entire plan would have to be accounted for on a defined benefit basis. It was agreed that rather than discussing materiality (which should be considered by professionals in applying the interpretation) the discussion should focus on units of measure - that is does one legal plan constitute one or more than one plan for the purposes of applying IAS 19.

A revised draft interpretation will be considered by the IFRIC at a future meeting.

Publication of reasons for not taking items onto the IFRIC's agenda

The second part of this agenda item was considered on the second day, and consisted of consideration of items that had been tabled at the June 2005 meeting and published in the June 2005 IFRIC Update.

Classification of Contract Assets Arising under IAS 11

The objective of this item was to draw constituents attention to the fact that an entity should not capitalise interest for construction contracts, but rather accrue interest on the financial asset arising from these construction contracts. Some constituents had noted that they are not convinced that a financial asset does arise out of these contracts. The IFRIC agreed to publish a reason for not taking this onto the agenda at this time, that this item may need to be contemplated in the future but would not be further considered at this time because the development of the service concessions project may affect the outcome.

Obligations to Repair/Maintain Another Entity's Equipment

The IFRIC agreed that they were largely supportive of the proposed reasons for rejecting this item published in the June 2005 IFRIC Update. The IFRIC requested that the wording be amended to reflect that the obligation arises through usage (rather than through damage alone) and that a provision should be recognised when that usage or damage has occurred together with a present obligation to make good that asset. The IFRIC noted that this could not be used to analogise to warranties, because IAS 37 contains specific discussion of accounting for warranties, and that this wording is intended to clarify the position for an entity's obligation to repair or maintain another entity's equipment which the reporting entity is itself using.

Recognition of Regulatory Assets

The IFRIC confirmed its decision to reject this item for its agenda, and requested that the wording published in the IFRIC Update June 2005 be amended to more clearly state that the requirements of FAS 71 are inconsistent with IFRSs and cannot be applied by following the hierarchy in IAS 8. It was noted that the requirements of FAS 71 are inconsistent because they require the recognition of assets under US GAAP which cannot be recognised under IFRSs.

Meaning of 'Delivery'

The IFRIC confirmed its decision to reject this item (consideration of what 'delivery' might mean in the context of the gold market and the electricity market) for its agenda. It was noted that contracts for differences do not fall within the exemption in IAS 39, and this has been well documented in a number of jurisdictions. Furthermore, to address this issue IAS 39 would need to be amended, and it is not appropriate for constituents to address requests for amendments to standards to the IFRIC.

Activities of Other Interpretive Groups

The IFRIC considered a paper detailing the activities of other national interpretive groups, and was asked whether any member wished for matters being considered by other interpretive groups to be considered for inclusion on the IFRIC agenda. No matters were identified which the IFRIC believed it ought to consider taking onto its agenda.

Waste Electrical and Electronic Equipment

The IFRIC considered an amended interpretation based on the comments the IASB had made when considering this interpretation. The IFRIC had included in its basis for conclusions the reasons for not addressing other issues related to waste electrical and electronic equipment on the basis that the accounting for those items was clear under existing GAAP. The Board had identified this as an inappropriate inclusion in the basis for conclusions - either the clear accounting requirement should be stipulated in the interpretation or the information should be deleted. It was agreed that the information should be deleted, and that a formal rejection of the additional issues from the IFRIC agenda was unnecessary, this matter should just be reported in the August 2005 IFRIC Update.

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 1 August 2005.

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