Notes from IFRIC Meeting of February 2005

05 Feb 2005

The International Financial Reporting Interpretations Committee met at the IASB's offices in London on Thursday and Friday, 3 and 4 February 2005. Presented below are the Deloitte observers' preliminary and unofficial notes from the second and final day of that meeting:Notes from the IFRIC Meeting4 February 2005 D5 - Applying IAS 29 Financial Reporting in Hyperinflationary Economies for the First Time The staff recommended that IFRIC not undertake a project to amend IAS 29 as proposed at the last meeting that this draft interpretation was discussed.

This recommendation was based on cost-benefit considerations that the IASB noted whilst developing IFRS 1, compounded by the fact that the changes that some IFRIC members had in mind were of a broad nature and may result in convergence issues that would best be dealt with by the Board. IFRIC agreed with the staff.

It was noted that following a recent visit by the Chairman of the IASB, the Mexican standard setters had embarked on a project exploring IAS 29, Some broad issues related to hyperinflationary accounting as well as seeking to extract guidance from other literature currently in existence. A draft paper would be presented to the IASB in April or May for the Board's consideration. This would be in addition to a research project currently being conducted by the Canadian standard setters.

The IFRIC agreed to proceed with D5 despite the above as well as to clarify that D5 would apply where an economy had ceased to be hyperinflationary at some point but had deteriorated into a hyperinflationary status again. As a result of this, IFRIC agreed to amend the title of the pronouncement in order that it should not be perceived to apply to first-time application of IAS 29 only, but rather, to the application of the restatement provisions of that standard in general.

The IFRIC discussed whether deferred tax assets and liabilities are monetary or non-monetary assets. Some IFRIC members believed that regardless of how the amount is computed, these balances are monetary items when the definitions of deferred taxes and monetary items in IAS 12 and IAS 21 respectively are read together. Others, however, believed these balances are non-monetary. Consequently, the IFRIC decided to amend the draft interpretation to remove the statement that suggests that deferred tax balances are neither monetary nor non-monetary, as these items are mutually exclusive. The treatment of deferred tax balances in the draft interpretation was not amended as a result of this decision.

The IFRIC discussed whether 'value' as used in IAS 29.16 refers to 'fair value', a point that had been clarified by a paragraph in the initial draft interpretation, which had subsequently been deleted. There was general support for the notion that value in this context would be any value that reasonably represented a 'current value', not necessarily fair value.

The IFRIC discussed the effective date of the draft interpretation and agreed that it should be set for 'periods beginning on or after' a particular date. It was unclear what the actual effective date set would be.

IAS 11 Construction Contracts - Combining and Segmenting Contracts

The IFRIC, after some discussion, decided to proceed with this project, noting that the interaction between IAS 18 and IAS 11 would be challenging given the on-going IASB project on Revenue Recognition. The IFRIC agreed to incorporate some of the US GAAP guidance in SOP 81-1.

It was pointed out that, as a convergence project, the issues to be dealt with were broader than just the interaction between SOP 81-1 and IAS 11 but would also include EITF 00-21.

The IFRIC agreed to report to the IASB on these issues at its March meeting before going ahead with the substantive work on this project.

Reassessment of Embedded Derivatives

The draft conclusion reached so far is that reassessment of host contracts for the existence of embedded derivatives (after initial recognition) is not required under IAS 39. The staff pointed out that FASB staff has confirmed that this conclusion would result in a difference between IFRS and US GAAP as the latter requires reassessment throughout the contract term.

The IFRIC agreed with the staff's proposal to proceed with the draft interpretation.

Arising from the discussions was a similar issue of principle – whether an investor in a subsidiary is required to reassess the classification of a lease at the time of acquiring the subsidiary as opposed to leaving the classification in the subsidiary which would have been determined at the time of entering into the lease arrangement by that subsidiary. The IFRIC agreed that this issue, although similar in principle to the embedded derivative issue, should be dealt with separately as an interpretation of IFRS 3. The staff was requested to proceed with the work on this project.

Agenda Issue

The IFRIC was asked to consider, at the recommendation of the Agenda Committee, whether they believed that a project would be worthwhile at this time, to deal with the piece-meal sale of shares by a parent entity in a subsidiary but still retaining control, as this issue is not dealt with under IFRS (the converse of step share purchases in an entity that is already controlled).

Some of the points considered by IFRIC include the following:

  • Diverse accounting treatments in various jurisdictions at present.
  • This issue will be dealt with in the Business Combinations Phase II project.
  • An expected significant time lag until finalisation of the Business Combinations Phase II project, which would result in divergent accounting that would most probably be 'grandfathered' under that project and hence resulting in a lack of comparability.
  • Relatively short life of the interpretation given the fact that Business Combinations Phase II would supersede that IFRIC pronouncement.
  • The IFRICs work would be pre-emptive of the Business Combinations Phase II conclusions.

The IFRIC agreed to wait and assess the progress made on the Business Combinations Phase II project as regards meeting the timeframes set out in the Board agenda. Reassessment of that progress may lead IFRIC to consider issuing an interpretation.

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 3 February 2005.

SEC programme for voluntary XBRL filings

04 Feb 2005

The US Securities and Exchange Commission has established a voluntary programme for eXtensible Business Reporting Language (XBRL) filings.

Beginning with the 2004 calendar year-end reporting season, registrants may voluntarily furnish XBRL data in an exhibit to specified EDGAR filings under the Securities Exchange Act of 1934 and the Investment Company Act of 1940. Click for:

Comment deadline on IFRIC D10 is approaching

04 Feb 2005

The deadline for comments on IFRIC Draft Interpretation D10 Liabilities Arising from Participating in a Specific Market–Waste Electrical and Electronic Equipment is next Friday 11 February 2005. .

The deadline for comments on IFRIC Draft Interpretation D10 Liabilities Arising from Participating in a Specific Market–Waste Electrical and Electronic Equipment is next Friday 11 February 2005.

Notes from IFRIC Meeting of February 2005

04 Feb 2005

The International Financial Reporting Interpretations Committee is meeting at the IASB's offices in London on Thursday and Friday, 3 and 4 February 2005. Presented below are the Deloitte observers' preliminary and unofficial notes from the first day of that meeting:Notes from the IFRIC Meeting3 February 2005 Administrative matters Gilbert Gelard, IASB member chaired the meeting.

The Chairman welcomed Jean-Louis Lebrun, Partner and Chairman of the Supervisory Board, Mazars, France, to his first IFRIC meeting.

The new process for rejecting issues from the IFRIC's agenda was brought to the attention of members. This process is that where the agenda committee decides not to take an item onto the agenda, this item will be detailed in a standing agenda item to the full body of IFRIC, who will have one month to consider whether the exclusion of the item from the IFRIC agenda is appropriate. After this time has passed, the IFRIC will make a public communication explaining the issue and the reasons for not taking the item onto the agenda.

IFRS 2 Treasury Share Transactions and Group Transactions

The IFRIC considered a draft interpretation based on the examples that it had considered at previous meetings. The IFRIC had an extensive discussion on the appropriate accounting treatment in scenarios where a subsidiary provides parent company shares to the employees. The IFRIC concluded that while this transaction would be an equity-settled share-based payment in the group accounts, it may be a cash-settled share-based payment in the subsidiary's entity-only accounts. The IFRIC agreed that the wording in IFRS 2 stating that IFRS 2 applies to transactions where shares are received in other group entities is designed to scope in such arrangements, rather than to dictate that they must be accounted for consistently in individual entity accounts and consolidated accounts.

The IFRIC made the following decisions in respect of specific situations:

  • Where the transaction is between the parent company and an employee (that is, the parent company agrees with the employee to give the employee shares), this is an equity-settled arrangement; and
  • Where a subsidiary promises shares to an employee, this may be cash-settled, because the asset being promised is not own equity; however IFRIC members were not clear as to whether an agreement between parent and subsidiary as to the settlement of this arrangement would alter the accounting.

The IFRIC agreed to consider a further draft interpretation at its March meeting, and that the interpretation should be worded to cover both transactions within a group, and transactions where a major shareholder grants shares – i.e. to cover both types of transactions scoped into IFRS 2 by paragraph 3 of that standard.

Scope of IFRS 2

The IFRIC considered a revised draft interpretation on the scope of IFRS 2. The IFRIC agreed that this interpretation should be redrafted to focus on the basic point that you don't have to be able to identify the goods or services to be within IFRS 2, and to clarify the indicators that a share-based payment might exist.

Service Concession Arrangements

The IFRIC considered worked examples illustrating the effects of applying the proposed models for accounting for service concession arrangements. The IFRIC considered concerns raised by the Spanish working group on accounting for concessions that the example was too simplified due to the relatively short period of the arrangement (ten years) and the assumption of static toll charges. The Spanish working group had proposed that the arrangement cover 50 years, but only show amounts in five year increments – this proposal was deemed to be unworkable as discounting and other factors would make the source of numbers hard for constituents to use. The reason for the simplified example was to make it publishable in normal IASB format and to illustrate the point as simply as possible. The concern raised was that this short life example failed to show the heavy losses in early years and super profits in later years. The IFRIC agreed to proceed with the examples as currently drafted.

However, the IFRIC did agree that for constituents who would want to see the affects on a more realistic fact pattern, it would be more helpful if they all commented on a single fact pattern, rather than all constituents submitting their own fact pattern and commenting on the effects thereon. The latter would make comment letter analysis time consuming as staff and IFRIC members would need to analyse the validity of each fact pattern before considering the comments made. Therefore staff agreed to consider whether an existing example from any one of a number of groups could be analysed for consistency with the interpretations, and published on the IASB website so constituents that desired to do so could comment on that more intricate and realistic fact pattern.

The IFRIC agreed to pose a question in the invitation to comment as to whether the timing of recognition of an intangible asset in the intangible asset model can be mandated to be one of the available options (at inception, built up over construction, or exchanged of a receivable for an intangible at completion of construction) or whether all are supportable. The IFRIC also agreed to ask the question as to whether the difference in timing and amount of recognition of repairs and maintenance obligations between the two models is appropriate.

The IFRIC agreed to pose a question in the invitation to comment as to whether constituents think it appropriate under the financial asset model that different profit margins be applied to different parts of a non-segmented contract and to note to constituents that this assumption is inherent in the interpretation but is pending further consideration. In addition, the IFRIC agreed to note, in the basis for conclusions, that classification as an intangible asset or as a financial asset is dependent on the nature of the contractual relationship because this is how IAS 39 works.

The IFRIC noted that transitional provisions were insufficiently clear to tell people that existing assets on the operator's balance sheets that should not be there in accordance with the interpretation have to be derecognised from the earliest period presented.

The IFRIC agreed that the comment period should be as long as possible whilst still allowing an analysis of comments to be brought to the June meeting, thus enabling the IFRIC to give clear indications in public session as to the direction of the project prior to the time when entities would begin preparing their interim reports for the period ended 30 June 2005.

Emission Rights - Consideration of possible approaches for revision of IAS 38

The IFRIC noted that EFRAG are unlikely to recommend endorsement of IFRIC 3 in Europe. The IFRIC considered a proposal to amend IAS 38 to create a special category of intangible assets that are like currency units and should be recognised at fair value through profit and loss, thus eliminating the mismatch between the measurement of the liability and the measurement of the asset. The IFRIC agreed that such an amendment should not be held up by waiting for the Board to complete a project on IAS 20, which in any case, staff advised, would not be complete in the near future.

The IFRIC noted that staff had recently received proposals from EFRAG detailing a method of accounting for these items as hedging instruments that might resolve the issue. Staff had not had time to analyse these proposals.

The IFRIC agreed to consider a draft amendment to IAS 38 at its next meeting to determine whether this is a workable solution. Once the issue of the mismatch has been resolved, IFRIC will later consider issues around the timing of recognition of emission rights, and appropriate amortisation periods (for example what is the appropriate amortisation period if an entity receives an allowance in respect of one year but can carry over left over rights?)

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

EC Commissioner McCreevy speaks about IASB

03 Feb 2005

In a speech before the Economic and Monetary Affairs Committee of the European Parliament in Brussels on 1 February 2005, Charlie McCreevy, the new European Commissioner for Internal Market and Services, spoke about "democratic governance and political accountability of international standard setters".

He specifically addressed the International Accounting Standards Board (IASB) and the International Auditing and Assurance Standards Board (IAASB). An excerpt:

The Commission is working hard to influence the reform process underway within the IASB and is looking very carefully at the arrangements proposed for the IAASB which will elaborate International Standards on Auditing. In considering this issue we must not lose sight of our overall goal, namely the adoption of international standards which will make it easier for companies to list in the EU and elsewhere across the globe. There are 3 key points:

  • First, that representation within the international standard setter and within a public oversight body should correspond more appropriately to jurisdictions that directly apply the standards.
  • Second, that effective oversight bodies which approve the work programme of an international standard setter should be in place....
  • Third, the funding system; the standard setters are currently sponsored by voluntary contributions from contributors ranging from central banks to listed companies, which raises potential issues of conflict of interest. I therefore welcome the Board of Trustees of the IASB's intention to change this.
Click to (PDF 85k).

ARC will consider endorsement of IFRIC 2

03 Feb 2005

The Accounting Regulatory Committee, which advises the European Commission on endorsement of IFRSs for use in Europe, will meet in Brussels in 25 February 2005 to consider, among other matters, a formal vote on whether to recommend IFRIC 2 Members' Shares in Co-operative Entities and Similar Instruments for use in Europe.

Additional agenda items include discussion of IFRIC 3 Emission Rights; date of application of new standards and interpretations; the full fair value option and interest rate margin hedging under IAS 39; the IASCF constitution review; IASs/IFRSs translation arrangements for 2005; and the distribution of profits under a 'fair value regime'. Click to download:

Agenda for next week's SAC meeting

03 Feb 2005

The IASB will meet with its Standards Advisory Council at the Renaissance London Chancery Court Hotel, 252 High Holborn, London on 10 and 11 February 2005 starting at 10:30am Thursday and 9:30am Friday.

The agenda for the meeting, which is open to public observation, is shown below.

10-11 February 2005, London

Thursday 10 February 2005


  • Introduction and Chairman's Update
  • Development of Regional Interest Groups
  • Accounting for Small and Medium-sized Entities
  • Conceptual Framework
  • Service Concession Arrangements

Friday 11 February 2005


  • Segment Reporting - Consideration of Convergence Proposals
  • Management Discussion and Analysis (MD&A)
  • Research Group Findings
  • Revision of IAS 37 - Overview of Proposals
  • Business Combinations II - Overview of Proposals
  • Open Forum

CFA Institute surveys quality of financial reporting

02 Feb 2005

The quality of corporate information disclosed by listed companies in the Asia-Pacific region is improving, according to a survey of portfolio managers, investment analysts, credit analysts, and investment advisors conduct by the CFA Institute.

Most respondents rated the overall quality of disclosure as either 'average' (49%) or 'good' (35%). 84% of the respondents thought that the quality of disclosed information in the region had improved either 'a lot' or 'some' during the past three years. 75% felt that regulators should mandate quarterly reporting throughout the region.

The 10 areas of disclosure ranked as most important to the responding analysts are:

  • Off-balance sheet assets or liabilities
  • Unusual, non-recurring charges
  • Forward-looking projections, forecasts
  • Risk factors, sensitivity of assumptions
  • Capitalised vs. expensed costs
  • Accounting principles applied,
  • Including effects of changes
  • Revenue recognition criteria
  • Related party transactions or special purpose entities
  • Contingencies, including litigation
  • Fair values of assets, liabilities

Click to download (posted with permission of CFA Institute):

PCAOB staff Q&A on internal controls

02 Feb 2005

The US Public Company Accounting Oversight Board has published a fourth set of staff questions and answers related to PCAOB Auditing Standard No.

2, An Audit of Internal Control Over Financial Reporting Performed in Conjunction with an Audit of Financial Statements. AS 2 applies to audits of foreign, as well as domestic, SEC registrants. The new Q&A #37 addresses release of the auditor's reports on (a) management's assessment of internal control and (b) the financial statements on different dates.
  • Q&A 37 (PDF 85k) published 21 January 2005
  • Q&A 30-36 (PDF 85k) published 22 November 2004
  • Q&A 27-29 (PDF 58k) published 6 October 2004
  • Q&A 1-26 (PDF 96k) published 23 June 2004

EFRAG appoints insurance working group

02 Feb 2005

The European Financial Reporting Advisory Group (EFRAG) has restructured its insurance subcommittee into an insurance accounting working group (IAWG).

Objectives of the group are to provide pro-active contribution to the work of the IASB in Phase II of its insurance project and to identify interpretation and implementation issues on insurance-specific matters. Members of the working group are:
  • Benoit Jaspar, GENERALI (Chairman)
  • Bernard Bolle-Reddat, BNP-Paribas
  • Ruurd Van den Berg, AEGON
  • Jacques Le Douit, AXA
  • Hugh Francis, AVIVA
  • Catherine Guttmann, Deloitte (EFRAG TEG)
  • Joachim Kolschbach, KPMG
  • Nigel Masters, PwC
  • Carsten Zielke, WestLB
  • Observer organisations: European Commission, CESR, CEIOPS, and CEA
  • Associate member organisations: ICISA and ACME
Click to Download IAWG Terms of Reference (PDF 20k).

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