Notes from day 1 of the IFRIC meeting

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12 May 2006

The International Financial Reporting Interpretations Committee (IFRIC) is meeting at the IASB's offices in London on Thursday 11 May and Friday 12 May 2006. Presented below are the preliminary and unofficial notes taken by Deloitte observers at the first day of the meeting.Notes from the IFRIC Meeting11 May 2006 IAS 17 Leases – Recognition of contingent rentals The IFRIC considered a request from a constituent for clarification of IAS 17's requirements on contingent rentals.

The issue arises from an alleged conflict between the definition of contingent rent in IAS 17 paragraph 4 and the requirements in IAS 17 paragraphs 33 (lessee accounting) and 50 (lessor accounting). The issue is whether contingent rentals (as defined) are included in the estimate of total lease payments/income to be recognised on a straight-line basis over the life of the lease.

The IFRIC decided that, notwithstanding the fact that a close reading of IAS 17 could suggest an alternate treatment, there was no evidence of diversity in practice, which was to exclude contingent rent from the estimate of total lease payments/ income. Consequently, the IFRIC declined to take this issue to its agenda.

Customer Loyalty Programmes

The IFRIC discussed the first draft of a Draft Interpretation on customer loyalty programmes. In March, the IFRIC Chairman had directed the IFRIC staff to develop the draft on the basis of recognising a separate component of the initial sales transaction in which the award credits are granted as representing the unperformed performance obligation. Under this approach, some of the consideration received for each initial sale would be allocated to the award credits.

The IFRIC spent a considerable amount of time discussing the tension between IAS 18 paragraphs 13 and 19, and several IFIRC members were not satisfied that the Draft Interpretation explained adequately the approach inferred by IAS 18 paragraph 13 should be used to the exclusion of that in paragraph 19. The debate was concluded by the Chairman, who asked whether there was sufficient support for the approach in the Draft Interpretation. Two IFRIC members would oppose the document. On this basis, the Chairman directed the staff to proceed with the approach as adopted, but to work with those who were opposed to the approach to ensure that their concerns were reflected adequately in the Basis for Conclusions.


The IFRIC agreed with a staff proposal that the scope of the Draft Interpretation need not be defined rigorously and should not specify scope exclusions.

Awards supplied by third-party providers

The IFRIC held an inconclusive discussion on how to account for awards supplied by third parties. The IFRIC was concerned that the Draft Interpretation should not confuse agency relationships with sub-contracting: that is, who is providing the service. The IFRIC discussed a staff example, which demonstrated that the measurement of these awards is also problematic. The IFRIC will continue its discussions of this topic at a later meeting.

Separate component approach

The IFRIC discussed the justification for the separate component approach in the draft Basis for Conclusions (not available to Observers). However, it was apparent that part of the justification was based on SIC 15, an Interpretation of IAS 17. IFRIC members criticised the prominence awarded to an interpretation of a leasing standard in an Interpretation of IAS 18.

Next steps

At its next meeting, the IFRIC will discuss an amended version of the Draft Interpretation.

Larry Smith, Chairman of the FASB's Emerging Issues Task Force, attended the meeting. He noted that the EITF had attempted to issue an Abstract on this issue and had been unable to reach consensus.

It should also be noted that three IFRIC Members who did not object to the Draft Interpretation were attending their last meeting. How their successors vote could be critical to the future of the direction of this issue.

IAS 19 Post-employment BenefitsThe effect of a minimum funding requirement on the asset ceiling

The IFRIC continued its discussion of how the additional liability resulting from a minimum funding contribution requirement should be presented in the financial statements. The staff noted that this additional liability arises only because of the limit on the measurement of the balance sheet asset in IAS 19.58.

Presentation of results

The staff noted that IAS 19.58 governs the presentation of the net balance sheet position in the pension plan rather than the gross liability. The staff proposed that the adjustment which results from the impact of the limit in that paragraph should be recognised and presented in the financial statement on a net basis. There was general agreement with the staff proposals.

Treatment of future minimum funding contributions payable

The IFRIC discussed a staff recommendation that the additional liability to be recognised in respect of such a minimum funding requirement was equal to the present value, using IAS 19 assumptions, of the contributions payable in accordance with the minimum funding requirement. In addition, in some circumstances, a minimum funding requirement may also stipulate a schedule of future minimum contributions payable in order to cover the future accrual of benefits over the period during which the contributions are payable. In this case, the staff noted that the contributions payable in respect of future accrual did not generate an additional liability at the balance sheet date as they represented a future rather than a present obligation.

The staff suggested that the future minimum funding contribution requirements, in respect of future accrual, reduce the extent to which the entity can take a future contribution reduction. Therefore the available asset from a contribution reduction should be calculated as the present value of the IAS 19 service cost less the future minimum funding contribution requirement in respect of future accrual in each year. The IFRIC agreed with the staff's analysis and conclusion.

Other statutory funding requirements

The IFRIC agreed that the Interpretation need not address other statutory funding requirements.


The IFRIC generally agreed with the staff proposals for transition. However, it was evident from the discussion of the proposed Basis (not available to Observers) that individual members had concerns with how the Basis was drafted and suggested different matters of emphasis.

Next steps

The IFRIC Chairman asked for an indication of which IFRIC members would object to the Interpretation along the lines discussed. None indicated an intention to object.

The staff would was directed to prepare a revised draft Draft Interpretation and Basis for Conclusions with the intention that this would be approved formally at the July 2006 meeting. The staff will hold a public Education Session with the IASB during its June 2006 meeting.

Service Concession Arrangements

The IFRIC discussed a draft Interpretation based on D12 Service Concession Arrangements – Determining the accounting model. In summary, the IFRIC agreed:

  • Not to address sale and leaseback accounting in this Interpretation.
  • To include in the Interpretation an explanation of the reasons for the scope limitations and the reasons for the control approach adopted by the IFRIC. The IFRIC agreed to include additional implementation guidance (an appendix) explaining how other IFRSs might apply to concession arrangements for private sector performance of public services and for determining whether existing infrastructure of the operator was within the scope of the Interpretation.
  • To amend the scope of the Interpretation to include 'whole of life infrastructure' (infrastructure used in a service concession arrangement for the whole of its useful life).
  • To amend the approach in D12 to require that an entity should recognise a financial asset to the extent that the operator has a contractual right to receive cash from or at the direction of the grantor. A right other than a contractual right to receive cash does not meet the definition of a financial asset and is within the scope of IAS 38 Intangible Assets. This implies that some concession arrangements will be bifurcated – containing both a financial asset and an intangible asset.
  • To make a consequential amendment to IFRIC 4 to make explicit the boundary between IFRIC 4 and this Interpretation.
  • To adopt a new title for the Interpretation along the lines of Private Sector Participation in the Provision of Public Services. IFRIC members did not like the term 'participation' but agreed with the general idea (for example, 'Private Sector Operation of Public Services').
  • The accounting issues identified in Draft Interpretations D13 and D14 would be incorporated in D12 and issued as a single Interpretation.

The IFRIC discussed these issues in some detail. Unusually, the Observers were provided with the draft Basis for Conclusions (but not the draft Interpretation). IFRIC Members made detailed comments on the proposed Basis, and it is likely to be redrafted significantly before the individual IFRIC members are happy with it.

Significant residual value

The IFRIC agreed with a staff recommendation that Application Guidance should be added to specify the meaning of the term residual interest. The residual interest is the estimated value of the infrastructure at the end of the term of the concession, if the infrastructure were already of the age and in the condition expected at the end of the term of the concession. The staff had drafted a detailed rationale, but the IFRIC seemed to prefer a statement of the principle rather than providing the detailed explanation of how the IFRIC reached its conclusion (for fear of the rationale being applied to situations to which such a conclusion might not be appropriate).

Next steps

The IFRIC will continue its discussions of D13 and D14 at a later 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.

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