Customer Contributions
The IFRIC considered whether it should develop guidance as to how a utility company should account for customer contributions received. Such contributions arise when a utility enters into an arrangement with a customer as part of which the customer has to provide either an infrastructure asset or cash to fund the acquisition and/or construction of such an asset in order to obtain connection to the utility's network. The contributed infrastructure asset is necessary for the utility entity to provide an ongoing utility service to the customer. The IFRIC agreed that the issue met the IFRIC's Agenda Criteria. Members were concerned about how to limit the scope effectively, such that the IFRIC could reasonably expect to reach an answer. They requested the staff to consider the issue in a number of stages, which would assist it in reaching a consensus. These steps included identifying whether the transaction represented an exchange transaction (that is, a transaction at value); if so, does IFRIC 4 Determining whether an Arrangement contains a Lease apply to that transaction; determining whether the cost or fair value is the appropriate measurement base.

The IFRIC deferred a formal decision about whether to add the issue to its agenda. The staff will make an analysis of the issues involved together with possible alternative approaches at a subsequent meeting.

Review of Tentative Agenda Decisions Published in MArch 2007 IFRIC Update

The IFRIC confirmed its decisions not to take the following items to the Agenda:

• IFRS 3 Business Combinations – Reassessments on a business combination
• IAS 1 Presentation of Financial Statements and IAS 39 Financial Instruments: Recognition and Measurement – Current or non-current presentation of derivatives classified as 'held for trading' under IAS 39
• IAS 16 Property, Plant and Equipment – Sale of assets held for rental
• IAS 19 Employee Benefits – Curtailments and negative past service costs

In doing so, the IFRIC had suggestions on the wording of the Agenda Decision notices. In particular, when the IFRIC was referring something to the IASB, the staff was asked, wherever possible, to indicate the action that the IFRIC was suggesting (for example, Annual Improvements Project item, incorporation into a current project, other). The Agenda Decisions will be published in the May 2007 issue of IFRIC Update.

Staff Recommendations for IFRIC Agenda Decisions

Gaming transactions

The IFRIC discussed whether it should develop guidance as to how a gaming institution should account for bets or wagers received. The question focussed on whether such transactions give rise to revenue or whether unsettled wagers are financial instruments which should be accounted for using IAS 39.

The IFRIC agreed that there was a trend among gaming institutions to treat unsettled wagers as derivative instruments and that as such, diversity was unlikely in future. The IFRIC reached a tentative decision not to add this item to its Agenda.

IAS 39 Financial Instruments: Recognition and Measurement – Hedging future cash flows with purchased options

The IFRIC discussed whether it should develop guidance for the situation in which a purchased option in its entirety is designated as a hedging instrument to hedge variability in future cash flows in a cash flow hedge. In particular, they discussed a staff analysis of the guidance on the topic already in IAS 39, in particular material in the Implementation Guidance, Topic F.

The IFRIC agreed with the staff analysis that there was sufficient guidance in the Standard and related Implementation Guidance to answer the issue. It was also philosophically opposed to issuing an Interpretation (i.e authoritative guidance) on something contained in Implementation Guidance (i.e. non-authoritative). The IFRIC reached a tentative decision not to add this item to its Agenda. The staff was asked to adapt its analysis for inclusion in the tentative agenda decision.

IAS 39 Financial Instruments: Recognition and Measurement – Hedging multiple risks with a single derivative hedging instrument

The IFRIC discussed whether it should develop guidance for the situation in which a single derivative hedging instrument is used to hedge more than one different type of risk. The entire derivative is designated as a hedging instrument to hedge those exposures.

The IFRIC agreed with the staff analysis that there was sufficient guidance in the Standard to answer the issue. The IFRIC reached a tentative decision not to add this item to its Agenda. The staff was asked to adapt its analysis for inclusion in the tentative agenda decision.

IAS 39 Financial Instruments: Recognition and Measurement – Scope of IAS 39.11A

The IFRIC discussed whether it should develop guidance about whether IAS 39 paragraph 11A could be applied to all contractual arrangements that contain one or more embedded derivatives, in particular whether IAS 39 paragraph 11A can be applied to hybrid contracts that contain financial or non-financial hosts that are outside the scope of IAS 39. An alternative view is that IAS 39 paragraph 11A can only be applied to hybrid contracts with hosts that are within the scope of IAS 39.

The IFRIC agreed with the staff analysis that IAS 39 paragraphs 11 and 11A should be read in light of the scope of IAS 39 and that was sufficient guidance in the Standard to answer the issue. The IFRIC reached a tentative decision not to add this item to its Agenda. The staff was asked to adapt its analysis for inclusion in the tentative agenda decision.

IAS 39 Financial Instruments: Recognition and Measurement – AG33(d)(iii)

The IFRIC discussed whether it should provide guidance on the operation of IAS 39 AG33(d)(iii), which specifies whether foreign currency derivatives embedded in certain contracts (for example, contracts to buy or sell non-financial items) are closely related to the host contracts.

The IFRIC reached a tentative decision not to add this item to its Agenda. IFRIC members thought that the issues relate to how to apply IAS 39 and that circumstances vary case-by-case. Judgment is necessary when determining whether the requirements in AG33(d)(iii) are satisfied based on the facts of each case. Any guidance that the IFRIC might be able to develop would be to add to the existing Application Guidance rather than an Interpretation of IAS 39. The staff was asked to adapt its analysis for inclusion in the tentative agenda decision.

Plan to sell the controlling interest in a subsidiary

The IFRIC discussed whether it should provide guidance on applying IFRS 5 Non-current Assets Held for Sale and Discontinued Operations when an entity is committed to a plan to sell the controlling interest in a subsidiary. The request considered situations in which the entity retained a non-controlling interest in its former subsidiary, taking the form of either an investment in an associate, an investment in a joint venture or a financial asset.

The IFRIC agreed with the staff analysis that the fundamental trigger for IFRS 5 accounting was the loss of control of the subsidiary through sale. The IFRIC reached a tentative decision that this matter should be addressed by the IASB and should not to added to the IFRIC agenda.

IFRS 5 Non-current Assets Held for Sale and Discontinued Operations – Disclosures

The IFRIC discussed whether it should provide guidance to clarify whether the disclosure requirements of IFRS 7 Financial Instruments: Disclosures and IAS 19 Employee Benefits apply to non-current assets (or disposal groups) classified as held for sale or discontinued operations under IFRS 5.

After discussion, the IFRIC noted that more analysis was required before it would be in a position to determine whether an Interpretation was required. In particular, IFRS 5 and its FASB equivalent, FAS 144 are 'converged' standards. The staff was requested to confer with the FASB/ EITF staff to determine the US experience on the application of FAS 144.

The IFRIC will discuss this issue again at a subsequent meeting.

IAS 12 Income Taxes-Deferred taxes arising from unremitted foreign earnings

The IFRIC discussed whether it should provide guidance about how an entity should account for potential deferred tax liabilities arising from temporary differences created by income that is earned in a foreign jurisdiction but is not taxable until it is remitted to the entity's home jurisdiction.

The IFRIC noted that the issue is being considered as part of the IASB's project on Income taxes, for which an Exposure Draft is expected soon. Consequently, The IFRIC reached a tentative decision not to add this item to its Agenda.

Presentations to Retiring IFRIC Members

The IFRIC Chairman made formal presentations to those IFRIC members whose terms expire on 30 June: Jeannot Blanchet, Domingo Marchese, Mary Tokar and Ian Wright. Their replacements have not yet been announced, but the IFRIC Chairman hoped that they would be present at the next 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.