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We disagree with IFRIC's draft decision on effective interest rate

  • Deloitte Comment Letter Image

17 Jun 2008

In a letter to IFRIC, Deloitte Touche Tohmatsu disagree with the IFRIC's tentative decision not to take onto the IFRIC's agenda a request for an interpretation on the application of the effective interest rate (EIR) method.

Click for our Letter to IFRIC (PDF 136k). Here is an excerpt:

In summary, we believe the tentative agenda decision wording does not provide sufficient clarity and that additional interpretive guidance is needed. We believe there are three important interpretative issues that need to be addressed:

  • (i) how to apply the effective interest rate to debt instruments with a market-based reset;
  • (ii) when should an entity apply AG7 compared to AG8; and
  • (iii) for inflation linked debt, is it possible to analogise with IAS 29 in the case when an entity is not applying that standard.
The application of the EIR is critical in determining the balance sheet carrying amount and the impact on profit or loss for debt instruments held at amortised cost, as well as the income recognition for those debt instruments classified as available-for-sale. The EIR has widespread application for both vanilla and complex debt instruments, yet the standard is not clear as to how the EIR method applies for instruments with variable cash flows.
Our past comment letters to IASB, IFRIC, IASC, and SIC are Here.

 

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