The presentation also went through a numerical example of hedging inflation risk as a component of a fixed-rate bond asset.
No decisions were made during this session.
D15 Reassessment of Embedded Derivatives
The purpose of this session was to go through the changes made to IFRIC D15 following the decisions made at the November meeting. A summary of the redrafting is given in the observer notes.
A scope section was added to IFRIC D15. This new section will be amended to reflect that contracts with embedded derivatives that have been acquired as part of a business combination accounted for in accordance with IFRS 3 are not within the scope of the interpretation.
The consensus wording will be amended so that the wording on whether there has been a change in the contract that has commercial substance is consistent with the wording in IAS 39.11A (rather than being consistent with IAS 16 and IAS 38).
It was generally acknowledged that the basis for conclusions was too long, and often simply repeated what was in the interpretation. As a result, it was agreed to delete several paragraphs in the basis for conclusions. The deletions were partly as a result of changing certain aspects of the interpretation, and partly to remove repetitive paragraphs. Going forward, IFRIC agreed to try to keep future bases for conclusions as succinct as possible.
Subject to changes agreed in the meeting, and a few editorial changes, IFRIC agreed (with 1 exception) to put this interpretation to the IASB for approval. This would happen at either the January or February meetings.
IAS 27 Consolidated and Separate Financial Statements - Separate Financial Statements issued before Consolidated Financial Statements
The IFRIC discussed the practicalities affecting preparers and auditors where a jurisdiction requires separate financial statements of a parent to be issued before the consolidated financial statements as IAS 27 requires those separate financial statements to identify the consolidated financial statements to which they relate. IFRIC decided to proceed with the publication of the tentative agenda decision presented by the Staff although some IFRIC members believed additional clarity could be added to the rejection wording to assist constituents with the IAS 27 requirement.
Service Concession Arrangements
Approach and key milestones
The IFRIC considered a paper setting out a proposed framework that the staff believes will address much of the concerns expressed by respondents to the exposure drafts. The proposed broader framework would provide guidance for operators on the accounting treatment of service concession arrangements for each of three categories: lessee, service provider (e.g. construction, funding and operation and maintenance services) and owner. Under these proposals, the interpretations would contain guidance on:
- Classification of arrangements: expand the interpretations by building off the guidance in D12 to include classification guidance for the each of the above three categories.
- Application of IFRS: expand the interpretations by building off the guidance in D13-14, to provide application guidance for each of the above three categories.
- Disclosure: expand the interpretations by building off existing IFRSs disclosure requirements (eg SIC-29, IASs 11, 23 and the financial instruments standards). Because determination of the appropriate accounting treatment (ie classification) is based on professional judgement, disclosure of the distinguishing factors of the arrangements will help users understanding of an entity's financial statements.
IFRIC discussed the extent to which the proposed approach would result in the actual broadening of the scope of this project.
There seemed to be general consensus that IFRIC should avoid 'scope creep' on this project.
Regarding the proposed approach, IFRIC decided not to expand the scope of the service concessions project but to provide sufficient guidance in order to adequately set the context in which the Interpretations should be applied by considering some of the varied forms of these arrangements and how the Interpretations apply or do not apply to them.
Staff indicated that the proposed approach may lead to final draft interpretations in Quarter 3 of 2006 - this being dependent on whether there is any actual broadening of the scope of the Interpretations (which is not intended) and an evaluation at that time whether re-exposure of the draft Interpretations is necessary.
Intangible asset model - D14
At the September 2005 meeting, the IFRIC directed staff to prepare a paper addressing the double recognition of revenue issue as well as the recognition of profit during the construction phase. The staff presented three views for discussion:
- View 1 - An exchange takes place
- View 2 - No exchange takes place
- View 3 - The exchange transaction takes place at inception
The IFRIC discussed the merits of each of these alternatives with some IFRIC members re-iterating their discomfort with the double recognition of revenue. IFRIC decided (7/12) to proceed with View 1 above as this is believed to best reflect the economic consequences of these arrangements. Some IFRIC members noted however that the discomfort of other IFRIC members was a result of the inappropriate application of the 'intangible asset model' to an arrangement that in essence should be accounted for under a 'financial asset model' within the context of the newly devised approach. The staff was asked to explore how the distinction could be clarified to ensure there is no inappropriate classification.
Friday 13 January 2006
Information: Due to a discussion at the IFRIC Agenda Committee (Wednesday 11 January 2005), the paper on IFRS 3 Business Combinations - Puts held by minority interests, was taken off the agenda for today's meeting.
IFRIC Handbook - Staff proposals for a draft Handbook
IFRIC received a presentation on the draft for an IFRIC due process handbook. The handbook is based on the current preface to International Financial Reporting Interpretations Committee and is revised based on a review made last year. The staff commented that the purpose of the IFRIC due process handbook is similar to the due process handbook for the IASB.
The staff presented two questions for the IFRIC to consider:
- Would the IFRIC add additional items or change the current agenda criteria for deciding whether an item should be added to the agenda or not?
- As meetings for the IFRIC Agenda Committee currently are closed for the public, would the IFRIC like to change this and for the future keep the Agenda Committee meetings in public?
The IFRIC debated the agenda criteria as set out in the paper (not available to observers). The staff had amended the current version of the preface with additional criteria taken from EITF procedures.
The IFRIC considered specifically the criteria on convergence, and some of the members expressed that convergence as a criterion would be useful for decision-taking. The Chair opposed this suggestion, and stated that the primary intention of the IASB is to develop high quality standards and interpretations, and not necessarily focus on convergence as the primary goal, as should this neither be one of the primary criteria for the IFRIC.
Another criterion discussed was the criterion for deciding whether the IFRIC should consider issues 'expected to be completed in the near future'. After a debate the IFRIC suggested that this paragraph could be amended to clarify and reflect the fact that issues is considered whether they should be dealt with even if the IASB have an ongoing project on their agenda.
Next the IFRIC considered the question whether IFRIC Agenda Committee meetings should be held in public or if they should proceed to keep these meetings closed.
There was a lengthy discussion where IFRIC members considered advantages and disadvantages of keeping the Agenda Committee meetings in public. One of the concerns expressed was that public meetings would increase the pressure for all IFRIC members (also those not part of the IFRIC Agenda Committee) to participate in the meetings. A vote indicated that 7 members were pro keeping Agenda Committee meetings in public, while 4 members voted against this (some members indifferent).
The draft will be amended, with the comments from members, and is expected to be presented to the Board and then further to the trustees by March.
Customer Loyalty Cards/Programmes - Staff proposal for a draft interpretation
The IFRIC considered a paper setting out accounting and measurement on loyalty cards/programmes. This paper is a revisited draft based on the discussion the IFRIC had at the November session.
This paper raised two issues for the IFRIC to discuss:
- The first issue was to consider when to apply paragraph 13 or when to apply paragraph 19 of IAS 18 for recognition.
- The second issue was how to measure the amount of 'deferred' revenue in cases where paragraph 13 of IAS 18 would be applied.
The IFRIC discussed the scope of the presented paper. The debate brought forward that the IFRIC wanted to clarify the scope to make sure that the paper did not exclude too many schemes from being included within the definition of loyalty cards/programmes. As a result of the debate on the scope, some also suggested that there should be a broadening of the scope as it was presented in its current form.
On the second issue, the IFRIC considered the measurement approach in the paper. It was debated whether the paper should address measurement at all, as the main focus of this paper should be recognition. After a discussion it seemed to be general consensus among IFRIC members, that measurement should be addressed, but that the guidance provided had to be revisited.
After a lengthy discussion, the chair sums up. It was decided that the staff would consider the comments made and should revise the paper before it was brought back to IFRIC at a later stage.
This summary is based on notes taken by observers at the IFRIC meeting and should not be regarded as an official or final summary.