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Technical Corrections to IFRSs

  • Technical corrections are minor amendments to an IFRS to deal with issues for which it is clear that the words in a standard do not properly convey the IASB's intention, even when considered with the basis for conclusions and any related guidance.
  • 30 June 2005. Click for Proposed IASB Policy on Technical Corrections (PDF 39k). The proposed policy involved limited exposure of staff-prepared corrections to IFRSs.
  • 30 September 2005. Link to Deloitte Comment Letter on Proposed Technical Corrections Policy
  • IASB meeting November 2005. The Board agreed not to pursue its proposed technical correction policy. It concluded that the experience of Proposed Technical Correction 1 had demonstrated that it was not a good way to amend an existing Standard. The Board decided that a better way to handle corrections is via a Board Exposure Draft with a short comment period of not less than 30 days. This approach had been used in the past and is addressed in the forthcoming IASB Due Process Handbook.
  • Annual Improvements Projects. In 2006, the Board decided that it would address technical corrections as part of an annual improvements project.

Draft Technical Correction 1

  • 5 October 2005. The IASB has invited comments on Draft Technical Correction (DTC) 1 Proposed Amendments to IAS 21 The Effects of Changes in Foreign Exchange Rates - Net Investment in a Foreign Operation. Comments are due 31 October 2005. If confirmed, these amendments would be the first to be issued under the Board's proposed new IASB Proposed Policy on Technical Corrections. DTC 1 provides that if a monetary item that forms part of a reporting entity's net investment in a foreign operation is denominated in the functional currency of the foreign operation, an exchange difference arises in the reporting entity's separate financial statements and in the foreign operation's individual financial statements. That exchange difference is reclassified to the separate component of equity in the financial statements in which the foreign operation is consolidated, proportionately consolidated, or accounted for using the equity method. DTC 1 can be downloaded from the IASB's Website.
  • 31 October 2005. Link to Deloitte Comment Letter on DTC 1
  • November 2005 IASB Meeting.The staff introduced the results of exposure of Proposed Technical Correction 1 and its proposed changes to the text as a result of that exposure. The Board agreed to amend IAS 21, paragraph 15 as follows:
    • An entity or any of its subsidiaries may have a monetary item that is receivable from or payable to a foreign operation. An item for which settlement is neither planned nor likely to occur in the foreseeable future is, in substance, a part of the entity's net investment in that foreign operation and is accounted for in accordance with paragraphs 32 and 33. Such monetary items may include long-term receivables or loans. They do not include trade receivables or trade payables.
    • The foregoing amendment was limited to situations in which control exists. The Board considered a proposal to extend paragraph 15 to associates and joint ventures, but confirmed its original intention that the situation addressed in TC 1 was limited to control situations. That is, an entity cannot control the reversal of a component of a net investment in an associate or joint venture.
    • The Board agreed to make IAS 21 paragraph 15A more explicitly an example of the application of the principle in paragraph 15.
    • The Board agreed to delete proposed paragraph 15B and the related paragraph BC 7.
    • The Board confirmed the proposed change to IAS 21 paragraph 33.
    • The Board deleted the proposed change to IAS 28 paragraph 29.
    • The Board confirmed the proposed effective date of 1 January 2006, early adoption permitted.
    The staff raised an issue related to IFRS 1 First-time Adoption of IFRS that had been identified earlier that day. Initial reactions were that a first-time adopter adopting the Amendment would not have a problem on transition. EU endorsement and other considerations might create problems, but the staff was not yet in a position to offer advice.

October 2005: Proposed Technical Correction - IFRS 1, IFRS 3, IAS 12

The Board considered a staff proposal for a Technical Correction arising on the interaction of IFRS 1 First-time Adoption of IFRSs, IFRS 3 Business Combinations, and IAS 12 Income Taxes. A problem arises if an entity elects not to apply IFRS 3 Business Combinations retrospectively to past business combinations (that is, business combinations that occurred before the date of transition to IFRSs). The problem for such an entity is as follows:

  • Before the date of transition to IFRSs, the entity entered into a business combination. In accordance with its previous GAAP, it determined and allocated fair value to identifiable intangibles.
  • Assume that the tax base of the intangible asset recognised in the business combination is zero, but applying the previous GAAP, the entity did not recognise the deferred tax liability.
  • IAS 12 requires a liability to be recognised for all deductible temporary differences so in preparing its opening IFRS balance sheet the entity will recognise the deferred tax liability. However, under IFRS 1, the entity must debit the deferred tax liability to opening retained earnings instead of increasing recognised goodwill.

Board Members noted that this was not seen as a problem in practice and that the larger accounting firms had been taking the line that the standards involved were clear. There were choices in IFRS 1 to be made and these choices had consequences on other areas of accounting and reporting.

Some Board Members were concerned that the Technical Correction route was in danger of being abused and that, before the Board agreed to amend a Standard or Standards in this manner, there should be a high degree of support for the correction suggested.

After discussion, the Board decided not to proceed with a Technical Correction (7 against; 6 in favour; 1 abstained).

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.