The following is a summarised update on some of the main discussions or provisional decisions taken by the IFRS Interpretations Committee (IC) at its meeting on 12 July 2016.
For more detailed and comprehensive information on the IC’s discussions: https://s3.amazonaws.com/ifrswebcontent/2016/IFRIC/July/IFRIC-Update-July-2016.html
- The forthcoming Interpretation of IAS 21 Foreign Currency Transactions and Advance Consideration should become effective 1 January 2018 (with earlier application permitted), and it could be applied prospectively by first-time adopters.
- The requirements of IAS 12 (paragraph 51B) for determining a non-depreciable asset’s expected manner of recovery for the purposes of measuring deferred tax do not apply to an indefinite life intangible asset.
- The IC shed light on the accounting by an operator for payments made to a grantor in a service concession arrangement, applying IFRIC 12 and the relevant Standards on leases, revenue, intangible assets, etc.
INTERNATIONAL ACCOUNTING STANDARDS BOARD (IASB)
LATEST DECISIONS SUMMARY
The following is a summarised update on the main provisional decisions taken by the IASB at its meeting on 18-19 July 2016. Other topics discussed include due process steps, a sweep issue related to the forthcoming amendments to IFRS 4 Insurance Contracts (when applying IFRS 9 Financial Instruments), an update on the Board’s research programme (reflecting decisions made after the recent Agenda Consultation), and approval of the draft work plan.
For more detailed and comprehensive information on the Board’s discussions: https://s3.amazonaws.com/ifrswebcontent/2016/IASB/July/IASB_Update_July_2016.html
Revised Conceptual Framework (due early 2017)
- As proposed in the exposure draft, a right will meet the definition of an asset if it has the potential to produce economic benefits, and an obligation that has the potential to require the entity to transfer an economic resource will be a liability (instead of the current ‘expected’ inflows or outflows of economic benefits).
- The Basis for Conclusions should explain that there may be different reasons why a freely available right of access to public goods (e.g. roads) would typically fail to satisfy the definition of an asset.
- Consistent with the new approach requiring recognition decisions to be made by reference to the qualitative characteristics of useful financial information, the recognition of assets / liabilities with a low probability of an inflow / outflow of economic benefits should not be prohibited (i.e. no probability criterion). Also, recognition is to be based on only two criteria: relevance and faithful representation.
Transfers of Investment Property (amendments to IAS 40 due Q4/2016)
- The final amendments to IAS 40 in relation to the existing guidance on transfers to, or from, investment properties should clarify that:
- a change in management’s intentions, in isolation, provides no evidence of a change in use
- the guidance applies to property under construction or development as well as to completed property
- judgement is to be applied when assessing whether a property meets, or has ceased to meet, the definition of investment property
- Effective date of the amendments will be 1 January 2018 (with earlier application permitted); specific transitional provisions with related disclosure will apply.
Annual Improvements to IFRS Standards 2014–2016 Cycle (amendments due Q4/2016)
The proposed narrow-scope amendments to IFRS 1 (for deletion of short-term exemptions for first-time adopters), to IFRS 12 (for clarification of the scope of the disclosure requirements), and to IAS 28 (for measuring investments in associates and joint ventures at fair value through profit or loss on an investment-by-investment basis) are to be finalised based on the comment letters received, with an effective date of 1 January 2018 for IFRS 1 and IAS 28 (with earlier application permitted), and 1 January 2017 for IFRS 12.
Financial Instruments with Characteristics of Equity (discussion paper due 2017)
Applying the Gamma approach(1) to derivatives:
- Entities should not classify all derivatives as assets or liabilities.
- Derivatives on ‘own equity’ should be classified in their entirety rather than being split into components.
- Derivatives that result in the receipt of cash or other financial assets in exchange for the delivery of equity instruments would be classified as equity only if they are settled by the exchange of a fixed amount of cash or other financial assets for a fixed number of the entity’s equity instruments (fixed for fixed), and they are either physically settled or net-share settled; in all other cases, they would be classified as liabilities.
UPCOMING COMMENT DEADLINES
15 September 2016
Exposure Draft - Trustees’ Review of Structure and Effectiveness: Proposed Amendments to the IFRS Foundation Constitution
31 October 2016
ED/2016/1 - Definition of a Business and Accounting for Previously Held Interests (Proposed amendments to IFRS 3 and IFRS 11)
As the IASB and IFRS IC will next meet in September and there is no significant activity expected in August, our next IFRS News in Brief will be issued beginning of October 2016.
(1) The Board has been developing a model (referred to as Gamma) which distinguishes claims between liabilities and equity based on the timing of transfer of the economic resources and on how the amount of the claim is determined: equity is an obligation to transfer economic resources only at liquidation, and for a residual amount; a liability is an obligation to transfer economic resources at particular points in time other than at liquidation, or for a specified amount independent of the entity’s economic resources.