On The Horizon For IFRS - March 12, 2013 - IFRIC Meeting January 2013

Author:Ms Grant Thornton's Audit Practice Group
Profession:Grant Thornton LLP
 
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Introduction

The IFRS Interpretations Committee (IFRIC or the Committee) has issued the January 2013 IFRIC Update, which summarizes the deliberations during its meeting in London on January 22-23, 2013. This On the Horizon for IFRS provides a high level summary of the issues discussed at that meeting. For further details of the Committee's meeting, please refer to the January 2013 IFRIC Update.

All decisions reached at Committee meetings are tentative and may be changed or modified at future meetings. Committee decisions become final only after completion of a formal vote on an Interpretation or Draft Interpretation, which is confirmed by the IASB.

Current agenda

At its January 2013 meeting, the Committee discussed the following items on its current agenda.

IAS 1, Presentation of Financial Statements ‒ disclosure requirements about the assessment of going concern

Background

Previously, the Committee was asked to clarify the guidance on disclosing material uncertainties related to an entity's ability to continue as a going concern under IAS 1, Presentation of Financial Statements. That guidance requires an entity to disclose material uncertainties about its ability to continue as a going concern when management becomes aware of those uncertainties. However, the submitter thinks the guidance about the objective, timing, and content of the required disclosures is unclear.

In November 2012, the Committee tentatively decided to address the issue of when and what should be disclosed about those uncertainties through a narrow-focused amendment to IAS 1 among other tentative decisions.

Current discussion

In January 2013, the staff presented the Committee with proposed amendments to IAS 1 that would retain, substantially unchanged, the guidance relating to going concern as a basis for preparing financial statements, but would also provide guidance on identifying material uncertainties and requirements on what to disclose.

After discussing the proposed amendments, the Committee tentatively agreed to expose the proposals with examples of conditions that indicate when material uncertainties arise and which material uncertainties to disclose. In addition, the Exposure Draft would ask constituents for feedback on whether the proposed level of detail is helpful and whether the time frame for assessing the going concern assumption in IAS 1 should be aligned with the time frame in many local auditing requirements.

The Committee recommended that these revised proposals be presented to the IASB for its consideration.

IAS 16, Property, Plant and Equipment, IAS 38, Intangible Assets, and IFRIC 12, Service Concession Arrangements ‒ variable payments for the separate acquisition of property, plant, and equipment, and intangible assets

Background

Previously, the Committee was asked to clarify the accounting for certain payments made by an operator in a service concession arrangement that is within the scope of IFRIC 12, Service Concession Arrangements. Specifically, the submitter asked the Committee to clarify whether such payments should either be included in the measurement of an asset and liability at the start of the concession arrangement, or treated as executory in nature and recognized as expenses as incurred over the term of the arrangement.

The Committee noted that the issue of variable concession fees is linked to a broader issue regarding contingent payments made by an entity for separate purchases of property, plant, and equipment and of intangible assets outside of a business combination, which the Committee discussed in 2011, but reached no conclusion.

In November 2012, the Committee discussed the initial and subsequent accounting for variable payments.

Current discussion

In January 2013, the Committee continued to discuss the subsequent accounting for variable payments, including a review of illustrative examples in which the cost of the asset would be adjusted, and tentatively decided to recommend that the IASB amend IAS 16, Property, Plant and Equipment; IAS 38, Intangible Assets; and IAS 39, Financial Instruments: Recognition and Measurement. Under the proposed amendments, the adjustment of the carrying amount of a financial liability resulting from the application of paragraph AG8 of IAS 39 would be recognized as a corresponding adjustment to the cost of the asset, to the extent required by either IAS 16 or IAS 38. Therefore, the paragraph AG8 adjustment would be recognized as a corresponding adjustment to the cost of the asset purchased:

Entirely if the adjustment is a change in estimate of a liability initially recognized upon the acquisition of the asset, and To the extent that it relates to future economic benefits to be derived from the asset if the adjustment results from the initial recognition of a liability to make variable payments that was not previously recognized as a liability upon the acquisition of the asset. The Committee also tentatively decided to proceed with the proposed amendments to IFRIC 12 that were discussed at its March and May 2012 meetings.

The staff was asked to prepare a paper with proposed amendments to IAS 16, IAS 38, IAS 39, and IFRIC 12 as part of a narrow-scope project, for discussion at a future meeting.

IAS 32, Financial Instruments: Presentation ‒ put options written on noncontrolling interests

Background

In May 2012, the Committee published a draft Interpretation on the accounting for put options written on noncontrolling interests in the parent's consolidated financial statements (NCI put). The comment period ended on October 1, 2012.

Current discussion

In January 2013, after reviewing the staff's summary and analysis of the comments received on the draft Interpretation, the Committee tentatively decided on the following proposals:

The final Interpretation would apply to put options and forward contracts, in the parent's consolidated financial statements, that obligate an entity in the group to purchase shares of a subsidiary that are held by a noncontrolling-interest shareholder for cash or another financial asset. This tentative decision would widen the scope of the draft Interpretation to include NCI forward contracts. The final Interpretation would apply retrospectively. The financial liability recognized for an NCI put would be remeasured under IAS 39, Financial Instruments: Recognition and Measurement, and IFRS 9, Financial Instruments, with changes in measurement recognized in profit or loss. The Committee believes that if NCI puts were measured on a net basis at fair value, consistently with derivatives that are within the scope of IAS 39 and IFRS 9, better information would be provided. Many respondents commented that the Committee or IASB should more comprehensively address the accounting for NCI puts—or all derivatives written on an entity's own equity. Some respondents believe that the requirement to measure particular derivatives written on an entity's own equity instruments on a gross basis at the present value of the redemption amount does not yield useful information. Consequently, the Committee decided to ask the IASB to reconsider the requirements for put options and forward contracts written on an entity's own equity in paragraph 23 of IAS 32, Financial Instruments: Presentation, before finalizing the draft Interpretation. The Committee noted that the IASB should consider whether NCI puts and NCI forwards should be accounted for differently from other derivatives written on an entity's own equity.

The staff was directed to report both the Committee's views and the feedback from the comment letters to the IASB and to ask the Board how to proceed.

IAS 37, Provisions, Contingent Liabilities and Contingent Assets ‒ Interpretation on levies

Background

In May 2012, the Committee published a draft Interpretation on the accounting for levies recognized in accordance with the definition of a "liability" in IAS 37, Provisions, Contingent Liabilities and Contingent Assets.

After receiving constituents' comments, the Committee began redeliberating the proposed accounting in the draft Interpretation in November 2012 and tentatively decided that the final Interpretation would

Address the accounting for levies that are within the scope of IAS 37 as well as levies whose timing and amount is certain Exclude guidance on the accounting for liabilities arising from emissions trading schemes Confirm the guidance provided in the draft Interpretation about the accounting for the liability to pay a levy Current discussion...

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