On The Horizon For IFRS - January 15, 2013

Author:Ms Grant Thornton's Audit Practice Group
Profession:Grant Thornton LLP
 
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IFRIC meeting November 2012

Introduction

All decisions reached at IFRS Interpretations Committee (IFRIC or the 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.

The IFRS Interpretations Committee has issued the November 2012 IFRIC Update, which summarizes the deliberations during its meeting in London on November 13-14, 2012. Highlights of the meeting are discussed below.

Key IFRIC issues

Current agenda: IAS 1, Presentation of Financial Statements ‒ disclosures about going concern. The Committee discussed the timing and content for disclosing material uncertainties related to an entity's ability to continue as a going concern and tentatively decided that those issues should be addressed in a narrow-focused amendment to IAS 1. 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. The Committee discussed the initial and subsequent accounting for variable payments, but did not reach any tentative decisions. IAS 19, Employee Benefits ‒ employee benefit plans with a guaranteed return on contributions or notional contributions. The Committee discussed the discount rate that should be used to calculate the present value of the employee benefit for plans that fall within the scope of this project, but did not reach a tentative decision. The Committee did tentatively agree that the "higher of option" in employee benefit plans would be measured at its intrinsic value at the reporting date. IAS 37, Provisions, Contingent Liabilities and Contingent Assets ‒ Interpretation on levies. The Committee discussed the comments received on the Draft IFRIC Interpretation, Levies Charged by Public Authorities on Entities that Operate in a Specific Market, and reached several tentative decisions that will affect the final Interpretation. Agenda decisions: The Committee decided not to add the following issues to its agenda: IAS 18, Revenue, IAS 37, Provisions, Contingent Liabilities and Contingent Assets, and IAS 39, Financial Instruments: Recognition and Measurement ‒ regulatory assets and liabilities IAS 39, Financial Instruments: Recognition and Measurement ‒ scope of paragraph AG5 Tentative agenda decisions: The Committee tentatively decided not to add the following issues to its agenda: IFRS 3, Business Combinations, and IFRS 2, Share-based Payment ‒ accounting for reverse acquisitions that do not constitute a business IAS 41, Agriculture, and IFRS 13, Fair Value Measurement ‒ valuation of biological assets using a residual method Issues considered for Annual Improvements: Annual Improvements to IFRSs 2010-2012 Cycle ‒ recommended for finalization: IFRS 8, Operating Segments ‒ aggregation of operating segments IFRS 8, Operating Segments ‒ reconciliation of the total of the reportable segments' assets to the entity's assets IFRS 13, Fair Value Measurement ‒ short-term receivables and payables Annual Improvements to IFRSs 2010-2012 Cycle requiring further consideration: IAS 12, Income Taxes ‒ recognition of deferred tax assets for unrealized losses Issues recommended for inclusion in the next Annual Improvements cycle: IFRS 3, Business Combinations ‒ mandatory purchase of noncontrolling interests in business combinations IAS 34, Interim Financial Reporting ‒ disclosure of information "elsewhere in the interim financial report" IFRS Interpretations Committee's work in progress: IAS 10, Events after the Reporting Period ‒ reissuing previously issued financial statements. The Committee discussed the accounting implications of applying IAS 10 when previously issued financial statements are reissued in connection with an offering document. The Committee was not in favor of amending IFRS for this issue and asked the staff to draft a tentative agenda decision for consideration at a future meeting. IAS 19, Employee Benefits ‒ measurement of the net defined benefit obligation for post employment benefit plans with employee contributions. The Committee considered several examples illustrating how to apply the requirements in paragraph 93 of IAS 19 (Revised 2011), as well as the effect of different discount rate and salary growth assumptions on the calculation of the net benefit, but did not reach any decisions. Further discussion is expected at a future meeting. IAS 19, Employee Benefits ‒ actuarial assumptions: discount rate. The Committee discussed how to determine the rate used to discount post-employment benefit obligations in accordance with the guidance in paragraph 83 of IAS 19 (Revised 2011), but did not reach any decisions. Further discussion is expected at a future meeting. Current agenda

At its November 2012 meeting, the Committee discussed the following items on its current agenda.

IAS 1, Presentation of Financial Statements ‒ disclosures about going concern

Background

The Committee was asked to clarify the guidance on disclosing material uncertainties related to an entity's ability to continue as a going concern in IAS 1, Presentation of Financial Statements. IAS 1 requires an entity to disclose material uncertainties about its ability to continue as a going concern when management becomes aware of those uncertainties.

Current discussion

The Committee tentatively decided to consider only two questions about the disclosure of material uncertainties related to an entity's ability to continue as a going concern:

When should the disclosure be made? What information should be disclosed about the uncertainties? The Committee also tentatively agreed on the following points:

The high threshold for preparing financial statements on a basis other than going concern discussed in paragraph 25 of IAS 1 is appropriate. A threshold for disclosing material uncertainties related to an entity's ability to continue as a going concern would be more clearly identified in IAS 1. The objectives for disclosures related to an entity's ability to continue as a going concern would be included in IAS 1. The Committee also tentatively decided that this issue should be addressed as a narrow-focused amendment to IAS 1 and asked the staff to identify specific disclosures that should be required.

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 they are incurred over the term of the concession 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, but reached no conclusions on, in 2011.

In September 2012, the Committee discussed whether the principles that the IASB is developing in the project on leases should be used as a basis to account for variable payments made for separate purchases of property, plant, and equipment and intangible assets. However, some Committee members were uncertain about applying the proposed leasing principles because that project is incomplete and the timing of a final leases standard remains uncertain. Therefore, the Committee asked the staff to draft a paper on all of the models being considered regarding this issue. The staff was also asked to propose alternative models that focus on the debit side of the transaction instead of the recognition and measurement of the liability and to consider whether the remeasurement of the liability should be treated as an adjustment to the cost of the asset.

Current discussion

The Committee discussed the initial accounting for variable payments, but could not reach a consensus on the following issues:

Whether the fair value of all variable payments should be included in the initial measurement of the liability on the purchase date of the asset Whether variable payments that depend on future activities of the purchaser should be excluded from the initial measurement of the liability until the activity is performed The Committee also discussed the subsequent accounting for variable payments and agreed that adjustments to the liability, other than finance costs, would be recognized as an adjustment to the cost of the asset acquired in certain circumstances. The Committee asked the staff to develop some examples that illustrate this situation for discussion at a future meeting. The staff was also asked to draft a paper that addresses whether the initial accounting would affect the subsequent accounting for variable payments.

IAS 19, Employee Benefits ‒ employee benefit plans with a guaranteed return on contributions or notional contributions

Background

Several years ago, the Committee proposed IFRIC Draft...

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