Tentative agenda decisions currently available for comment
The Committee reviewed the following matters and tentatively decided that they should not be added to the Committee’s agenda. These tentative decisions, including recommended reasons for not adding the items to the Committee’s agenda, will be reconsidered at the Committee meeting in September 2010. Constituents who disagree with the proposed reasons, or believe that the explanations may contribute to divergent practices, are encouraged to communicate those concerns by 14 August 2010 by email to: ifric@ifrs.org . Communications will be placed on the public record unless the writer requests confidentiality, supported by good reason, such as commercial confidence.
IFRS 1 First-time Adoption of International Financial Reporting Standards — Repeat application of IFRS 1
The Committee received a request identifying an entity that had previously reported in accordance with IFRSs to meet foreign listing requirements, and applied IFRS 1. However, the entity then delisted and no longer presents its financial statements in accordance with IFRSs, instead reporting only in accordance with its national GAAP. In a subsequent reporting period, the reporting requirements in the entity’s local jurisdiction change from national GAAP to IFRSs, and the entity is again required to present its financial statements in accordance with IFRSs. The request asks the Committee to clarify how the entity should transition back to reporting in accordance with IFRSs, and specifically whether it can apply IFRS 1 for a second time.
The Committee observed that the scope of IFRS 1 requires an entity to apply the standard in its first IFRS financial statements. Paragraph 3 of IFRS 1 provides examples of when an entity’s financial statements are considered its first IFRS financial statements. These examples are based upon assessing whether the entity’s most recent previous financial statements were presented in accordance with IFRSs.
The Committee noted that an entity is required to apply IFRS 1 for a second time in the circumstances described. However, the Committee observed that the scope of IFRS 1 should be made clearer.
Consequently, the Committee [decided] not to add this issue to its agenda. However, the Committee [decided] to recommend that the Board should clarify the guidance relating to the repeat application of IFRS 1 as part of Annual Improvements.
Observer note: Agenda paper 9: IFRS 1 - Repeat Application
Meeting audio: Agenda paper 9
IAS 21 The Effects of Changes in Foreign Exchange Rates — Repayments of investments
The Committee received a request for guidance on the reclassification of the foreign currency translation reserve (FCTR) when a repayment of a foreign investment occurs. The request specifically sought guidance on whether a repayment of an investment is considered to be an absolute reduction or a proportionate reduction.
The Committee noted that paragraph 48D of IAS 21 requires that an entity treats ‘any reduction in an entity’s ownership interest in a foreign operation’ as a partial disposal, apart from those reductions in paragraph 48A that are accounted for as disposals. How an entity applies the requirements in paragraph 48D is largely dependent on whether it interprets ‘any reduction in an entity’s ownership interest in a foreign operation’ to mean an absolute reduction or a proportionate reduction.
The Committee considers that different interpretations could lead to diversity in practice in the application of IAS 21 on the reclassification of the FCTR when repayment of investment in a foreign operation occurs. However, the Committee [decided] neither to add this issue to its agenda nor to recommend the Board to address this issue through Annual Improvements because it did not think it would be able to reach a consensus on the issue on a timely basis.
Observer note: Agenda paper 11: IAS 21 CTA recycling in IAS 27R transactions
Meeting Audio: Agenda paper 11