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IASB Meeting Summaries and Observer Notes

 IFRIC January 2008


The IFRIC considered comments received on Draft Interpretation D21 that it published for comment in July 2007. Most respondents to D21 supported the IFRIC’s conclusion that it should develop an interpretation on this issue. However, nearly all respondents expressed concern with some aspects of the proposals or the possible application by analogy to industries other than real estate. At this meeting, the staff presented an analysis of these concerns and asked IFRIC members to focus on issues within the scope of real estate sales. Issues arising if the scope of the project were widened will be considered at a future meeting.

In its consensus, D21 lists typical features to help determine whether a real estate sale agreement entered into before construction is complete should be regarded as a construction contract within the scope of IAS 11 Construction Contracts or an agreement for the sale of goods within the scope of IAS 18 Revenue. The IFRIC noted that respondents to D21 had mixed views about these features. Some respondents supported the indicator in paragraph 9(a) but not that in paragraph 9(b), or vice versa. Respondents also expressed concern with the wording in D21 because they understood that either indicator 9(a) or 9(b) was predominant, or that both needed to be met for a real estate sale agreement to meet the definition of a construction contract. They asked the IFRIC to clarify paragraphs 9 and 10 of D21, their interaction and the basis for conclusions to explain better the principles leading to the consensus.

The staff presented a paper with proposals that aimed to address most of these concerns, including drafting suggestions and the addition of illustrative examples to the draft interpretation. For instance, the staff proposed to clarify the wording of D21 to reflect more closely the IFRIC’s conclusion at its meeting in May 2007 that either indicator 9(a) or 9(b) might on its own be a sufficient basis for a judgement that the real estate sale agreement meets the definition of a construction contract.

The IFRIC noted that the analysis of the comments received indicated that the draft interpretation was not clear.

It also noted that the draft interpretation appeared to be more rule-driven than principle-based, which is not how the IFRIC wished to proceed with this project.

Some restructuring and rewording of the draft interpretation was suggested, in particular:

  • the principles should be set out clearly and more prominently in the final interpretation;
  • the main body of the interpretation should include some of the wording in the Basis for Conclusions where this was considered to explain the principle more clearly; and
  • the existing wording should be reordered and restructured of the existing wording.

The IFRIC directed the staff to develop a flowchart to illustrate the accounting for real estate sale agreements in accordance with IAS 18 and IAS 11, with the starting point being to consider the substance of the agreement in accordance with IAS 18.

The staff will prepare a paper for the next IFRIC meeting. No decisions were made at this meeting.


Date: 1/10/2008