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Meeting Summaries and Observer Notes

 IFRIC November 2008


The IFRIC completed its redeliberations of draft Interpretation D24 at this meeting. The IFRIC considered a revised draft Interpretation, basis for conclusions and illustrative examples prepared by the staff that took into account the IFRIC’s tentative views reached at its meetings in July and September 2008. This draft was posted on the IASB’s Website in the Observer Notes for the meeting.

Title of the Interpretation

The IFRIC noted that, in some jurisdictions, the term ‘contribution’ implies a non-reciprocal transfer rather than an exchange transaction. In addition, IFRIC members noted that this term might be difficult to translate into some languages. For these reasons, the IFRIC decided to use the term ‘transfer’ instead of ‘contribution’ and to rename the Interpretation IFRIC X Transfers of Assets from Customers.

Who controls the asset?

The IFRIC noted that D24 envisaged several steps to determine whether an asset should be recognised, including the consideration of IFRIC 4 Determining whether an Arrangement contains a Lease and IAS 17 Leases. In its redeliberations, the IFRIC decided to simplify the requirements and the focus on who controls the asset. At this meeting, the IFRIC decided that this guidance should be based solely on the definition of an asset set out in the Framework. The IFRIC supported the following wording proposed by the staff:

When an entity receives a transfer from a customer in the form of an item of property, plant and equipment, it should assess whether the transferred item meets the definition of an asset set out in the Framework. Paragraph 49(a) of the Framework states that ‘an asset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity.’ In most circumstances, the entity obtains the right of ownership of the transferred item of property, plant and equipment. However, in determining the existence of an asset, the right of ownership is not essential. Therefore, if the customer continues to control the transferred item, the asset definition would not be met despite the transfer.

The entity that controls the transferred item of property, plant and equipment can generally deal with the transferred item as it pleases. For example, the entity having control of an asset can exchange it for other assets, employ it to produce goods or services, charge a price for others to use it, use it to settle liabilities, hold it, or distribute it to owners.

The IFRIC concluded that this guidance was clearer than the proposals in D24 and asked the staff to amend the revised draft Interpretation accordingly.

Revenue recognition

The IFRIC considered the guidance included in the revised draft Interpretation to help identify whether one or two services are provided in exchange for the transferred item of property, plant and equipment in accordance with paragraph 13 of IAS 18 Revenue. The IFRIC generally supported the staff’s proposals but asked the staff to delete two indicators:

  • The IFRIC concluded that the fact that the connection service could be sold separately is not a relevant indicator that this service is a component of the transaction because services can generally be sold separately.
  • The IFRIC concluded that the fact that customers have the ability to choose to receive goods or services from suppliers other than the entity is not a relevant indicator that the provision of ongoing access to a supply of goods or services arises from the terms of the entity’s operating license or other regulation rather than from the arrangement.

Other clarifications

The IFRIC asked the staff to clarify the definition of a customer and the nature of the various services that might be provided by multiple parties to the arrangement. For example:

  • Customers may choose to receive electricity from a supplier other than the network company responsible for its transmission. In this case, it should be clear that the Interpretation applies to the network transmission company that receives the property, plant and equipment from the customer and that the service received is the use of the network to access the supply of electricity.
  • An electricity substation may be transferred by a property developer in relation to a number of residential units it is constructing. In this case, it is the homeowners that will eventually use the network to access the supply and use the electricity, although they did not initially transfer the substation. The Interpretation would clarify that the property developer would be the ‘customer’ transferring the asset for the purposes of the Interpretation.

These different circumstances should also be clarified in the examples.

Vote to confirm consensus

The IFRIC considered whether the changes from the draft Interpretation exposed for comment as D24 were such that re-exposure was required in accordance with the IFRIC Due Process Handbook. The IFRIC made changes to D24 to address the concerns expressed by respondents, including some utility companies, that an entity receiving a transfer of an asset from a customer does not always have an obligation to provide ongoing access to a supply of goods or services as a result of the transfer. However, the IFRIC acknowledged that the changes made to D24 in respect of revenue recognition were significant. Consequently, the IFRIC decided that the near-final draft of the Interpretation should be posted on the Website for a longer than normal period to give those constituents who wished to do so the opportunity to comment on it. At its meeting in January 2009 the IFRIC will consider any comments received before it submits the Interpretation to the Board for ratification at the Board’s meeting in January.

The IFRIC decided that the Interpretation should be applied prospectively to transfers of assets from customers received on or after three months from the date of publication of the final Interpretation. Finally, the IFRIC voted and confirmed the consensus subject to its final review of drafting changes.


Date: 11/6/2008