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The Interpretations Committee reached a general agreement that the staff should prepare the draft Interpretation for a written ballot, subject to no significant matters arising from discussions at the IASB meeting

 24 March 2015


The Interpretations Committee continued its discussions on the development of an Interpretation of paragraphs 21–22 of IAS 21. The proposed guidance addresses how to determine the date of the transaction for the purposes of IAS 21. The date of the transaction determines the spot exchange rate used to translate a foreign currency transaction on initial recognition of the asset, expense or income (or part of it) that follows the recognition of a non-monetary prepayment asset or a non-monetary deferred income liability. A non-monetary prepayment asset or a non monetary deferred income liability typically arises on the payment or receipt of consideration in advance of the recognition of the related asset, expense or income. Thus, they represent an entity’s right to receive goods or services, or an entity’s obligation to transfer goods or services, respectively. At this meeting, the Interpretations Committee reviewed the proposed draft Interpretation in Agenda Paper 2A.

Scope of the proposed Interpretation

In respect of the scope of the proposed draft Interpretation, the Interpretations Committee tentatively decided that the draft Interpretation:

  1. should apply to both cash and non-cash consideration that is denominated or priced in a foreign currency.
  2. should not apply in circumstances in which the foreign currency amount of the non-monetary prepayment asset or the non-monetary deferred income liability is subsequently required to be remeasured for the purposes of the initial recognition of the related asset, expense or income (or part of it). Such remeasurement occurs when the related asset, expense or income is required to be initially recognised at:
    1. its fair value; or
    2. the fair value of the consideration given or received, which is measured in the foreign currency at a date other than the date of initial recognition of the related prepayment asset or deferred income liability.

Interaction with IFRS 15 Revenue from Contracts with Customers

The Interpretations Committee considered the interaction of the proposed draft Interpretation with various aspects of IFRS 15. The Interpretations Committee noted that:

  1. an entity first applies IFRS 15 to its revenue transactions to determine how the transaction is recognised and measured in the financial statements and subsequently applies IAS 21 to determine the exchange rate(s) to apply when translating any foreign currency amounts into the entity’s functional currency; and
  2. the proposed draft Interpretation is an interpretation of the requirements in IAS 21, not IFRS 15.

The Interpretations Committee noted that paragraphs 105–106 of IFRS 15 state that if a customer pays consideration, or an entity has a right to an amount of consideration that is unconditional (ie a receivable), before the entity transfers a good or service to the customer, the entity shall account for the transaction as a contract liability when the payment is made or due (whichever is earlier). To accommodate this, the Interpretations Committee tentatively agreed that the date of the transaction for IAS 21 purposes should be the earlier of:

  1. the date of the initial recognition of the non-monetary prepayment asset or the non-monetary deferred income liability (which will generally be the date of the payment, or receipt, of the advance consideration); and
  2. the date that the related asset, expense or income (or part of it) is recognised in the financial statements.

The Interpretations Committee tentatively agreed that the proposed draft Interpretation and accompanying examples should not explicitly include guidance on the accounting for contract assets or significant financing components for foreign currency revenue transactions in accordance with IFRS 15. In addition, the Interpretations Committee tentatively agreed that Examples 2 and 4 of the proposed draft Interpretation should refer to the fact that the entity determines that the variable consideration requirements in IFRS 15 do not apply on the basis that the amount of consideration in the foreign currency is fixed.

Use of the term ‘deferred income liability’

The Interpretations Committee did not object to the use of the term ‘deferred income liability’, but suggested that the staff consider whether a more appropriate term, which represents an obligation to transfer goods or services, could be found.

Transition 

The Interpretations Committee tentatively agreed that, on initial application, an entity can either apply the draft Interpretation:

  1. retrospectively in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors; or
  2. prospectively to the initial recognition of an asset, expense or income from, but without restating the previously reported balance sheet at:
    1. the start of the reporting period in which the entity first applies the draft Interpretation; or
    2. the start of a prior reporting period for which comparative information is presented in the financial statements of the reporting period in which an entity first applies the draft Interpretation.

Next Steps

The Interpretations Committee confirmed that it had addressed all relevant matters in developing the proposed draft Interpretation.

The staff will present a paper to the IASB at one of its future meetings, which will summarise the technical analysis and due process that the Interpretations Committee has undertaken to develop the proposed draft Interpretation.

 The Interpretations Committee reached a general agreement that the staff should prepare the draft Interpretation for a written ballot, subject to no significant matters arising from discussions at the IASB meeting (twelve of the thirteen members of the Interpretations Committee present agreed).

 

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