IFRIC work in progress
The IFRIC reviewed a summary of its outstanding issues. The IFRIC discussed nine issues at this meeting including two requests to add items to the agenda received after the last meeting. No additional requests have been received.
Work will begin shortly on the issue related to compliance costs for the European Regulation concerning Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH) with the assistance of other interpretive bodies that have indicated an interest in participating in the project. The Board will consider the IFRIC’s recommendations on group cash-settled share-based payment transactions at its September meeting and the staff expect to take recommendations on the application of the effective interest rate method to the Board in October. On the final issue in the summary, relating to derecognition, the IFRIC agreed with a staff proposal that it should consider removing the issue from its agenda given the acceleration of the Board’s project. The staff will prepare a recommendation for the IFRIC to consider at its November meeting.
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Customer-related intangible assets
The IFRIC received a request to add an item to its agenda to provide guidance on the circumstances in which a non-contractual customer relationship arises in a business combination. IFRS 3 Business Combinations (as revised in 2008) requires an acquirer to recognise the identifiable intangible assets of the acquiree separately from goodwill. An intangible asset is identifiable if it meets either the contractual-legal criterion or the separable criterion in IAS 38 Intangible Assets.
Customer-related intangible assets may be either contractual or non-contractual. Contractual customer relationships are always recognised separately from goodwill as they meet the contractual-legal criterion. However, non-contractual customer relationships are recognised separately from goodwill only if they meet the separable criterion. Consequently, determining whether a relationship is contractual is critical to identifying and measuring both separately recognised customer relationship intangible assets and goodwill, and different conclusions could result in substantially different accounting outcomes.
The staff’s survey of IFRIC members indicated that diversity exists in practice regarding which customer relationships have a contractual basis and which are non-contractual. In addition, valuation experts may be taking different views, which could also be contributing to diversity in this area.
The IFRIC agreed with the staff’s recommendation that the issue should be added to its agenda and with the staff’s view that the outcome of this project would not necessarily be an Interpretation. Because IFRS 3 was the result of a joint project with the US Financial Accounting Standards Board (FASB), the staff will liaise with a member of the FASB staff. They will also consider the deliberations of appraisal/valuation professional organisations in developing a more complete project proposal for presentation at the IFRIC’s meeting in November 2008.
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Regulatory assets and liabilities
In January 2008 the IFRIC received a request to consider whether regulated entities could or should recognise a liability (or an asset) as a result of price regulation by regulatory bodies or governments. A project plan was presented and approved at the IFRIC’s meeting in May.
At this meeting, the IFRIC considered the background information accumulated as a result of the staff’s research work. The IFRIC was asked whether there was additional information or analysis that it would like developed as a basis for it to assess the issue in relation to the agenda criteria at a future meeting. IFRIC members identified several matters they believed warranted further analysis and discussion in the paper. The discussion was educational and no decisions were made. The staff expect to present a paper supporting their recommendation on whether the IFRIC should add the issue to its agenda at the November 2008 meeting.
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Compliance costs for REACH
The IFRIC received a request to add an issue to its agenda to provide guidance on the treatment of costs incurred to comply with the requirements of the European Regulation concerning the Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH). The Regulation came into force in part on 1 June 2007 and companies have begun to account for the first costs incurred to comply.
The submission noted that different types of costs are incurred as a result of the Regulation. It also noted that a variety of treatments for the costs has been observed in practice and that entities are beginning to develop accounting policies that include a mixture of the approaches observed.
The IFRIC agreed with the staff’s recommendation that it should tentatively add this issue to its agenda. The IFRIC noted that jurisdictions other than Europe had developed or were in the process of developing regulations relating to similar environmental issues. Consequently, the IFRIC recommended that the staff should analyse the issue on the basis of general principles rather than the specifics of any particular legislation.
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