Final agenda decisions
Recent final IFRS Interpretations Committee agenda decisions are summarised below.
This summary also includes matters where the IASB has decided to undertake standard setting with respect to the matter discussed by the IFRS Interpretations Committee.
Links to the full agenda decision (or the IASB’s decision to undertake standard setting) are provided below.
We encourage you to read the agenda decisions and consider whether and how these may affect your financial statements.
Final agenda decisions – no standard-setting activity
Non-refundable Value Added Tax on Lease Payments (IFRS 16 Leases)
Date published: October 2021
The Committee was asked how a lessee accounts for non-refundable value added tax (VAT) charged on lease payments. In the question received by the Committee, the lease agreement requires the lessee to make rent payments to the lessor on a VAT-inclusive basis. The lessee can recover from the government some, but not all, of the VAT that is pays to the lessor. The Committee was asked whether, in applying IFRS 16 Leases, the lessee includes non-refundable VAT in the lease payments (e.g. when calculating the lease liability).
The Committee conducted outreach on this matter and did not find evidence that this matter has widespread effect or that it is expected to have material impact on affected entities.
The Committee concluded that no standard-setting activity is required and instead published a final Agenda Decision.
Accounting for Warrants that are Classified as Financial Liabilities on Initial Recognition (IAS 32 Financial Instruments: Presentation)
Date published: October 2021
The Committee received a request about the application of IAS 32 Financial Instruments: Presentation to the reclassification of warrants. The question related to a warrant that gives the holder the right to buy a fixed number of the issuer’s equity instruments, for an exercise price that will be fixed at a future date. At initial recognition, the issuer classifies the warrant as a financial liability, rather than equity – because at that stage the warrant’s exercise price is not fixed, therefore the ‘fixed-for-fixed’ condition in IAS 32 is not met. The Committee was asked whether the issuer reclassifies the warrant as an equity instrument following the fixing of the exercise price after initial recognition.
The Committee observed that IAS 32 does not contain general requirements for reclassifying financial liabilities and equity instruments after initial recognition, when the instrument’s contractual terms are unchanged. Reclassification of instruments by the issuer is one of the matters to be considered by the IASB as part of its current project on Financial Instruments with Characteristics of Equity (FICE). The Committee considers that the abovementioned question should be considered by the IASB as part of the FICE project.
The Committee concluded that no standard-setting activity is required and instead published a final Agenda Decision.
Costs Necessary to Sell Inventories (IAS 2 Inventories)
Date published: June 2021
IAS 2 defines the net realisable value of inventory (NRV) as the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale. The Committee was asked whether, the ‘estimated costs necessary to make the sale’ include all costs necessary to make the sale, or only those that are incremental to the sale.
The Committee agreed that while the standard does not specify which costs to include when estimating the costs necessary to make the sale, an entity cannot limit the costs it includes to those that are only incremental. They considered that incremental costs are often the starting point before considering whether additional costs need to be included. The Committee noted that including only incremental costs could fail to achieve the objective of writing inventories down in IAS 2.
IAS 2 does not specify or further define the estimated costs necessary to make the sale, other than stating the objective of writing inventories down to NRV is to avoid inventories being carried ‘in excess of the amounts expected to be realised from their sale’.
Entities will need to use judgement, considering the specific facts and circumstances (including the nature of inventories) to determine which of costs are necessary to sell inventories.
The Committee concluded that no standard-setting activity is required and instead published a final Agenda Decision.
We understand that some New Zealand entities currently have a policy of using incremental costs only to estimate the costs necessary to sell inventories and these entities may need to change their accounting policy for inventories in light of the Committee’s agenda decision.
For those entities that have material inventory balances we encourage you to review your accounting policy for determining the net realisable value of inventories (which includes the estimated costs necessary to make the sale). The accounting for any changes to the accounting policy for inventories should be discussed with an accounting advisor.
Preparation of Financial Statements when an Entity is No Longer a Going Concern (IAS 10 Events after the Reporting Period)
Date published: June 2021
The Committee received a request about the accounting applied by an entity that is no longer a going concern. The request asked whether such an entity:
- can prepare financial statements for prior periods on a going concern basis, if it was a going concern in those periods and has not previously prepared financial statements for those periods; and
- restates comparative information to reflect the basis of accounting used in preparing the current period’s financial statements, if it had previously issued financial statements for the comparative period on a going concern basis.
With respect to the first question, the Committee concluded that under the requirements on going concern in IAS 1 and IAS 10, an entity that is not a going concern cannot prepare financial statements on a going concern basis – including for prior periods where the financial statements have not yet been authorised for issue.
With respect to the second question on the restatement of comparatives, the Committee did not observe diversity in practice in this regard, and concluded that this matter does not have a widespread effect.
The Committee concluded that no standard-setting activity is required and instead published a final Agenda Decision with explanatory guidance material.
Hedging Variability in Cash Flows due to Real Interest Rates (IFRS 9 Financial Instruments)
Date published: May 2021
The Committee received a request about applying the hedge accounting requirements in IFRS 9 when the risk management objective is to ‘fix’ cash flows in real terms.
The request referred to an entity that has a floating rate instrument and enters into an ‘inflation swap’ – to swap the variable interest cash flows from a floating rate instrument for variable cash flows adjusted for inflation. The request asked whether the inflation swap can be designated in a cash flow hedging relationship, to hedge changes in the variable interest payments arising from changes in the real interest rate.
The variable payments on the floating rate instrument are based on a nominal market interest rate. The Committee observed that nominal interest rates (such as LIBOR) generally do not change as a direct result of changes in inflation or the real interest rate. That is, changes in the real interest rate are not an identifiable pricing element when setting the nominal interest rate.
The Committee therefore concluded that the real interest rate risk component in the proposed cash flow hedging relationship does not meet the requirements in IFRS 9 to be designated as an eligible hedged item.
The Committee concluded that no standard-setting activity is required and instead published a final Agenda Decision with explanatory guidance material.
Attributing Benefit to Periods of Service (IAS 19 Employee Benefits)
Date published: May 2021
The Committee was asked how an entity attributes benefits to periods of service for a particular defined benefit plan. The plan has the following terms:
- employees are entitled to a lump sum benefit payment when they reach a specified retirement age (for example, age 62), provided they are still employed by the entity; and
- the retirement benefit amount that the employee is entitled to depends on the employee’s length of service with the entity before the retirement age – but it is capped at a specified number of years (for example, 16 years).
The Committee concluded that under the requirements of IAS 19, the entity would attribute retirement benefit to each year in which an employee renders service from the age of 46 to the age of 62 (due to the 16-year cap on the retirement benefit). Services rendered by the employee before the age of 46 (or after the age of 62) do not give rise to retirement benefits under the plan. If employment commenced on or after the age of 46, the entity attributes retirement benefit to each year from the date the employee first renders service to the age of 62.
The Committee concluded that no standard-setting activity is required and instead published a final Agenda Decision with explanatory guidance material.
Configuration or Customisation Costs in a Cloud Computing Arrangement (IAS 38 Intangible Assets)
Date published: April 2021
The Committee considered how an entity should account for costs incurred in configuring and customising software in cloud-based ‘software as a service’ arrangements – should these costs be capitalised or expensed?
This question related to a cloud-based ‘software as a service’ arrangement (often referred to as SaaS), where an entity typically pays a fee to receive access to the supplier’s application software in the cloud over a contract term. In the type of arrangement considered by the Committee, the right to access the software does not provide the entity with a software asset.
The Committee observed that in this type of arrangement, the costs of configuring or customising the software would often not meet the requirements for capitalisation as an intangible asset. This is because the entity does not control the software being configured or customised, and the configuration or customisation do not create a resource controlled by the customer that is separate to the software. However, an entity may in certain circumstances be able to capitalise costs incurred configuring or customising the application software.
The Committee concluded that no standard-setting activity is required and instead published a final Agenda Decision with explanatory guidance material.
Final Decision XRB Staff Q&A's
Standard-setting projects arising from IFRS Interpretations Committee discussions
Classification of debts with covenants as current or non-current (IAS 1)
Date project added to IASB’s work plan: June 2021
The Committee recently considered questions concerning how to classify debt and other financial liabilities (i.e. loans) as current or non-current in particular circumstances.
Specifically, the Committee discussed how an entity determines whether it has the right to defer settlement of a liability for at least twelve months after the reporting period when:
- the right to defer settlement is subject to the entity complying with specified conditions; and
- compliance with the specified conditions is tested at a date after the end of the reporting period.
The Committee reached a tentative decision that in certain circumstances, the liability would be classified as current.
In April 2021, the Committee confirmed its agreement with the conclusion that it reached in its tentative agenda decision. However, the Committee agreed to report back to the IASB on the feedback it received, before finalising the Agenda Decision.
Given the feedback received by the Committee, in June 2021 the IASB decided to add to its work plan a project to propose amendments to IAS 1 Presentation of Financial Statements. The IASB tentatively decided to amend IAS 1 with respect to classification (as current or non-current), presentation and disclosures of liabilities for which an entity’s right to defer settlement for at least 12 months is subject to the entity complying with conditions after the reporting period.
Accessing All IFRS Interpretations Committee Agenda Decisions
You can search agenda decisions by date and by standard:
Final agenda decisions – no standard-setting activity
The Committee received a request about how a parent entity that prepares separate financial statements applying IAS 27 accounts for a merger with its subsidiary in its separate financial statements. Based on its findings, the Committee concluded that the matter described in the request does not have widespread effect. Consequently, the Committee decided not to add a standard-setting project to the work plan.
The Committee received a request about whether, in applying IFRS 9, an entity accounts for a guarantee written over a derivative contract as a financial guarantee contract or as a derivative. In the fact pattern described to the Committee, the guarantee holder would be reimbursed for the actual loss incurred—up to the close-out amount—in the event of default by the other party. The close-out amount is determined based on a valuation of the remaining contractual cash flows of the derivative immediately prior to default.
Evidence gathered by the Committee indicated that the matter described in the request is not widespread, and that when the matter does arise, the amounts involved are not material. The Committee concluded that the matter described in the request does not have widespread effect and is not expected to have a material effect on those affected.
The Committee received a request about how an entity accounts for employee home ownership plans and employee home loans of the types described in two fact patterns: one relating to employee home ownership plans and another relating to employee home loans. However, evidence gathered by the Committee indicated that the specific matters described in this request are not widespread, and the Committee concluded that these matters do not have widespread effect.
The Committee received questions about how an entity that issues insurance contracts (insurer) applies the requirements in IFRS 17 and IFRS 9 to premiums receivable from an intermediary.
In the fact pattern described to the Committee:
(a) an intermediary acts as a link between an insurer and a policyholder to arrange an insurance contract between them.
(b) The policyholder has paid in cash the premiums to the intermediary, but the insurer has not yet received in cash the premiums from the intermediary (the agreement between the insurer and the intermediary allows the intermediary to pay the premiums to the insurer at a later date).
(c) If the intermediary fails to pay the premiums to the insurer, the insurer does not have the right to recover the premiums from the policyholder, or to cancel the insurance contract
The Committee was asked whether, in the submitted fact pattern, the premiums receivable from the intermediary are future cash flows within the boundary of an insurance contract and included in the measurement of the group of insurance contracts applying IFRS 17 or are a separate financial asset applying IFRS 9.
Date published: 27 April 2023
The Committee received a question about applying the requirements in IFRS 16 to assess whether a contract contains a lease, in a situation where the contract is for the use of several similar assets and the supplier has particular substitution rights. Specifically, the request asked about:
a. the level at which to evaluate whether a contract contains a lease—by considering each asset separately or all assets together; and
b. how to assess whether a contract contains a lease when the supplier has the practical ability to substitute alternative assets throughout the period of use, but the supplier would not benefit economically from the exercise of this right throughout the period of use.
Date published: 24 October 2022
The Committee received a request about a lessor’s application of IFRS 9 and IFRS 16 in accounting for a particular rent concession, with respect to an operating lease. The rent concession involved the lessor legally releasing the lessee from its obligation to make specifically identified lease payments, with no other changes to the lease contract.
Date published: 24 October 2022
The Committee received a request about how an entity accounts for insurance contracts with cash flows in more than one currency.
Date published: 24 October 2022
The Committee received a request about how an entity accounts for warrants on the acquisition of a special purpose acquisition company (SPAC). A SPAC is a listed entity that is established to acquire a yet-to-be-identified target entity.
Date published: 21 July 2022
The Committee received a request asking whether particular measures to encourage reductions in vehicle carbon emissions give rise to obligations that meet the definition of a liability in IAS 37.
Date published: 21 July 2022
The Committee received a request about whether a special purpose acquisition company (SPAC), in applying IAS 32, classifies public shares it issues as financial liabilities or equity instruments. A SPAC is a listed entity that is established to acquire a yet-to-be-identified target entity.
Date published: 21 July 2022
The Committee received a request about a group of annuity contracts. The request asked how an entity determines the amount of the contractual service margin to recognise in profit or loss in a period because of the transfer of insurance coverage for survival in that period.
Date published: May 2022
The Committee was asked whether a reseller of software licences is a principal or agent for the purpose of applying IFRS 15 Revenue from Contracts with Customers.
Date published: April 2022
The Committee was asked whether a demand deposit should be included within ‘cash and cash equivalents’ in the financial statements, if that demand deposit is subject to contractual restriction on use as agreed with a third party.
Date published: March 2022
TLTRO III refers to the third programme of the targeted longer-term refinancing operations (TLTROs) of the European Central Bank (ECB). When a bank borrows from the ECB under this programme, the amount that the bank can borrow and the interest rate on each tranche of borrowings are linked to the volume and amount of loans that this bank advances to non-financial corporations and households.
The Committee received several questions on how the borrowing bank accounts for the amounts borrowed under TLTRO III.
Read the final agenda decision
Date published: December 2021
The Committee was asked whether a certain arrangement between a windfarm electricity generator and an electricity retailer gives the retailer the right to “obtain substantially all the economic benefits” from use of a windfarm over the term of the arrangement – and therefore, whether the arrangement contains a lease under IFRS 16 Leases.
The retailer and supplier operate in a market where electricity can be bought and sold only from/to the market’s grid, at a spot price set by the market operator. The retailer and supplier have entered into the following arrangement.
- For the next 20 years, the retailer will pay the supplier the difference between the spot price and an agreed fixed price per megawatt supplied to the grid.
- In return, the supplier will transfer to the retailer all renewable energy credits that the supplier receives for using the windfarm during the term of the arrangement.
Date published: October 2021
The Committee received a request about the application of IAS 32 Financial Instruments: Presentation to the reclassification of warrants. The question related to a warrant that gives the holder the right to buy a fixed number of the issuer’s equity instruments, for an exercise price that will be fixed at a future date. At initial recognition, the issuer classifies the warrant as a financial liability. The Committee was asked whether the issuer reclassifies the warrant as an equity instrument following the fixing of the exercise price after initial recognition.
The Committee considered that this question should be considered as part of the IASB's current project on Financial Instruments with Characteristics of Equity (FICE).
Date published: October 2021
The Committee was asked how a lessee accounts for non-refundable value added tax (VAT) charged on lease payments. In the question received by the Committee, the lease agreement requires the lessee to make rent payments to the lessor on a VAT-inclusive basis. The lessee can recover from the government some, but not all, of the VAT that is pays to the lessor. The Committee was asked whether, in applying IFRS 16 Leases, the lessee includes non-refundable VAT in the lease payments (e.g. when calculating the lease liability).
The Committee conducted outreach on this matter and did not find evidence that this matter has widespread effect or that it is expected to have material impact on affected entities.
Date published: June 2021
IAS 2 defines the net realisable value of inventory (NRV) as the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale. The Committee was asked whether the ‘estimated costs necessary to make the sale’ include all costs necessary to make the sale, or only those costs that are incremental to the sale.
Date published: June 2021
The Committee received a request about the accounting applied by an entity that is no longer a going concern. The request asked:
- whether such an entity can prepare financial statements for prior periods on a going concern basis, if it was a going concern in those periods and has not previously prepared financial statements for those periods; and
- whether the entity restates comparative information to reflect the basis of accounting used in preparing the current period’s financial statements, if it had previously issued financial statements for the comparative period on a going concern basis.
Date published: May 2021
The Committee was asked how an entity attributes benefits to periods of service for a particular defined benefit plan. The plan has the following terms:
- employees are entitled to a lump sum benefit payment when they reach a specified retirement age (for example, age 62), provided they are still employed by the entity; and
- the retirement benefit amount that the employee is entitled to depends on the employee’s length of service with the entity before the retirement age – but it is capped at a specified number of years (for example, 16 years).
Date published: May 2021
The Committee received a request about applying the hedge accounting requirements in IFRS 9 when the risk management objective is to ‘fix’ cash flows in real terms.
The request referred to an entity that has a floating rate instrument and enters into an ‘inflation swap’ – to swap the variable interest cash flows from a floating rate instrument for variable cash flows adjusted for inflation. The request asked whether the inflation swap can be designated in a cash flow hedging relationship, to hedge changes in the variable interest payments arising from changes in the real interest rate.
Date published: April 2021
The Committee considered how an entity should account for costs incurred in configuring and customising software in cloud-based ‘software as a service’ arrangements – should these costs be capitalised or expensed?
This question related to a cloud-based ‘software as a service’ arrangement (often referred to as SaaS), where an entity typically pays a fee to receive access to the supplier’s application software in the cloud over a contract term. In the type of arrangement considered by the Committee, the right to access the software does not provide the entity with a software asset.
The Committee observed that in this type of arrangement, the costs of configuring or customising the software would often not meet the requirements for capitalisation as an intangible asset. This is because the entity does not control the software being configured or customised, and the configuration or customisation do not create a resource controlled by the customer that is separate to the software. However, an entity may in certain circumstances be able to capitalise costs incurred configuring or customising the application software.
The Committee concluded that no standard-setting activity is required and instead published a final Agenda Decision with explanatory guidance material.
Standard-setting projects arising from IFRS Interpretations Committee discussions
In June 2023 the Committe discussed a request about applying the 'own-use' exception in paragraph 2.4 of IFRS 9 Financial Instruments to physical delivery contracts to purchase energy. IFRS 9 states that contracts that can be settled net and are held for an entity’s expected purchase, sale or usage requirements are accounted for as executory contracts and not as derivatives.
The Committee recommended the IASB consider undertaking a narrow-scope standard-setting project that focuses on how to apply those requirements to physical power purchase agreements (PPAs) in which the underlying non-financial item:
- cannot be stored economically; and
- is required to either be consumed or sold within a short time as determined by the market structure in which the item is bought and sold.
In addition to the evidence gathered by the Committee, the IASB observed that application questions also arise for purchases of renewable energy through virtual PPAs (contracts for differences). Therefore, in July 2023 the IASB decided to add a project to the work plan to research whether it is feasible to make narrow-scope amendments to IFRS 9 to better reflect the effect of PPAs on the financial statements.
The Committee received a request about the accounting for cash received via electronic transfer as settlement for a trade receivable, where the electronic transfer is initiated before balance date but completed after balance date.
In September 2021, the Committee published a tentative agenda decision, noting that in applying the requirements of IFRS 9 to the fact pattern described in the request:
- the entity derecognises the trade receivable on the date on which its contractual rights to the cash flows from the trade receivable expire; and
- the entity recognises cash as a financial asset on the transfer settlement date, and not before.
Most respondents agreed with the technical analysis in the tentative agenda decision. However, several respondents were concerned that the decision would result in significant change to existing practice – and that the decision might be applied by analogy to electronic cash payments made by the entity and to other forms of cash payments/receipts, which could have unintended consequences.
In June 2022, the Committee confirmed its agreement with the conclusion that it reached in its tentative agenda decision, However, the Committee agreed to report back on the feedback it received when asking the IASB to confirm the Agenda Decision.
The IASB considered the draft agenda decision and the concerns raised at its September 2022 meeting and tentatively decided to explore narrow-scope standard-setting as part of its post-implementation review (PIR) of IFRS 9. As a result, the IASB was not asked whether they object to the agenda decision, as required by the IFRS Foundation Due Process Handbook, and the agenda decision has not been published as final at the time of writing.
In October 2022, the IASB tentatively decided to develop an accounting policy choice to allow an entity to derecognise a financial liability before it delivers cash on the settlement date when specified criteria are met. This proposal is expected to be included in an Exposure Draft containing other proposed amendments arising from the PIR of IFRS 9, to be published in the first half of 2023.
Date project added to IASB’s work plan: June 2021
The Committee recently considered questions concerning how to classify debt and other financial liabilities (i.e. loans) as current or non-current in particular circumstances.
Specifically, the Committee discussed how an entity determines whether it has the right to defer settlement of a liability for at least twelve months after the reporting period when:
- the right to defer settlement is subject to the entity complying with specified conditions; and
- compliance with the specified conditions is tested at a date after the end of the reporting period.
The Committee reached a tentative decision that in certain circumstances, the liability would be classified as current.
In April 2021, the Committee confirmed its agreement with the conclusion that it reached in its tentative agenda decision. However, the Committee agreed to report back to the IASB on the feedback it received, before finalising the Agenda Decision.
Given the feedback received by the Committee, in June 2021 the IASB decided to add to its work plan a project to propose amendments to IAS 1 Presentation of Financial Statements. The IASB tentatively decided to amend IAS 1 with respect to classification (as current or non-current), presentation and disclosures of liabilities for which an entity’s right to defer settlement for at least 12 months is subject to the entity complying with conditions after the reporting period.