This Comment Letter was sent by BDO Global Coordination B.V. on behalf of BDO International, to the International Accounting Standards Board in March, 2009:
Dear Sir,
Exposure Draft ED/2009/01 – Post-implementation Revisions to IFRIC Interpretations (proposed amendments to IFRIC 9 and IFRIC 16)
We are pleased to have the opportunity to comment on the above Exposure Draft issued by the International Accounting Standards Board (IASB), on behalf of BDO International1.
We support the proposals set out in the Exposure Draft, although further consideration of transitional arrangements may be appropriate in respect of the revisions to IFRIC 16. Our responses to your specific questions are set out in the attached Appendix.
We hope that our comments and suggestions are helpful. Should you wish to discuss any of the points we have raised please contact either Tracey-Lee Massey at +32 2 778 01 30 or Andrew Buchanan at +44 (0)20 7893 3300.
Yours faithfully,
BDO Global Coordination B.V.
Proposed amendment to IFRIC 9 Reassessment of Embedded Derivatives
Question 1 – Amendment arising from IFRS 3 (as revised in 2008)
The Board proposes to amend paragraph 5 of IFRIC 9 to exclude from its scope embedded derivatives in contracts acquired in combinations of entities or businesses entities under common control and in the formation of joint ventures.
Do you agree with the proposal? If not, why?
We agree with the proposal and note that it will achieve the Board’s objective that the existing scope of IFRIC 9 should not be changed.
Question 2 – Effective date
The proposed amendment to IFRIC 9 would be effective for annual periods beginning on or after 1 July 2009 with prospective application, and would require that an entity that applies IFRS 3 (revised 2008) for a period earlier to disclose that fact and apply the amendment to IFRIC 9.
Do you agree that the amendment should apply for annual periods beginning on or after 1 July 2009 with prospective application? If not, why?
We agree with the proposed effective date. It is appropriate that the transitional arrangements are consistent with those of IFRS 3 (revised 2008).
Proposed amendment to IFRIC 16 Hedges of a Net Investment in a Foreign Operation
Question 1 – Removal of the restriction on the entity that can hold hedging instruments
The Board proposes to amend paragraph 14 of IFRIC 16 to remove the restriction on the entity that can hold hedging instruments.
Do you agree with the proposal? If not, why?
We agree with the proposal.
Question 2 – Effective date
IFRIC 16 is effective for annual periods beginning on or after 1 October 2008 with prospective application. The Board concluded that this amendment should apply in the same way.
Do you agree that this amendment should apply for annual periods beginning on or after 1 October 2008 with prospective application? If not, why?
While we would not generally support the retrospective application of amendments to a Standard or Interpretation, we note that in this case the amendment removes a restriction which was brought into effect by IFRIC 16 which is effective for periods beginning on or after 1 October 2008. Consequently, we consider it appropriate that the effective date of the amendment should be the same.
However, it is possible that this subsequent amendment to IFRIC 16 may not provide the relief that the Board intends, due to the hedge accounting requirements of IAS 39. An entity which may now qualify for net investment hedge accounting as a result of this amendment may have discontinued hedge accounting as a result of the issue of IFRIC 16; alternatively, an arrangement which will now qualify for hedge accounting as a result of this amendment may not have been designated as such on inception of the hedging arrangement. Because retrospective designation in a hedging relationship is not permitted by IAS 39, this would mean that from the date of dedesignation of an existing arrangement, or commencement of a new arrangement, to its date of (re)designation as a result of this amendment to IFRIC 16, hedge accounting would not be permitted.
A potential solution might be to permit hedge accounting relationships that are affected by the amendment to be dealt with retrospectively, provided that such retrospective designation (or elimination of dedesignation) is carried out by a specified cut off date (which could be a short period after the issue of the amendment to IFRIC 16).
1BDO International is a world wide network of public accounting firms, called BDO Member Firms, serving international clients. Each BDO Member Firm is an independent legal entity in its own country.
The network is coordinated by BDO Global Coordination B.V., incorporated in the Netherlands with its statutory seat in Eindhoven (trade register registration number 33205251) and with an office at Boulevard de la Woluwe 60, 1200 Brussels, Belgium, where the International Executive Office is located.