A summary of 2023 IFRIC activity and comparison to US GAAP.
From the IFRS Institute – December 8, 2023 (updated June 7, 2024)
IFRS Interpretations Committee (IC) Agenda Decisions play a key role in forming accounting positions under IFRS Accounting Standards, and companies need to apply them on a timely basis. In 2023, the IFRS IC has finalized a number of issues in relation to insurance contracts, employee benefits, separate financial statements, and financial instruments. In this article, we summarize related Agenda Decisions and shed light on how they compare to US GAAP.
What are IFRS IC Agenda Decisions?
The IFRS IC is the interpretive body of the International Accounting Standards Board (the IASB). It supports consistent application of IFRS Accounting Standards and improves financial reporting through the timely resolution of financial reporting issues. When presented with an application issue, the IFRS IC often concludes that no standard-setting is needed. It then explains its rationale in Agenda Decisions, which provide key interpretive guidance for companies to use as they apply IFRS Accounting Standards. Agenda Decisions are only finalized if the IASB does not object to them.
The following topics have been finalized by the IFRS IC in 2023. For a refresher on 2022 Agenda Decisions, read KPMG IFRS Perspectives article here:
| Issue | Status | Discussion |
| Guarantee over a derivative contract (IFRS 9, Financial Instruments) | Final Full text available here1. | Is a guarantee written over a derivative contract accounted for as a financial guarantee contract or a derivative? In the fact pattern discussed by the IFRS IC, an entity provides a guarantee over a derivative contract between two third parties by promising to reimburse the holder of the guarantee for the actual loss, up to the close-out amount, suffered in the event of a default by the other party. The close-out amount is determined based on a valuation of the remaining contractual cash flows of the derivative prior to default. The IFRS IC decided not to address this question because it has neither widespread effects nor a material effect on those affected. In our view, under IFRS Accounting Standards, a guarantee written over a derivative contract can be accounted for as a derivative. It can also be accounted for as a financial guarantee contract if it compensates the holder solely for losses arising from the debtor’s failure to make a payment when it is due and not for losses arising from market risk. Under US GAAP, a guarantee written over a derivative contract is accounted for as a derivative because it does not meet the financial guarantee contracts scope exception. |
| Issue | Status | Discussion |
| Premiums receivable from an intermediary (IFRS 17, Insurance Contracts, and IFRS 9) | Final Full text available here1. | Does an insurer apply the requirements in IFRS 17 or IFRS 9 to premiums receivable from an intermediary? In the fact pattern discussed by the IFRS IC, an intermediary acts as a link between an insurer and a policyholder to arrange an insurance contract between them. 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 intermediary is allowed to pay the premiums to the insurer at a later date. Once the policyholder paid in cash the premiums to the intermediary, the policyholder discharged its obligation to pay premiums, and the insurer is obliged to provide insurance contract services. 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. Under IFRS 17, an insurer includes in the measurement of a group of insurance contracts an estimate of all the future cash flows within the boundary of each contract in the group, including premiums receivable. However, IFRS 17 is silent on whether future cash flows within the boundary of an insurance contract are removed from the measurement of a group of insurance contracts only when these cash flows are recovered or settled in cash. The IFRS IC concluded that for this fact pattern, an insurer develops an accounting policy in accordance with IAS 82 to determine when to remove the premiums from the measurement of a group of insurance contracts. The insurer could determine that cash flows are removed when:
Information about the credit risk that arises from the premiums receivable from an intermediary should be disclosed under the applicable standard. Under US GAAP, there is no equivalent to the IFRS 17 measurement model for insurance contracts. Therefore, differences between US GAAP and IFRS Accounting Standards may continue to exist in practice. |
| Issue | Status | Discussion |
| Homes and home loans provided to employees (IAS 19, Employee Benefits, and IFRS 9) | Final Full text available here1. | How does an entity account for employee home ownership plans and employee home loans? The IFRS IC considered two fact patterns. 1. An entity provides its employee with a house that the entity owns. The employee pays for the house through salary deductions until the agreed price of the house has been fully repaid. The employee would forfeit the house and recover the salary deductions if they leave employment within the first five years of the arrangement. After five years, the employee may choose to either forfeit the house and recover the salary deduction or keep the house and pay the outstanding balance. 2. An entity provides its employee with a loan to buy a house that the entity does not own. The loan is at a below-market rate of interest; typically interest free, and repaid by the employee through salary deductions. If the employee leaves employment at any point, the outstanding balance of the loan becomes repayable. The IFRS IC decided not to address this question because it does not have widespread effect. Under US GAAP, an entity evaluates the facts and circumstances to determine if there are compensatory elements that require recognition. |
| Issue | Status | Discussion |
| Merger between a parent and its subsidiary in separate financial statements (IAS 27, Separate Financial Statements, and IFRS 3, Business Combinations) | Final Full text available here1. | Does a parent entity that prepares separate financial statements account for a merger with its subsidiary under IFRS3? In the fact pattern discussed by the IFRS IC, a parent entity merges with its subsidiary, resulting in the subsidiary’s business becoming part of the parent (merger transaction). The IFRS IC observed that there is little diversity in practice, and parent entities generally do not apply the requirements in IFRS 3 to a merger between a parent and its subsidiary. The IFRS IC decided not to address this question because it does not have widespread effect. Under US GAAP, this issue generally does not arise because a parent company presents consolidated financial statements, rather than separate financial statements. In the consolidated financial statements, an up-stream merger does not change the basis of the net assets – i.e. the assets and liabilities of the parent and subsidiary are combined at their historical carrying amounts. |
Companies should periodically review IFRS IC Updates and the IFRS IC Compilation of Agenda Decisions, in which tentative and final Agenda Decisions are published, to consider how those decisions may affect their accounting policies. The issues discussed by the IFRS IC are significant, and the impact on the financial statements could be material. Companies are expected to update their accounting policies in a timely manner to the extent that their accounting differs from that described in an Agenda Decision. Dual reporters should also consider any differences with US GAAP that might emerge through these Agenda Decisions.
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