The Standing Interpretations Committee (SIC) met on 7 and 8 August 2000 in London, when it agreed to:
- submit two final Interpretations to the IASC Board for approval based on revised Draft Interpretation SIC-D19 and Draft Interpretation SIC-D24;
- issue two Draft Interpretations on topics relating to incidental operations and transactions in the form of a lease and leaseback of an asset;
- add two new topics to its agenda relating to the definition of common control and the measurement of shares issued in a business combination;
- continue its discussion of service concessions as a potential topic; and
- not add a topic to its agenda relating to the scope of IAS 22, Business Combinations.
Final interpretations
The SIC discussed comments received in response to Revised Draft Interpretation SIC-D19 and SIC-D24. These Interpretations, following further drafting revisions, are expected to be submitted to the IASC Board for approval in October 2000.
Reporting Currency – Measurement and Presentation of Financial Statements under IAS 21 and IAS 29 (SIC-D19)
The SIC confirmed that an enterprise should select a currency for measuring items in its financial statements, based on the economic circumstances relevant to the enterprise. The Committee expects to include an appendix to the proposed Interpretation that illustrates examples of circumstances that may be relevant.
Financial statements should present fairly the financial position, financial performance, and cash flows of the enterprise. If an enterprise presents its financial statements in a currency different to the currency it selected for measuring items, then and additional translation process will be required. However, in order to present the financial statements fairly, the translation method used in this additional process should not result in a presentation that is inconsistent with what would have been reported had the enterprise presented its financial statements in the currency it selected for measuring items.
The SIC agreed to require, where applicable, disclosure of the additional translation process applied by the enterprise in translating from the currency used for measuring items to a different currency used for presenting its financial statements.
The proposed Interpretation will be effective for annual financial periods beginning on or after 1 January 2001.
The Committee may consider addressing the additional translation process as a separate topic.
Earnings per Share (EPS) – Financial Instruments and Other Contracts That May Be Settled in Shares (SIC-D24)
The SIC confirmed that all financial instruments or other contacts that may result in the issuance of ordinary shares of the reporting enterprise are potential ordinary shares. As a consequence, equity instruments issued by the reporting enterprise that are accounted for as financial liabilities under paragraph 11 of IAS 39 would be considered potential ordinary shares.
The dilutive effect, if any, of these instruments is included in calculating diluted EPS. The existence and measurement of dilution is determined under existing guidance in IAS 33.
The proposed Interpretation will be effective on the date of issuance. Comparative information presented in financial statements should be restated.
Draft interpretations
Property, Plant and Equipment – Results of Incidental Operations
In some cases, an enterprise earns revenue by using a tangible asset before it is ready for its intended use. The SIC reached a consensus that the results of these activities should be recognized in the net profit or loss of the period. The Draft Interpretation will propose that the income and costs directly attributable to the activities each be included in their respective income and expense categories on the face of the income statement.
Lease – Leaseback Transactions
The Committee continued its discussion of transactions that take the legal form of a lease of assets to an investor and a sublease of those same assets back to the enterprise. The SIC confirmed that all aspects of a transaction should be evaluated to determine its substance. The approach looks at a specific fact pattern and evaluates whether the substance of that fact pattern results in a lease (an asset and liability requiring recognition) or in the recognition of revenue.
Having determined that the proposed approach is not inconsistent with the work of the IAS 39 Implementation Guidance Committee, the SIC will issue a Draft Interpretation on this topic. Further drafting revisions will be considered before issuance of the Draft Interpretation.