The Standing Interpretations Committee (SIC) in January 2002 published six new Interpretations to clarify accounting issues under International Accounting Standards.
The new Interpretations are:
- SIC-27: Evaluating the Substance of Transactions in the Legal Form of a Lease
- SIC-28: Business Combinations – «Date of Exchange» and Fair Value of Equity Instruments
- SIC-29: Disclosure – Service Concession Arrangements
- SIC-30: Reporting Currency – Translation from Measurement Currency to Presentation Currency
- SIC-31: Revenue – Barter Transactions Involving Advertising Services,
and
- SIC-33: Consolidation and Equity Method – Potential Voting Rights and Allocation of Ownership Interests
The Interpretations were approved by the IASB at its meeting in December. All Interpretations issued by SIC are part of the binding International Accounting Standards literature.
SIC-27, 29, and 31 become effective on 31 December 2001. SIC-30 and 33 become effective for annual financial periods beginning on or after 1 January 2002. SIC-28 becomes effective for acquisitions given initial accounting recognition on or after 31 December 2001.
Please find below a brief description of the new SIC.
SIC-27, Evaluating the Substance of Transactions in the Legal Form of a Lease
This SIC Interpretation is an interpretation of IAS 17: Leases.
The Interpretation addresses a number of issues when an arrangement between an Enterprise and an Investor involves the legal form of a lease. It addresses how to determine whether a series of transactions is linked and should be accounted for as one transaction. The Interpretation also addresses whether an arrangement meets the definition of a lease under IAS 17.
SIC-28, Business Combinations – «Date of Exchange» and Fair Value of Equity Instruments
SIC-28 is an Interpretation of IAS 22: Business Combinations.
The Interpretation addresses when the «date of exchange» occurs where shares are issued as purchase consideration in an acquisition. The Interpretation also addresses when it is appropriate to consider other evidence and valuation methods in addition to a published price at the date of exchange of a quoted equity instrument.
SIC 29, Disclosure – Service Concession Arrangements
This SIC is an Interpretation of IAS 1: Presentation of Financial Statements.
The Interpretation addresses what information should be disclosed in the notes to the financial statements of a Concession Operator and a Concession Provider when the two parties are joined by a service concession arrangement. A service concession arrangement exists when an enterprise (the Concession Operator) agrees with another enterprise (the Concession Provider) to provide services that give the public access to major economic and social facilities. Examples of service concession arrangements involve water treatment and supply facilities, motorways, car parks, tunnels, bridges, airports and telecommunication networks. Examples of arrangements that are not service concession arrangements include an enterprise outsourcing the operation of its internal services (e.g., employee cafeteria, building maintenance, and accounting or information technology functions).
SIC-30, Reporting Currency – Translation from Measurement Currency to Presentation Currency
This is an Interpretation of IAS 21: The Effects of Changes in Foreign Exchange Rates and IAS 29: Financial Reporting in Hyperinflationary Economies.
This Interpretation addresses how an enterprise translates items in its financial statements from a measurement currency to a presentation currency.
Summary of SIC-31, Revenue – Barter Transactions Involving Advertising Services
This is an Interpretation of IAS 18: Revenue.
The Interpretation address the circumstances when a Seller can reliably measure revenue at the fair value of advertising services received or provided in a barter transaction.
SIC-33, Consolidation and Equity Method – Potential Voting Rights and Allocation of Ownership Interests
This is an Interpretation of IAS 27: Consolidated Financial Statements, IAS 28: Investments in Associates and IAS 39: Financial Instruments: Recognition and Measurement.
An enterprise may own share warrants, share call options, debt or equity instruments that are convertible into ordinary shares, or other similar instruments that have the potential, if exercised or converted, to give the enterprise voting power or reduce another party’s voting power over the financial and operating policies of another enterprise (potential voting rights). The Interpretation addresses whether the existence and effect of potential voting rights should be considered, in addition to the factors described in IAS 27.12 and IAS 28.4-.5 when assessing whether an enterprise controls or significantly influences another enterprise according to IAS 27 and IAS 28 respectively.
The Interpretation also addresses whether any other facts and circumstances related to potential voting rights should be assessed. The Committee agreed that all facts and circumstances that affect potential voting rights should be examined, except the intention of management and the financial capability to exercise or convert.
Further, the Interpretation addresses whether the proportion allocated to the parent and minority interests in preparing consolidated financial statements, and the proportion allocated to an investor that accounts for its investment in an associate using the equity method, should be determined based on present ownership interests or ownership interests that would be held if the potential voting rights were exercised or converted.