Username:
Password:
Forgot Password?

AASB 7 - Financial Instruments: Disclosure
Print this Article Print this Article
Email this Article

Summary 
Developments, Key Differences & History 
Compared to IFRS 
Interpretations 
Rejection Notices 
Questions & Answers 
Articles 
AASB website 

 
IFRIC Rejections and Guidance
  1. May 2009 - Determination of cash equivalents
  2. November 2006 - Presentation of ‘net finance costs’ on the face of the income statement
1. May 2009 - Determination of cash equivalents 
 
Issue:  
 
IAS 7 Statement of Cash Flows - Determination of cash equivalents 
 
The IFRIC received a request for guidance on whether investments in shares or units of money market or other funds that are redeemable at any time can be classified as cash equivalents. 
 
The IFRIC noted that paragraph 7 of IAS 7 states that the purpose of holding cash equivalents is to meet short-term cash commitments. In this context, the critical criteria in the definition of cash equivalents set out in paragraph 6 of IAS 7 are the requirements that cash equivalents be ‘convertible to known amounts of cash’ and ‘subject to an insignificant risk of changes in value’. The IFRIC noted that the first criterion means that the amount of cash that will be received must be known at the time of the initial investment, ie the units cannot be considered cash equivalents simply because they can be converted to cash at any time at the then market price in a liquid market. The IFRIC also noted that an entity would have to satisfy itself that any investment was subject to an insignificant risk of changes in value for it to be classified as a cash equivalent. 
 
IFRIC Tentative Decision:  
 
Given the guidance in IAS 7, the IFRIC did not expect significant diversity in practice because the purpose of holding the instrument and the satisfaction of the criteria should both be clear from its terms and conditions. 
 
Accordingly, the IFRIC [decided] not to add this issue to its agenda. 
Top 
 
2. November 2006 - Presentation of ‘net finance costs’ on the face of the income statement 
 
Issue:  
 
At its meeting in October 2004, the IFRIC noted that, taken together, paragraphs 32 and 81 of IAS 1 Presentation of Financial Statements preclude the presentation of ‘net finance costs’ on the face of the income statement unless finance costs and finance revenue are also shown on the face of that statement. IFRS 7 Financial Instruments: Disclosures was issued in 2005. Paragraph IG13 of IFRS 7 states that ‘The total interest income and total interest expense disclosed in accordance with paragraph 20(b) is a component of the finance costs, which paragraph 81(b) of IAS 1 requires to be presented separately on the face of the income statement. The line item for finance costs may also include amounts that arise on non-financial assets or non-financial liabilities.’ 
 
The IFRIC was asked whether the IFRIC’s October 2004 analysis regarding presenting ‘net finance costs’ on the face of the income statement is still valid in the light of paragraph IG13 of IFRS 7. 
 
IFRIC Decision:  
 
The IFRIC believed that its analysis in October 2004 was still valid. Consequently, [the IFRIC decided] not to take the issue onto the agenda.  
 
The IFRIC believed that the words in paragraph IG13 of IFRS 7 may result in confusion. [The IFRIC, therefore, decided] to recommend to the IASB that the paragraph should be amended. 
Top