Draft Abstract on equivalence

A proposed UITF Abstract 'The interpretation of equivalence for the purposes of section 228A of the Companies Act 1985' was issued in May (in Information Sheet 79).

With effect for accounting periods commencing on or after 1 January 2005, the Companies Act 1985 has been amended to include a new section 228A. This exempts, subject to certain conditions, an intermediate parent undertaking from the requirement to prepare consolidated accounts where its parent entity is not established under the law of an EEA state. The new exemption extends to UK companies an optional exemption in the EU Seventh Company Law Directive that was not taken up when its provisions were originally enacted through the Companies Act 1989. The new exemption complements the well established exemption in section 228 for intermediate parent undertakings where the parent entity is established under the law of an EEA state.

Exemption is conditional upon compliance with various conditions, including that the intermediate parent and all of its subsidiaries are included in consolidated accounts for a larger group drawn up in accordance with the provisions of the Seventh Directive or in a manner equivalent to consolidated accounts so drawn up.

Questions have been raised as to whether financial statements drawn up in accordance with IFRS, US GAAP and other GAAPs meet the requirement for 'equivalence' with the Seventh Directive, and the UITF has been asked to provide guidance.

IFRIC Interpretation on interim financial reporting and impairment

IFRIC 10 Interim Financial Reporting and Impairment was issued on 20 July. It addresses a conflict between IAS 34 Interim Financial Reporting and other standards.

IAS 34 states that the frequency of an entity's reporting (annual, half-yearly, or quarterly) shall not affect the measurement of its annual results. IAS 36 Impairment of Assets and IAS 39 Financial Instruments: Recognition and Measurement do not permit certain impairment losses to be reversed in a subsequent period, i.e. on goodwill, unquoted equity instruments carried at cost and equity instruments classified as available for sale.

IFRIC 10 addresses the issue of whether impairment losses recognised on those assets in an interim period should or should not be reversed in a subsequent interim period, if circumstances justify a different answer by the end of that subsequent interim period. IFRIC 10 concludes that such impairment losses should not be reversed.

IFRIC agenda decision on recognition of contingent rentals

The following agenda decision is reported in July's edition of IFRIC Update.

"The IFRIC has been asked to consider whether an estimate of contingent rentals payable/receivable under an operating lease should be included in the total lease payments/lease income to be recognised on a straight-line basis over the lease term. The IFRIC noted that, although the Standard [IAS 17 Leases] is unclear on this issue, this has not, in general, led to contingent rentals being included in the amount to be recognised on a straight-line basis over the lease term. Accordingly, the IFRIC decided not to add this issue to its agenda but to recommend to the Board that IAS 17 be amended to clarify the approach intended by the Standard."

IASB announces no new IFRS effective until 2009

On 24 July, the IASB announced a number of steps taken as a result of its ongoing review of its work programme and of market practices. The major feature is that the IASB will not require the application of new IFRSs under development or major amendments to existing standards before 1 January 2009. This will provide a period of stability for entities applying IFRS.

The IASB has also announced that it intends to allow a minimum of one year between the date of the publication of wholly new IFRS or major amendments to existing IFRS and the date when implementation is required.