The International Financial Reporting Interpretations Committee (IFRIC) has issued a new interpretation, IFRIC 17 Distributions of non-cash assets to owners which applies to pro rata distributions of non-cash assets, except for common control transactions.
IFRIC 17 is effective for annual periods beginning on or after 1 July 2009 with early application permitted.
It addresses the issue of accounting for distributions of assets other than cash to owners as dividends and clarifies that:
- a dividend payable should be recognised when the dividend is authorised and is no longer at the discretion of the entity
- an entity should measure the dividend payable at the fair value of the net assets to be distributed
- an entity should recognise the difference between the dividend paid and the carrying amount of the net assets distributed in profit or loss.
In Australia, dividends are considered declared when approved by the board of directors. The legal obligation occurs at the point of ratification by the shareholders, which is usually at the annual general meeting.
Consequently, there is a time lag between the date when the directors commit the assets for distribution to owners and the date when the present obligation occurs.
IFRS 5 / AASB 5 Non-current assets held for sale and discontinued operations provides the appropriate accounting treatment for assets which are committed by the management to a dividend transaction.
But, this conflicts with IAS 37 / AASB 137 Provisions, contingent liabilities and contingent assets where the point of recognition is at the point of present obligation, or ratification by shareholders.
Notwithstanding the inconsistency within IFRS 5 / AASB 5 between assets held for sale and those held for distribution, IFRIC decided not to recommend that the IASB amend IFRS 5 because the mismatch would normally only occur for short periods.
The Australian Accounting Standards Board (AASB) adopted IFRIC 17 in late December 2008. Interpretation 17 is available on the AASB website.
CPA Australia's response
This interpretation will reduce the diversity in the accounting practice for distributions to owners, according to CPA Australia.
When the draft interpretation was exposed, some in the profession argued that the difference should be recognised in equity while others shared IFRIC's view.
A joint submission to IFRIC was issued in April 2008 to express the profession's views.
Further information
