Investor Presentaiton
Appendix C
Recent IFRIC agenda decisions
Meeting date
June 2022
June 2022
Issue discussed by the Committee
IAS 37 - Negative low emission
vehicle credits:
An entity has produced or imported
vehicles with average fuel emissions
higher than the government target.
Does it have a liability if the
government requires the entity to
eliminate the resulting negative
emission credits?
IAS 32-Special purpose acquisition
company ("SPAC"): Classification of
public shares as financial liabilities or
equity:
Is a decision by shareholders to
extend a SPAC's life one within the
control of the SPAC?
Summary of the Committee's conclusion on the issue
The Committee observed that the entity would consider:
(a) whether settling an obligation to eliminate negative credits would
result in an outflow of resources embodying economic benefits;
(b) which event creates a present obligation; and
(c) whether it has a realistic alternative to settling the obligation.
The Committee concluded, in the fact pattern described, that the settlement
of an obligation to eliminate negative credits would result in an outflow of
resources embodying economic benefits, including outflow in the form of
surrendering any positive credits that the entity would generate in the next
year.
In addition, the activity that triggers a requirement to eliminate negative
credits is the production or import of vehicles whose average fuel emissions
are higher than the government targets, and not the government's
assessment of the entity's position at the end of the calendar year. As such,
a present obligation could exist at any date on the basis of the entity's
cumulative production/import activities to that date, not only at the end of
the calendar year.
Third, the measures in the fact pattern could give rise to a legal obligation -
the measures derive from an operation of law, and the sanctions are the
means by which settlement is enforced. An entity would not have a legal
obligation that is enforceable by law if accepting the possible sanctions for
non-settlement is a realistic alternative for that entity. This is a judgement
that depends on the nature of the sanctions and the entity's specific
circumstances. If an entity concludes it does not have a legal obligation to
eliminate the negative credits, it nevertheless would then need to consider
whether it has a constructive obligation to do so, considering whether it has
taken an action that creates valid expectations in other parties that it will
eliminate the resulting negative credits - e.g. made a sufficiently specific
current statement that it will do so.
In the fact pattern described, a SPAC issues two classes of shares (Class A
and Class B). Class B shareholders individually have the contractual right to
demand a reimbursement of their shares under certain circumstances,
including upon a pre-determined liquidation of the SPAC if no target entity is
found within a specified period. In addition, these shareholders along with
the Class A shareholders have the contractual right to extend the SPAC's life
beyond that specified period.
The Committee observed that, in determining whether the decision of
shareholders to extend the SPAC's life is considered to be within the control
of the SPAC and the impact on the classification of the Class B shares as
financial liabilities or equity, IAS 32 contains no requirements on how to
assess whether a decision of shareholders is treated as a decision of the
entity.
The Committee concluded that the matter described in the request is, in
isolation, too narrow for the IASB or the Committee to address in a cost-
effective manner. Instead, the IASB should consider the matter as part of its
broader discussions on its Financial Instruments with Characteristics of
Equity project.
C5
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