9 Interpretations Committee Update

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18 June 2026
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25 June 2026 Agenda Paper 9

OFFICIAL - PUBLIC

Executive Summary

Detail Description
Project Type Influencing
Project Scope Various
Purpose of the paper This paper provides updates to the Board about the work and decisions of the IFRS Interpretations Committee.
Summary of the Issue As agreed with the Board, the Secretariat monitors requests submitted to the IFRS Interpretations Committee. This paper presents an overview of the topics on the Interpretations Committee’s agenda, categorised as follows:

Topics for discussion
i. New pipeline items.
ii. Existing pipeline items.

Topics for noting
iii. Closed consultations.
Decisions for the Board 1. Do Board Members agree that the Secretariat should continue to monitor the new pipeline item Determination of residual value (IAS 16)? (item I.1 below)
2. Do Board Members agree that the Secretariat should continue to monitor the new pipeline item Disposal of an investment in an associate with a price return swap arrangement (IAS 28)? (item I.2 below)
3. Do Board Members tentatively agree that the UKEB will not respond to the Interpretations Committee’s invitation to comment on Management-defined Performance Measures—Hypothetical Income and Expenses (IFRS 18)? (item II below)
Detail Description
Recommendation The Secretariat recommends that the UKEB should continue to monitor the pipeline items (items I.1–I.2 below).

The Secretariat tentatively recommends that the UKEB will not respond to the Interpretations Committee’s invitation to comment on Management-defined Performance Measures—Hypothetical Income and Expenses (IFRS 18) (item II below).
Appendices N/A

Background

1 The UKEB’s Due Process Handbook notes that the UKEB expects to respond to a limited number of tentative agenda decisions published by the IFRS Interpretations Committee (‘Interpretations Committee’ or ‘the Committee’). Some factors to consider when deciding whether to respond may be:

  1. the degree of impact of the tentative agenda decision on UK companies (for example, in cases where the tentative agenda decision is expected to affect a significant number of UK companies);
  2. disagreement with the Interpretations Committee’s analysis; or
  3. usefulness of the explanations and clarifications included in the tentative agenda decision.

2 The next meeting of the Committee is on 15 to 16 September 2026.

Overview

3 The Interpretations Committee met on 16 to 17 June 2026. At this meeting, the Interpretations Committee discussed five pipeline items that the UKEB considered at its May meeting1. Due to its relevance to UK stakeholders, an update on the Committee’s discussions of Management-defined Performance Measures—Hypothetical Income and Expenses (IFRS 18) is provided in Section II below.

4 The rest of this paper is structured as follows:

  1. Section I. New pipeline items.
  2. Section II. Existing pipeline items.
  3. Section III. Closed consultations.

Section I. New Pipeline items

I.1 Determination of residual value (IAS 16)

Detail Description
Standard IAS 16 Property, Plant and Equipment
IFRIC status This pipeline item was recently submitted to the Committee and has not yet been included on a Committee agenda.

The next meeting of the Committee is on 15 to 16 September 2026.
Question The submission seeks clarification on how lessors should determine the residual value of leased assets when calculating depreciation under the requirements of paragraph 43 of IAS 16.

The fact pattern in the submission describes an entity that manufactures cars and leases some newly produced vehicles to end customers, usually for around three years. At the end of the lease term, the cars are sold through various sales channels.

The entity classifies the lease arrangements as operating leases and recognises the leased vehicles on the balance sheet at historical cost. When calculating depreciation, the residual value is estimated using a model that incorporates anticipated used car prices, projected trading volumes and macroeconomic trends.

The submission:
  • notes that paragraph 6 of IAS 16 requires that the estimate of residual value is the amount that the entity “would currently obtain from disposal of the asset … if the asset were already of the age and in the condition expected at the end of its useful life”; and
  • asks whether estimates of future developments expected during the remaining lease term (other than those related to the age and condition of the asset) should be reflected when determining residual value.
Comment This matter has not been raised with the Secretariat as a particular challenge by UK stakeholders.
Recommendation It is recommended that the Secretariat continues to monitor this item. The Secretariat will bring this item back to the Board for further discussion as necessary.

Question for the Board

  1. Do Board Members agree that the Secretariat should continue to monitor the new pipeline item Determination of residual value (IAS 16)?

I.2 Disposal of an investment in an associate with a price return swap arrangement (IAS 28)

Detail Description
Standard IAS 28 Investments in Associates and Joint Ventures
IFRIC status This pipeline item was recently submitted to the Committee and has not yet been included on a Committee agenda.

The next meeting of the Committee is on 15 to 16 September 2026.
Question The submission seeks clarification on matters concerning transferred equity interests, in particular, whether price return swap (PRS) arrangements meet the definition of a derivative containing potential voting rights under paragraphs 12 and 13 of IAS 28.

The fact pattern in the submission describes an entity, A, with a 23% interest in C accounted for as an investment in an associate. A enters into a stock purchase agreement to transfer a 2% interest in C to B. Concurrently, A and B enter into a PRS arrangement referencing the transferred shares in C as the underlying asset.

The PRS has a fixed three‑year term. On the maturity date, A and B settle gains or losses based on changes in the fair value of the underlying asset (i.e. the shares in C) on a net basis.

Consequently, A remains substantially exposed to the risks and rewards of changes in fair value. That is, A may be considered to have, in substance, an existing ownership as a result of a transaction that currently gives it access to the returns associated with an ownership interest (paragraph 13 of IAS 28).

Alternatively, as A loses voting rights attached to the shares in the PRS, the PRS arrangement may not be considered a derivative instrument containing potential voting rights (paragraph 12 of IAS 28).

The submission asks whether:
  • an entity should consider the actual delivery of the underlying asset referenced in the PRS arrangement when considering potential voting rights; and
  • adjustments to the fact pattern, such as A having right of first refusal to buy back the shares in C on the maturity date, would affect the accounting treatment.
Comment This matter has not been raised with the Secretariat as a particular challenge by UK stakeholders.
Recommendation It is recommended that the Secretariat continues to monitor this item. The Secretariat will bring this item back to the Board for further discussion as necessary.

Question for the Board

  1. Do Board Members agree that the Secretariat should continue to monitor the new pipeline item Disposal of an investment in an associate with a price return swap arrangement (IAS 28)?

Section II. Existing pipeline items

5 The Board agreed at its meeting in May 2026 that the Secretariat should continue to monitor the Committee’s new pipeline items relating to IFRS 18 Presentation and Disclosure in Financial Statements and provide the Board with updates accordingly.

6 The Secretariat has heard concerns relating to the pipeline item Management-defined Performance Measures—Hypothetical Income and Expenses (IFRS 18) from a UK stakeholder. Specifically, the concern relates to the proposed Tentative Agenda Decision (TAD) outlined in the staff paper presented to the meeting of the Interpretations Committee on 16 June 20262. The Secretariat therefore recommends that the Board considers whether to respond to the consultation on this TAD.

7 Material in the table below that has been included in a previous Interpretations Committee Update presented to the Board is shaded.

Management-defined Performance Measures—Hypothetical Income and Expenses (IFRS 18)3

Detail Description
Standard IFRS 18 Presentation and Disclosure in Financial Statements
IFRIC status The Interpretations Committee discussed this item at its meeting on 16 to 17 June 2026.
Question The submission asks whether a performance measure could meet the definition of a management-defined performance measure (MPM) if it includes income and/or expenses that are ‘hypothetical’, i.e. income and/or expenses that have not been, and never will be, recognised in the statement of financial performance.

Examples of these include:
  • Annualised rental income minus non-recoverable property expenses (such as service charges and ground rent), where annualised rent is calculated by multiplying the rental income for the last month of the reporting date, as recognised in accordance with IFRS 16 Leases, by twelve months.
  • Net profit adjusted for the estimated effects on income and expenses of a major crisis, such as a pandemic or a global conflict.
  • Pro forma gross profit calculated as if a business combination that actually happened mid-year instead happened at the beginning of the reporting period.
The submission notes that IFRS 18 does not specifically require that income and expenses must be recognised in the statement of profit or loss to be included in an MPM.
Interpretations Committee’s tentative conclusion The Committee has analysed this question because it anticipates that the matter could have widespread effect due to the prevalence of performance measures used by entities in public communications outside financial statements.

At its June meeting, the Committee tentatively concluded that performance measures that include hypothetical income and expenses can meet the definition of an MPM because:
  • they are a subtotal of income and expenses; and
  • can faithfully represent what they purport to represent (being management’s view of an aspect of financial performance of the entity as a whole).
Members of the Interpretations Committee expressed concerns about this tentative conclusion. In particular, the appropriateness of an MPM based on hypothetical figures that cannot be verified (for example, profit adjusted to remove the effects of a global pandemic) was challenged.

In addition, members of the Committee expressed concern that a decision to permit the inclusion of hypothetical figures in MPMs may conflict with guidance from regulators on the publication of certain information.

However, the Committee noted that IFRS 18 includes measures that should prevent entities from including misleading information in the disclosure. For example, paragraph 123(c) requires a reconciliation between the MPM and the most directly comparable subtotal specifically required to be presented or disclosed by IFRS Accounting Standards. In addition, paragraph B134 requires an entity to label and describe its MPMs in a way that faithfully represents its characteristics. This requirement should prevent certain estimates as if they were the entity’s actual performance.

Committee members also highlighted paragraph BC360, which emphasises that an MPM is only required to faithfully represent the aspect of performance being communicated. That is, an MPM should not be considered to be a “good” measure by virtue of being an MPM.

IASB members in attendance at the meeting noted that the IASB had discussed whether hypothetical figures may be included in MPMs and had decided not to prohibit this.

The Committee therefore agreed that IFRS 18 does not prevent the inclusion of hypothetical income and expenses in an MPM.
Comment The Secretariat agrees with the Committee’s analysis of IFRS 18 and agrees that, provided all of IFRS 18’s requirements are met, performance measures that include hypothetical income and expenses can meet the definition of an MPM.

The Secretariat notes, however, that some UK stakeholders share concerns expressed by members of the Interpretations Committee that the Committee’s conclusion potentially contradicts guidance issued by regulators. The Secretariat notes that it is not within the IASB’s remit to determine what may be communicated outside the financial statements. Regulators can continue to address this matter as relevant to their individual jurisdictions.
Recommendation The Secretariat notes that IASB staff are currently amending the wording of the TAD to reflect the Committee’s discussions. It is recommended that the Secretariat continues to monitor this item to assess the revised wording once it is available.

Noting that the final wording of the TAD is not yet available, the Secretariat tentatively recommends that the UKEB will not respond to the Interpretations Committee’s invitation to comment on Management-defined Performance Measures—Hypothetical Income and Expenses (IFRS 18).

Question for the Board

  1. Do Board Members tentatively agree that the UKEB will not respond to the Interpretations Committee’s invitation to comment on Management-defined Performance Measures—Hypothetical Income and Expenses (IFRS 18)?

Section III. Closed Consultations

Reassessment of Control (IFRS 10)

Detail Description
Standard IFRS 10 Consolidated Financial Statements
IFRIC status The consultation for the TAD Reassessment of Control (IFRS 10) closed on 19 March 2026.
UKEB status Monitoring only.

At its January 2026 meeting the Board agreed that the UKEB will monitor this item without undertaking further work (see paper 9A, item I.2).

The UKEB Secretariat will continue to monitor the Interpretations Committee’s deliberations and decisions and will provide the Board with updates accordingly.

Footnotes

  1. Refer to UKEB Public Board Meeting – 21 May 2026, Agenda Paper 9 Interpretations Committee Update items I.1–I.5. ↩

  2. See Paper AP2: Initial consideration. ↩

  3. Previously referred to as Performance measures with income and expenses that are hypothetical (IFRS 18). ↩