Application of IFRS 5 to loss of joint control
Without much discussion the Board agreed that:
- an entity classifies a partial interest in a joint venture or in an associate as held for sale, if such partial disposal fulfils the criteria for the classification as held for sale set out in IFRS 5, while the equity method applies for accounting for the retained interest;
- in the case a plan of sale changes the entity should resume equity method accounting for the held-for-sale interest;
- in the case of joint operations, the held-for guidance should be extended for the classification as held for sale of all the assets and liabilities in which the joint operator has an interest, in the case in which a disposal meets the criteria of classification as held for sale as defined in IFRS 5'
- paragraph 28 of IFRS 5 should be amended to clarify that the financial statements for the periods since classification as held for sale shall be adjusted retrospectively when the disposal group or non-current asset that ceases to be classified as held for sale is a subsidiary, a joint arrangement or an associate; and
- the requirements in paragraph 34 of ED 9 should be re-worded to include the corresponding requirements for joint operations that no longer meet the criteria to be classified as held for sale.
The Board agreed to require a list and description of joint arrangements and associates that are individually material for the reporting group. The Board decided not to refer to significant joint arrangement or associates as the term 'significant' is not defined in the IFRSs.
The Board decided that summarised financial information related to the joint ventures or associates in the venturer's financial statements shall state the investment at 100% of the interest as the disclosure already include the share of interest and voting rights in the joint venture or associate. Consequently, the Board decided to require disclosure of amounts at a hundred per cent for individually-material joint ventures and associates and disclosing the entity's net interest amount in those joint ventures or associates that are not individually material.
The Board was split on the detail of disclosure for associates. Some Board members preferred requiring more detailed information, similar to those required for joint ventures, as they believed that some associates might be as significant as joint ventures. They believed that such information is important for the users of financial statements. Nonetheless, the Board (with a split vote 8:7) decided to require only the investor's interest in the amount of each of current assets, non-current assets, current liabilities, non-current liabilities, revenues, profit or loss and other comprehensive income.
Some Board members also suggested requiring these disclosures for each individually material associate and not only aggregate for all associates.
Finally, the Board agreed to remove the requirement to disclose contingent liabilities and commitments arising from joint operations separately from the other reporting entity's own contingent liabilities and commitments disclosures, but keeping separate disclosures relating to contingent liabilities arising from the entity's involvement in joint ventures.
After a very short discussion, the Board agreed that in case of transitioning from accounting for arrangements under the equity method to accounting for shares of assets and liabilities (joint operations under the new IFRS), an entity should derecognise the investment and recognise the share of assets and liabilities based on the entity's interest determined in accordance with the agreement at their corresponding carrying values (adjusted for their fair value at acquisition, depreciation and impairment). Additionally, the entity shall recognise difference between the carrying amount of the investment and carrying amount of the individual assets and liabilities in retained earnings. The Board also agreed that the goodwill included in the investment under the equity method shall be allocated to the individual assets of the joint operation.
The Board also agreed that in case of transition from accounting for arrangements under the equity method to accounting for shares of assets and liabilities, and entity should perform and disclose a reconciliation between the investment derecognised, assets and liabilities recognised and any balance recognised in the retained earnings.
The Board agreed that the first-time adopters transitioning from proportional consolidation accounting to equity accounting should perform impairment testing of the resulting investment.
The Board also agreed that the first-time adopters transitioning from equity accounting to accounting for shares of assets and liabilities should apply the same transitional requirements as the current IFRS preparers except for any adjustments that a first-time adopter might need to carry out to convert its investment into an IFRS basis.
The Board agreed that the transitional provisions for separate financial statements of first time adopters shall be the same as transitional requirement of current IFRS preparers.
The Board agreed that the effective date of the guidance should be aligned with other MoU projects. Finally, the Chairman asked the Board members to indicate their support for the package of decisions. No Board members indicated his/her dissent.