IAS 27/IAS 32 — Put options over non-controlling interests
The IFRS Interpretations Committee (the "Committee") discussed aspects of the accounting for put options written on non-controlling interests in the consolidated financial statements of the controlling shareholder ('NCI puts'). Some constituents have expressed concerns about the diversity in accounting for the subsequent measurement of the financial liability that is recognised for NCI puts. This is due to a potential inconsistency between the requirements of measuring financial liabilities (IAS 32 Financial Instruments: Presentation; IAS 39 Financial Instruments: Recognition and Measurement; and IFRS 9 Financial Instruments) and the requirements for accounting for transactions with owners in their capacity as owners (IAS 27 Consolidated and Separate Financial Statements and IFRS 10 Consolidated Financial Statements). Some constituents were of the view that subsequent changes in the liability that is recognised for the NCI put should be recognised in profit or loss while other constituents were of the view that subsequent changes in that liability should be recognised in equity.
In September 2011, the Board decided not to proceed with the Committee’s proposal to amend the scope of IAS 32 to exclude NCI puts but asked the Committee to consider addressing the diversity in accounting by clarifying the accounting for subsequent changes in those liabilities (rather than changing the measurement basis of the NCI puts). In November 2011, the Committee decided to take the issue back onto its agenda but asked the Board for clear guidance on how the Board would like the Committee to take the issue forward.
At its meeting in November 2011 the IASB voted to ask the Committee to analyse the following two issues:
- whether changes in the measurement of the NCI put should be recognised in profit or loss (P&L) or equity; and
- whether the clarification above should be applied to only NCI puts or to both NCI puts and NCI forwards.
At the March 2012 meeting, the staff presented the analysis of these two issues, along with a summary of the Committee’s discussion and recommendations to address the diversity in accounting for the subsequent measurement of NCI puts.
The Committee recommended that the Board should address the diversity in accounting by proposing to amend IAS 27 Consolidated and Separate Financial Statements and IFRS 10 Consolidated Financial Statements to clarify that all changes in the measurement of the NCI put must be recognised in P&L. The staff modified this recommendation to propose an amendment only to IFRS 10 on the basis that IFRS 10 would supersede IAS 27 and the period between when the amendment is finalised and IAS 27 is superseded will be short.
Several Board members commented that they viewed NCI puts as transactions between shareholders and therefore, changes in the measurement of the NCI put should be recognised in equity. They noted that it was counterintuitive to recognise these changes in P&L. However, some Board members were of the view that the NCI put is a financial liability and thus the changes in measurement should be recognised in P&L. There were also suggestions that this issue could be addressed as part of a broader financial instruments project addressing other aspects of the accounting for NCI puts. There was a reluctance to address this issue through an amendment to IFRS 10 given the potential impact on transition and application dates and also divergence in views on what the appropriate treatment should be. However, there was agreement that there should be clarification based on the existing literature through an Interpretation.
Twelve Board members tentatively decided that the Committee should issue an Interpretation to clarify this issue based on the Committee’s proposal in the agenda paper.