Amendments to IFRS 5

Date recorded:

The IASB considered issues that needed to be addressed before issuing an Exposure Draft to amend IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. The ED's primary purpose is to align IFRS and US GAAP with respect to the definition of discontinued operations and to make other improvements to IFRS 5.

 

Additional criteria for the definition of a Discontinued Operation

In May 2008, the FASB indicated its preference to amend the previously agreed definition of discontinued operations to include in the definition subsidiaries that meet the criteria to be classified as held for sale on acquisition.

Subsequently, the staff prepared a memorandum for both Boards, which included a recommendation to include in the definition of discontinued operations subsidiaries that meet the criteria to be classified as held for sale on acquisition. In June, the staff was asked to perform additional analysis related to the various alternatives for the definition of discontinued operations discussed by the Boards and to present this analysis at a future meeting. This meeting discussed that analysis.

The Board considered four alternatives for an additional grouping of assets that would meet the definition of discontinued operations, in addition to those components that are operating segments. These were:

  • View A: All components of an entity that meet the criteria to be classified as held for sale on acquisition

  • View B: All subsidiaries (in their legal form) that meet the criteria to be classified as held for sale on acquisition

  • View C: All businesses as that term in defined in IFRS 3 Business Combinations (revised 2008) that meet the criteria to be classified as held for sale on acquisition

  • View D: No additional criteria, only an operating segment can meet the definition of a discontinued operation

After a brief discussion, the Board agreed that the proposed definition of discontinued operations be amended to include businesses as defined in IFRS 3 (revised 2008) that meet the criteria to be classified as held for sale on acquisition (View C).

The Board agreed that there should be no additional requirements that would limit the component of an entity, subsidiary, or business that meets the criteria to be classified as held for sale on acquisition to be reported in discontinued operations only when it is required by law or regulation (for example, as a result of a competition review). A Board member noted that classification as held for sale or discontinued would have to wait for the competition review: how could you classify something as held for sale when the entity did not know what it had to divest?

As a result of these decisions, a discontinued operation would be a component of an entity that:

  • (a) meets the definition of an operating segment in accordance with IFRS 8 Operating Segments, and either has been disposed of or is classified as held for sale, or
  • (b) is a business in accordance with IFRS 3 Business Combinations (revised 2008) that meets the criteria to be classified as held for sale on acquisition.

 

Disclosure exemptions

The Board agreed to provide certain disclosure exemptions for businesses that meet the criteria to be classified as held for sale on acquisition. These include certain items in IFRS 5.33 and 39; and IFRS 3 (2008).B64.

 

Financial statement presentation

The Board agreed that entities should provide reconciliations of 'income from discontinued operations' in the statement of comprehensive income and the assets and liabilities of operations held for sale in the statement of financial position. In providing these reconciliations, an entity would be permitted to:

  • (a) aggregate the assets and liabilities of businesses that meet the criteria to be classified as held for sale on acquisition into total assets of a business held for sale on acquisition and total liabilities of a business held for sale on acquisition, respectively; and
  • (b) aggregate the assets and liabilities classified as held for sale (other than those in (a)) that are not disclosed separately because they were not considered to be major into other assets and other liabilities, respectively.
  • (c) aggregate the profit or loss of businesses that meet the criteria to be classified as held for sale on acquisition into profit or loss of a business held for sale on acquisition; and
  • (d) aggregate the income and expense items (other than those in (c)) that are not disclosed separately because they were not considered to be major into other income and expenses.

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