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IFRS 10 – Transitional requirements

Date recorded:

The Board considered a request (which was previously assessed by the IFRS Interpretations Committee at its September 2011 meeting) to clarify the meaning of 'the date of initial application' in the transitional requirements of IFRS 10 Consolidated Financial Statements. IFRS 10 does not provide a definition of the date of initial application and the submission received noted that this term is used with different meanings in different IFRSs. The issue considered is whether the date of initial application in IFRS 10 is: the beginning of the reporting period in which the entity adopts IFRS 10 or the beginning of the earliest period presented in the financial statements in which the entity adopts IFRS 10.

The staff presented an analysis of the issue, including details of the IFRS Interpretations Committee's recommendation that the Board should consider this issue for separate amendment (given concerns in timing if included in the annual improvements project). Staff recommendations to IFRS 10 included:

  • adding a definition of the date of initial application in IFRS 10, which would be the beginning of the reporting period in which IFRS 10 is applied for the first time.
  • making it clear in paragraph C4(a) and C4(b) of IFRS 10 that any adjustment to the accounting for the investor's involvement with the investee should be recognised in equity at the beginning of the earliest comparative period presented (when practicable).
  • making it clear in paragraph C4(c) of IFRS 10 that any adjustment to the accounting for the investor's involvement with the investee should be recognised in equity at the deemed acquisition date (when impracticable).
  • making it clear in paragraph C5 of IFRS 10 that any adjustment to the accounting for the investor's involvement with the investee should be recognised in equity:
    • either at the beginning of the earliest comparative period or, if control was lost at a later date, on the date the investor lost control of the investee (if practicable); or
    • if practicability issues exist, at the beginning of the earliest comparative period for which application of this IFRS is practicable.

While specific amendment wording was provided to the Board in the agenda paper, the staff asked that the Board consider the principle of the amendments as opposed to specific proposed wording given that the staff had received 'offline' feedback on the proposed wording which has resulted in edits to the proposed amendments. While specifics of the 'offline' feedback were not discussed during the meeting, feedback received by the staff appears to be based on clarifying that any adjustment to the accounting for the investor's involvement with the investee should be recognised in equity at the beginning of the earliest comparative period presented or date at which control was obtained, if later. The staff intends to provide amended wording to the Board at a later date.

Considering the staff analysis, one Board member preferred to evaluate the definition of 'the date of initial application' more holistically than in specific response to IFRS 10. Specifically, he preferred that this be a defined term in the Glossary of Terms and used in future standard issuances. However, the staff noted that the term has not been used consistently in existing literature, and thus, could not be addressed more holistically at this stage. With little additional debate, the Board tentatively agreed with the principle of the amendments proposed; subject to review of final amendment wording.

The staff also presented analysis as to circumstances in which paragraph C3 of IFRS 10 (an exemption to retrospective application) applies. The staff recommended that the meaning of the sentence 'when applying IFRS 10 for the first time' is the beginning of the reporting period in which IFRS 10 is first applied. Thus, an entity would not be required to adjust the accounting for its involvement with an investee if the consolidated conclusion is not changed at the beginning of the reporting period in which IFRS 10 is first applied. With no debate, the Board tentatively agreed with the staff's recommendation.

Following this tentative decision, the Board was asked to consider whether the exemption is paragraph C3 would apply to a 'temporary consolidation'. For example, Entity D applies IFRS 10 for the first time in its annual financial statements ending 31 December 2013 and presents one year comparative period. Entity D holds an investment in Entity X. Entity X is not consolidated under IAS 27 but would be consolidated under IFRS 10. Entity D disposes of its investment in Entity X during 2012. In this example, the consolidation conclusion is the same between IAS 27/SIC 12 and IFRS 10 on 1 January 2013 because of the disposal of Entity X during the comparative period (but not because of the control requirements of IAS 27/SIC 12 and IFRS 10).

The staff noted that if the exemption in paragraph C3 does not apply to this fact pattern, restatement of comparative information would be required (i.e., consolidation of the entity at the beginning of the comparative period and then accounting for its disposal later in that period), and questioned whether that was the Board's intention. As Board members generally agreed that the incremental benefits to users of requiring full retrospective application in this case did not outweigh the costs for preparers, the Board tentatively agreed with the staff's recommendation to clarify paragraph C3 to state that when applying IFRS 10 for the first time, an entity is not required to make adjustments to the accounting for its involvement with an entity that was disposed of in the comparative period(s) or for which control was lost in the comparative period(s).