IAS 32 — Put options written on non-controlling interests
Over the last couple of years, the Committee has been working to address the accounting for put options written on shares held by non-controlling interest shareholders in the consolidated financial statements of controlling shareholders. Paragraph 23 of IAS 32 requires the controlling shareholder to recognise a liability for the present value of the redemption amount in the parent’s consolidated financial statements. However, there has been identified diversity in practice on the subsequent measurement of the ‘grossed up’ financial liability as a result of an inconsistency between the requirements for subsequently measuring financial liabilities in IAS 39 or IFRS 9 (through profit or loss) and the requirements for accounting for transactions with owners in their capacity as owners (directly in equity) in accordance with IAS 27 and IFRS 10.
The Committee had previously recommended that the Board amending IAS 27 and IFRS 10 to clarify that all changes in the measurement of the NCI put must be recognised in profit or loss. In March 2012 the Board acknowledged that IAS 32, IAS 39 and IFRS 9 provide the relevant accounting requirements and that changes in the measurement of NCI puts should be recognised in profit or loss, the Board decided against amending IFRS 10 because of concerns with amending that standard giving its pending effective date. As a result, the Board asked the Committee to address the diversity by publishing a draft interpretation.
Several Committee members expressed their view that the clarification should take the form of an amendment rather than an interpretation. However, one Committee member expressed significant concerns with the draft interpretation and questioned whether it would address all the diversity in practice highlighting the issue of forward options.
The Committee ultimately decided to issue a draft interpretation clarifying that in accordance with paragraph 23 in IAS 32 a NCI put gives rise to a financial liability that is initially measured at the present value of the redemption amount in the parent’s consolidated financial statements and that subsequent remeasurement of the liability would be measured in accordance with IAS 39 or IFRS 9. The draft interpretation proposes retrospective application and will be exposed for 120 days.