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IAS 21 — Repayment of investment/CTA

Date recorded:

The Committee discussed an issue arising in IAS 21 The Effects of Changes in Foreign Exchange Rates related to when the separate foreign currency equity reserve related to the retranslation of the net assets of an investor’s net investment in a subsidiary (often referred to as ‘CTA’) should be recycled.  The staff presented two alternatives, the ‘proportionate reduction’ approach and the ‘absolute reduction’ approach.

Under the ‘proportionate reduction’ approach, amounts recognised in CTA related to a foreign operation would be recycled only when there is a reduction in the entity’s proportionate ownership interest in the foreign operation.  Under the ‘absolute reduction’ approach, amounts recognised in CTA related to a foreign operation would be recycled any time there is a reduction in the entity’s absolute ownership interest in the foreign operation.

The staff favoured the ‘absolute reduction’ approach and recommended that IAS 21 be clarified by an amendment included in the Annual Improvements Project in the next cycle.

Many Committee members did not support the staff recommendations.  Some thought the recommendations were inconsistent with the 2008 amendments to IAS 21 (IAS 21 paragraphs 48A-48C refer).  Other Committee members thought that more application guidance would be required to make the proposals operational.  Other Committee members did not want to see any recycling at all.

As it became apparent that the staff recommendation did not have sufficient support among Committee members, the Chairman proposed that the Committee discontinue activity on the issue and remove it from the Committee’s Agenda on the grounds that it was not probable that the Committee would be able to reach a consensus on the issue on a timely basis (Interpretations Committee Due Process Handbook, paragraph 24(e) refers).

A report will be made to the IASB on this issue.