EFRAG draft comment letter on Draft Interpretation on put options
Jul 06, 2012
The European Financial Reporting Advisory Group (EFRAG) has issued its draft comment letter on IFRS Interpretations Committee (Committee) Draft Interpretation DI/2012/2 'Put Options Written on Non-controlling Interests'. In the comment letter, EFRAG acknowledges that different practices are used in accounting for the subsequent measurement of the financial liability that is recognised in a parent entity’s consolidated financial statements for an non-controlling interests (NCI) puts. However, EFRAG believes that the scope of the Draft Interpretation is too narrow, and does not address all relevant aspects of accounting for derivatives written over non-controlling interests.
EFRAG has a number of significant concerns regarding the proposals and the use of Interpretation to resolve the issue of put options, without addressing wider diversity in practice on accounting for NCI puts and transactions with NCI. EFRAG recommends that the issues be addressed in a manner consistent with existing IFRS:
Overall, we believe that the Draft Interpretation should address the complexity and broad range of issues arising from transactions with NCI, including NCI puts, in a manner that is consistent with the principles underlying IFRS 3, IFRS 10/IAS 27, IAS 32 and IFRIC 17 as this would result in a more robust and principles-based solution.
The draft comment letter also includes an eight page appendix outlining EFRAG's concerns regarding the proposals and the use of an Interpretation to resolve the issue.
EFRAG members did not reach a consensus on the accounting specified in the Draft Interpretation, which requires changes in the measurement of the NCI put liability to be recognised in profit or loss. EFRAG also invites constituents to comment on members' three distinct views:
- That remeasurement in profit or loss is always appropriate (the approach taken by the IFRS Interpretations Committee);
- That remeasurement in profit or loss is not appropriate and that changes should be recognised in equity; and
- That remeasurement in profit or loss is appropriate in some circumstances.
Comments on the letter are invited by 19 September 2012.