Deloitte comment letters on recent tentative agenda decisions of the IFRS Interpretations Committee
28 Nov 2012
Deloitte’s IFRS Global Office has submitted letters of comment to the IFRS Interpretations Committee (Committee) on four tentative agenda decisions published in the September 2012 edition of 'IFRIC Update'. We disagree with the observations of the Committee in its tentative decision on assessing 'continuing employment' under IFRS 3 and do not agree with the position taken by the Committee in relation to income and expenses arising on financial instruments with a negative yield. We generally agree with the remaining tentative agenda decisions but suggest a number of improvements.
Below is a summary of the comment letters:
IFRS 3 — Continuing employment
This issue concerns the appropriate accounting in accordance with IFRS 3 Business Combinations for contingent payments to selling shareholders in circumstances in which those selling shareholders become, or continue as, employees (specifically on whether paragraph B55(a) of IFRS 3 is conclusive in determining that payments to an employee that are forfeited upon termination of employment are remuneration for post-combination services).
Our comment letter makes the following observations:
- We do not agree with the IFRS Interpretations Committee’s observation that an arrangement in which contingent payments are automatically forfeited if employment terminates should lead to a conclusion that the arrangement is compensation for post-combination services
- We do not believe that either a desire to avoid divergence with US GAAP or to wait for the completion of FASB’s post-implementation review of FAS141R are appropriate reasons to reach a premature conclusion on this important issue
- The need for a deeper consideration of this issue is illustrated by circumstances in which under the terms of a business combination all selling shareholders become employees and all consideration for their shares is forfeited upon termination of employment.
IAS 39 — Income and expenses arising on financial instruments with a negative yield – presentation in the statement of comprehensive income
We agree with the IFRS Interpretations Committee’s decision not to add this item onto its agenda but do not believe that the absolute position taken (i.e. that these amounts are neither interest income nor interest expense) is appropriate as it assumes that the negative yield results from the issuer charging a custodian fee for safeguarding the holder’s money. This may not be the case in every scenario as there might be other circumstances leading to a negative yield.
IAS 28 — Impairment of investments in associates in separate financial statements
We agree with the IFRS Interpretations Committee’s decision not to add this item onto its agenda and with the conclusion that investments in subsidiaries, joint ventures and associates accounted for at cost in an entity’s separate financial statements in accordance with an accounting policy adopted under paragraph 38 of IAS 27 Consolidated and Separate Financial Statements (2008) or paragraph 10 of IAS 27 Separate Financial Statements (2011) are subject to the requirements of IAS 36 Impairment of Assets (although this conclusion differs from the Committee’s previous conclusion noted in the July 2009 IFRIC Update).
IAS 27/IFRS 10 — Non-cash acquisition of non-controlling interest by a controlling shareholder in the consolidated financial statements
This issue concerns whether the difference between the carrying amount and fair value of non-cash consideration for the purchase of a non-controlling interest should be recognised in profit or loss in the controlling shareholders’ consolidated financial statements.
We agree with the IFRS Interpretations Committee’s decision not to add this item onto its agenda but note that the reference to IFRSs ‘generally requiring’ recognition of a gain or loss on derecognition of an asset in profit or loss could be enhanced by reference to the specific requirements of paragraph 68 of IAS 16 Property, Plant and Equipment and paragraph 113 of IAS 38 Intangible Assets.
- IAS 27 — Consolidated and Separate Financial Statements (2008)
- IAS 27 — Separate Financial Statements (2011)
- IAS 28 — Investments in Associates (2003)
- IAS 28 — Investments in Associates and Joint Ventures (2011)
- IAS 39 — Financial Instruments: Recognition and Measurement
- IFRS 3 — Business Combinations
- IFRS 10 — Consolidated Financial Statements