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IFRS 5 Non-current Assets Held for Sale and Discontinued Operations – Plan to Sell the Controlling Interest in a Subsidiary

Go To List of IFRIC Issues Issue Description: How to apply IFRS 5 Non-current Assets Held for Sale and Discontinued Operations when an entity is committed to a plan to sell the controlling interest in a subsidiary. After the sale, the entity would retain a non-controlling interest in its subsidiary, taking the form of either an investment in an associate, an interest in a joint venture or a financial asset. Discussion at the IFRIC Meeting March 2007 The held for sale criteria A majority of the IFRIC seemed to support the notion that committing to a plan involving loss of control over an asset or a group of assets is the triggering event for the classification as held for sale in IFRS 5. The nature of the asset represented by any non-controlling interest retained is different. If the loss of control happens in a situation in which there is not a sale that transaction was outside the scope of IFRS 5. However, other IFRIC members thought that this was not clear in the Standard and that, if the IFRIC was to agree that this was the principle, it was up to the IASB to amend the Standard. Some IFRIC members were concerned that US GAAP would not permit sale treatment in the situation in which a significant portion of the investment was retained (e.g. an associate). The SEC Observer noted that diversity in practice had been seen in US GAAP. However, an IFRIC member noted that this was a presentation issue in US GAAP-continuing involvement prevented presentation of the disposal group as a discontinued operation, but not the classification as held for sale. It was also noted that the FASB was developing a Staff Position, FSP FAS 144-c on a related but much narrower point. The IFRIC asked the staff to consider the various points raised in the discussion, to track developments on FSP FAS 144-c and to consider whether the issue could be resolved more efficiently through an amendment of IFRS 5. What should be classified as held for sale once the criteria are met? The IFRIC noted that the classification issue was directly linked to the previous discussion. If loss of control is the triggering event for the purpose of IFRS 5, then the whole of the investment should be classified as held for sale. However, some IFRIC members had seen a treatment in which the portion to be retained was accounted for using the equity method from the date that the portion to be disposed of was classified as held for sale. No conclusion was reached on this issue and the staff will perform additional analysis. Other issues The IFRIC discussed the following issues very briefly: During the held for sale period, how should the subsidiary's assets and liabilities be measured? Is classification as discontinued operations relevant when the entity plans to retain a significant influence over its former subsidiary after the sale? After the sale of the controlling interest, how shall the remaining investment be measured? What information should be disclosed in the notes to the consolidated financial statements? The IFRIC noted that many of these issues were inter-related and depended on the conclusions reached on the fundamental issue. The IFRIC did not make any decision about whether the issue should be added to the agenda. The staff will present its extended analysis and recommendations at a subsequent meeting. Discussion at the IFRIC Meeting July 2007 Project removed from IFRIC agenda.