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IFRS Interpretations Committee issues

Date recorded:

Paper 12A: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28) – Sweep Issue

The project manager provided background of the purpose and background of the paper and then put forward the questions therein to the Board.

The issue addressed in this paper relates to when a parent loses control of a subsidiary that does not contain a business, but retains an interest in that subsidiary that is accounted for using the equity method, whether the gain or loss related to the remeasurement to fair value of the retained interest in the former subsidiary should be recognised:

  1. In full (View 1);
  2. Only to the extent of the unrelated investors’ interests in the former subsidiary (View 3); or
  3. Should not be recognised (View 2).

The view recommended to the IASB in the paper is View 3.

Question 1: Does the IASB agree with the staff’s recommendation to clarify that the part of the gain or loss resulting from the remeasurement of fair value of the investment retained in the former subsidiary should be recognised to the extent of the unrelated investors’ interests in that former subsidiary?

There was considerable debate between the members over the view that should be taken.

View 2 was favoured by a number of members as they believed that this view resulted in the correct gain being recognised, as this is the same gain that would be recognised if an entity had sold 48% of the asset directly to a third party, without an entity in between.

The members supporting this view noted that the fundamental principle should be that the gain recognised on the transaction should be the same regardless of its form. A larger gain shouldn’t be recognised just because a holding company is inserted into the transaction.

Members supporting this view further noted that the driver of this amendment was to make a clear distinction between a subsidiary containing a business and a subsidiary that does not.

In the case of a subsidiary that does not contain a business, it should be treated as if the entity owns the asset directly, and accordingly, in the opinion of the members holding this view, View 3 (the view recommended by the staff in the paper) would not be the correct answer.

Other members indicated support for View 3, and another member supported View 1.

The question was put to the staff: ‘If View 2 were to be the preferred view of the Board, what additional work do you envisage will need to be done?’

The staff noted that View 3 is the logical conclusion when applying past IASB decisions, which is why it was the view recommended by the staff. If the IASB didn’t agree with View 3, then the staff would need to bring back a paper that sets out the consequences of not taking View 3 and the new inconsistencies that would be created.

After a vote, 11 members of the Board agreed with the staff’s recommendation to clarify that the part of the gain or loss resulting from the remeasurement to fair value of the investment retained in the former subsidiary should be recognised to the extent of the unrelated investors’ interests in that former subsidiary. (View 3)

Question 2: Does the IASB agree with the staff’s recommendation to confirm the finalisation of the amendments to IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures?

The Board agreed and confirmed the finalisation of the amendments.

Paper 12B: Proposed Elimination of gains from ‘downstream’ transactions – Due process consideration

The project manager provided background of the purpose and background of the paper and then put forward the questions therein to the Board.

The purpose of this paper is to explain the steps in the due process that the IASB has taken before the publication of the proposed amendments to IAS 28 Investments in Associates and Joint Ventures and to ask the IASB to confirm that it is satisfied that it has complied with the due process requirements to date.

The proposed amendments set out the following:

  1. An entity should eliminate the gains from ‘downstream’ transactions to the extent of its interest in the associate or joint venture even if the gain to be eliminated exceeds the carrying amount of the entity’s investment in the associate or joint venture; and
  2. The gains to be eliminated in excess of the carrying amount of the entity’s investment in the associate or joint venture should be presented as a deferred gain.

Question 1: Do any IASB members dissent to the publication of the proposed amendments?

One member dissented to the publication of the proposed amendments on the basis that introducing such a mechanical requirement forces an entity to recognise a liability whatever the circumstance, and results in an unexplainable deferred gain.

Question 2: Do the IASB members agree with the proposed timetable for balloting and publication?

The member of the Board agreed with the proposed timeline for balloting and publication of the exposure draft.

Question 3: Do the IASB members agree with a comment period of 120 days for the proposed amendments?

The members of the Board agreed with a comment period of 120 days for the proposed amendments.

Question 4: Is the IASB satisfied that all required due process steps that pertain to the publication of proposed amendments have been complied with?

The Board agreed it was satisfied that all required due process steps that pertain to the publication of proposed amendments have been complied with.

Paper 12C: Accounting for Acquisitions of Interests in Joint Operations (Amendments to IFRS 11) – Sweep Issues

The project manager provided background of the purpose and background of the paper and then put forward the questions therein to the Board.

Question 1: Does the IASB agree with the staff’s recommendation to clarify that previously held interests in a joint operation are not remeasured on the acquisition of an additional interest in the same joint operation, if the acquisition results in retaining joint control?

The Board agreed with the staff’s recommendation.

Question 2: Does the IASB agree with the staff’s recommendation to include a scope exception for acquisitions of interests in joint operations under common control in the amendments to IFRS 11 Joint Arrangements?

The Board agreed with the staff’s recommendation.

Question 3: Does the IASB agree with the staff’s recommendation to confirm the finalisation of the amendments to IFRS 11?

The Board agreed with the staff’s recommendation.

Correction list for hyphenation

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