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IFRS implementation issues

Date recorded:

Narrow Scope Amendment: IAS 12 Income Taxes – Recognition of Deferred Tax Assets for Unrealised Losses

Due process steps followed

This session was devoted to covering due process matters in relation to the proposed narrow-scope amendments to IAS 12 Income Taxes to clarify the guidance on the recognition of deferred tax assets for unrealised losses on debt instruments measured at fair value.  The IASB Technical Manager explained that there had been some revisions to the exposure draft but that the revisions were not fundamental and responded to the feedback received, and the staff believed that the amendments should be finalised without re-exposure.

In response to a question raised by an IASB member, the Director of Implementation Activities confirmed that the staff had taken the comment letter analysis to the Interpretations Committee and the revised staff recommendations between the exposure draft and final amendments were consistent with the recommendations of the Interpretations Committee.

All fourteen IASB members agreed that the proposed amendments to IAS 12 should be finalised without re-exposure; they agreed with a mandatory effective date for the final amendments of 1 January 2017, and confirmed that they were satisfied that all due process steps required to date that related to the publication of the final amendments had been complied with.  No IASB members indicated that they intended to dissent to the final amendments.

Sale or Contribution of Assets Between an Investor and its Associate or Joint Venture

Deferral of the effective date of the September 2014 Amendment

In September 2014, the IASB published an amendment to IAS 28 Investments in Associates and Joint Ventures and IFRS 10 Consolidated Financial Statements to clarify that a full gain is recognised when a transfer to an associate or joint venture involves a business, and a partial gain or loss is recognised if the asset transferred does not contain a business.  The gain or loss that is not recognised is eliminated against the cost of the investment.  At its February 2015 meeting, the IASB gave the staff permission to ballot a further narrow-scope amendment that would clarify in greater detail some matters linked to the September 2014 Amendment, and also included a proposal to defer the effective date of the September 2014 Amendment until the effective date of the February 2015 pre-ballot.  At its June 2015 meeting, the IASB decided that the issues addressed in the February 2015 pre-ballot draft should instead be addressed as part of the research project on equity accounting, and also decided to propose a deferral of the effective date of the September 2014 Amendment.

The Senior Technical Manager introduced the session and explained that the IASB staff recommended that the IASB defer the effective date of the September 2014 Amendment to IFRS 10 and IAS 28 indefinitely, with early application continuing to be permitted, and allowing entities that had already applied the Amendment to continue to do so.

An IASB member noted that he supported the staff recommendation, but highlighted the fact that this would result in a situation where there were two versions of the Standard in existence, and that it would be important for entities to clearly disclose whether or not they had early adopted the Amendment to enable comparability in the market.

Another IASB member highlighted the fact that the September 2014 Amendment had come about due to diversity in practice, and accordingly, if an entity had not early adopted the Amendment it could be following the accounting prescribed in the Amendment anyway – and suggested that an entity should be disclosing which accounting they were applying rather than whether or not they had early adopted the Amendment.

A further IASB member noted that it was important that the IASB made it clear in its decision how the September 2014 Amendment would be dealt with in the future if the research resulted in no amendments to IAS 28 being proposed or finalised.

Another IASB member expressed concern with having two versions of the Standard in existence for a potentially long period of time, and suggested that a better solution to this issue might be to essentially provide a free option in the Standard for entities to choose which accounting they applied, rather than having indefinite suspension of the Amendment and two versions of the Standard in existence.  The Director of Implementation Activities noted that although this would be cleaner from a process perspective, the September 2014 Amendment affected a number of paragraphs and to convert this into an option would require a lot of rewriting which would be difficult to achieve before the effective date of the Amendment which was 1 January 2016.

Another IASB member also expressed concern with having two versions of the Standard in existence, and suggested that because the Amendment came about to resolve an issue of diversity in practice, the Amendment did not need to remain in existence to support those entities that had already adopted it.  The IASB staff responded noting that with the recommended approach, the staff were just trying to create a ‘holding pattern’.  A further IASB member expressed similar concerns, and suggested that because there was already diversity in practice, the IASB should not allow any further early adoption of the September 2014 Amendment from the date of publication of the amendment to defer the effective date of the September 2014 Amendment, noting that if the IASB effectively authorised two different Standards this could create structuring opportunities.

The IASB observed that because this decision would mean that the IASB was effectively saying that the changes to the Standard were not mandatory, if an entity had already adopted the Amendment they could choose to cease applying it, and noted that this needed to be clearly communicated.

Ten of the fourteen IASB members voted in favour of deferring the effective date of the September 2014 Amendment to IFRS 10 and IAS 28 indefinitely, with early application continuing to be permitted, and allowing entities that had already applied the Amendment to continue to do so.  The IASB agreed to issue the narrow-scope exposure draft with a comment period of 60 days.

IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations

Next steps for a series of IFRS 5-related issues

This session was devoted to discussing the next steps regarding a series of issues relating to IFRS 5 that had been discussed by the IFRS Interpretations Committee but not resolved.  In the agenda paper, the IASB staff had recommended to the IASB that the issues should be divided into those to be considered in the short term, and those to be considered in the medium to longer term; and for the latter, a reference should be made to these issues in the Request for Views in the forthcoming agenda consultation for a potential broad-scope project on IFRS 5 Non-current Assets Held for Sale and Discontinued Operations.  For the items identified to be considered in the short term, the staff recommended that Issues 5 and 9 should be considered for possible tentative agenda decision items, and Issue 11 should be addressed through an annual improvement process.

  • Issue 5: To what extent an impairment loss can be allocated to non-current assets within a disposal group.
  • Issue 9: How to present intragroup transactions between continuing and discontinued operations.
  • Issue 11: Applicability of the disclosure requirements in IFRS 12 to a subsidiary classified as held for sale.

Overall approach

An IASB member noted that she agreed with the staff recommendation to divide the unresolved IFRS 5-related issues between those to be considered in the short term and those to be considered in the medium to longer term as long as the issues were discreet; and cautioned that the IASB needed to ensure that in doing so it considered whether issues were interrelated with anything else.

Another IASB member also supported the short term / medium to longer term approach but expressed concerns about the IASB placing too much reliance on the results of the agenda consultation, noting that not everything could be a high priority project and the IASB ran the risk that it came out as a low priority project but the issues would still exist.  He questioned what would happen if it was considered to be a low priority project.  The Director of Implementation Activities responded noting that the issues would have to remain there as they were not issues the Interpretations Committee could pick up unless the IASB asked the Interpretations Committee to undertake a broader project, outside of the nature of the narrow-scope projects the Interpretations Committee usually undertook.

Several IASB members noted that they did not believe the IFRS 5 issues warranted a specific question in the agenda consultation, but suggested that the IASB should just highlight that it was there so people could offer a comment if they wanted to.  They also noted that a number of the issues were fundamental questions and highlighted the fact that this was a converged project with the FASB, and even though the IFRS and US GAAP standards are not completely converged, stressed the importance of talking to the FASB in trying to resolve the issues.  One of the IASB members also noted that it was important to convey in the agenda consultation that this project would be a big use of the IASB’s time, so people could factor that into account when providing a response.

All IASB members agreed that the unresolved IFRS 5-related issues should be divided up between those to be considered in the short term and those to be considered in the medium to longer term, and that for the medium to longer term issues, a specific question should not be asked about these issues in the agenda consultation, but it would be useful to refer to these issues so that people would be mindful of these issues when they were responding to the general questions.

Issues to be considered in the short term

An IASB member questioned whether the three short term issues could be bundled into a single annual improvement, expressing his preference for bundling issues relating to the same Standard into a single document, and noting that from a process perspective it would be more efficient than asking people to look at the same Standard three times.  He also added that annual improvements gave better clarity and force to a Standard than agenda decisions.  Another IASB member pointed out that in paragraph 21 of the agenda paper it was noted that with respect to Issues 5 and 9, the Interpretations Committee almost tentatively concluded that sufficient guidance existed, and questioned how these issues would be bundled into an annual improvement, noting that for an annual improvement the IASB had to admit that there was not sufficient guidance in the Standard and a clarification was necessary to change the Standard.  Another IASB member suggested this could be done through the Basis for Conclusions – by only proposing an amendment with respect to Issue 11, and explaining in the Basis for Conclusions why the IASB did not believe it needed to propose an amendment in respect of Issues 5 and 9 – because the Standard was sufficiently clear.  This approach would avoid making unnecessary changes to the Standard.  A further IASB member questioned how visible the issues would be in a Basis for Conclusions to annual improvements, and whether they would get the visibility the IASB would like them to have.

Eleven of the fourteen IASB members agreed that Issues 5 and 9 should be considered by the Interpretations Committee for possible tentative agenda decision items.

Issue 11 was discussed in conjunction with agenda paper 12D on IFRS 12.

IFRS 12 Disclosure Of Interests In Other Entities

Proposal for an annual improvement: clarification of the scope of the disclosure requirements in IFRS 12

This session was devoted to discussing the applicability of the disclosure requirements in IFRS 12 Disclosure of Interests in Other Entities to a subsidiary classified as held for sale.  The IASB staff recommended that the IASB should clarify the scope of IFRS 12 by specifying that the disclosure requirements in IFRS 12, except for those in B10-B16, applied to interests that are classified as held for sale or discontinued operations; that the amendment be made through the 2014-2016 cycle of Annual Improvements; and require the retrospective application of the proposed amendment, with an option to apply it early.

An IASB member noted that she believed that this was all but an editorial correction and that it was unfortunate that the IASB had ended up in this position, questioning why the IASB would have drafted B10- B16 so carefully if it did not think the rest of the Standard was applicable otherwise.  She acknowledged there was tension between IFRS 5 and IFRS 12, and that if the IASB felt an amendment was needed to get to the right outcome, then this should be made.  However, she noted that her underlying concern was whether other situations existed where it needed to be specifically stated that the requirement also applied if something was held for sale and that by making this amendment it could result in issues across the other standards that unless the IASB had specifically stated that the requirements applied to interests classified as held for sale or discontinued operations, there was an open question.

Another IASB member acknowledged that the concern expressed by the previous IASB member was a valid concern, but believed the IASB should do an annual improvement at this time to remove any uncertainty.  She noted that she did not believe the IASB needed to permit early adoption because this was a requirement entities could have always applied, and there was nothing to stop them making the disclosure once it had been pointed out that it was required.  She noted that the concerns expressed by the previous IASB member came from the fact that IFRS 5 explicitly stated that ‘no other disclosure requirements apply unless specifically stated’, and asked the staff to look at the standards that had been published since to see if there were any other clarifications that were needed, and whether the blanket exemption should exist in IFRS 5 – noting that it forced the IASB to consider whether there were any disclosures for discontinued operations every time they were working on a new Standard.

A further IASB member noted that he agreed with the comments of the other IASB members, and noted that the problem with IFRS 12 was that it had been partially excluded, and noted that it would have been better to partially include it as this would have interacted better with IFRS 5.  He questioned whether there were any other standards where the disclosures were either partially included or excluded, and suggested that this should be checked.  Another IASB member noted that the only reason this was done in IFRS 12 was because it was in response to a comment letter.

All IASB members agreed that the scope of IFRS 12 should be clarified by specifying that the disclosure requirements in IFRS 12, except for those in paragraphs B10-B16, do apply to interests that are classified as held for sale or discontinued operations – and that it should be very clear that the IASB considers this to be a clarification.  All IASB members also agreed that such a clarification should be made through the Annual Improvement ED, and that the proposed amendment should be applied retrospectively.

No IASB members indicated that they intended to dissent to the proposed amendments to be included in the Annual Improvements ED.

All IASB members agreed that the IASB should retain its decision to publish the Annual Improvement ED with a comment period of 90 days; agreed with the proposed timetable for publication and gave the staff permission to start the balloting process, including the additional proposed amendment; and all IASB members confirmed that they were satisfied that all due process steps had been complied with.

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