Cover Paper (Agenda Paper 30)

The Board is undertaking its 2019 comprehensive review of the IFRS for SMEs Standard.

The objective of this meeting was to examine whether and how the requirements of the IFRS for SMEs Standard should be aligned with IFRS 11.

Previous Board Decision—IFRS 11 Joint Arrangements (Agenda Paper 30A)

Background

At its July 2019 meeting, the Board tentatively decided to seek views in the RFI not to align Section 15 of the IFRS for SMEs Standard with IFRS 11. At the September 2019 meeting, the staff recommended that the Board reconsider this tentative decision. The Board requested that, in order to revisit the decision, the staff prepare a paper addressing:

• a) the potential consequences of aligning the definition of ‘control’ in Section 9 with that in IFRS 10 while not aligning the definition of ‘joint control’ in Section 15 with that in IFRS 11
• b) the potential implications of only aligning the definition of ‘joint control’, while retaining the accounting requirements of Section 15
• c) the potential implications of waiting until the post-implementation review (PIR) of IFRS 10–12 is completed before considering aligning the IFRS for SMEs Standard with IFRS 10 and IFRS 11.

Staff recommendations

The staff recommended that the Board seeks views in the RFI on whether and how the IFRS for SMEs Standard could be aligned with IFRS 11. The Board should ask in the RFI whether it should:

• align the definitions of Section 15 with IFRS 11
• retain the accounting policy election in Section 15 (i.e. cost model, equity method or fair value model)
• introduce requirements on how an operator accounts for a joint operation

Staff will also ask whether the Board:

• wants to seek views in the RFI on aligning the definition of ‘control’ but not the definition of ‘joint control’
• wants to wait until the completion of the PIR of IFRS 10–12 before considering aligning Section 15.

Board discussion

A Board member said that the issue could be structured into three questions:

• 1) Should the definition of control be aligned throughout the IFRS for SMEs Standard with that of IFRS 10?
• 2) Should the definition of joint control in the IFRS for SMEs Standard be aligned with that of IFRS 11?
• 3) Should the three categories of jointly controlled arrangements in the IFRS for SMEs Standard (i.e. jointly controlled operations, jointly controlled assets, jointly controlled entities) be narrowed down to two categories (jointly controlled entities and other jointly controlled arrangements)?

On 1) most Board members expressed their support for alignment. While the definitions are currently similar, they emphasise different characteristics.

On 2) one Board member found that the definitions are already aligned, even though the words are not exactly the same. In her view, not aligning the words would not cause issues for preparers, however, she would also not object to aligning the exact wording. Many Board members supported aligning the definition while not aligning the recognition and measurement requirements of Section 15 of the IFRS for SMEs Standard and IFRS 11. However, one Board member said that the Board is only hesitant to align those two requirements fully, because of challenges that arose on the implementation of IFRS 11. In his view, this was because of the shift from proportionate consolidation to equity method/joint operation accounting, which would be different for the IFRS for SMEs Standard as there was no proportionate consolidation. Other Board members disagreed with that view as for jointly controlled assets in the IFRS for SMEs Standard a method similar to proportionate consolidation is applied.

On 3) the Vice Chair warned that while it might look simple to narrow the categories down, it would involve complicated work for preparers to decide which category their arrangement is in. Preparers might not be in possession of all the facts and circumstances that need to be assessed to make the decision. While many Board members echoed this concern, there were some who supported two categories.

One Board member repeated her view from previous sessions that the Board should wait for the PIR of IFRS 10–12 to complete before seeking any views on aligning the IFRS for SMEs Standard with these Standards. However, if the Board wanted to go ahead, 1) and 2) above should be done.

Board decision

The Board voted as to whether to seek views on questions 1) to 3) above as follows:

Question 1): 14/14 for aligning the definition of control throughout

Question 2): 12/14 for aligning the definition of joint control, while not aligning the recognition and measurement requirements

Question 3): 12/14 for retaining three categories

One Board member suggested that the RfI be instead called a Discussion Paper to make clear that the Board is not merely seeking views, but asking whether constituents agree with the preliminary views the Board has reached.