Disclosure (Agenda Paper 23A)

At previous meetings, the Board tentatively decided that:

• a) a current value approach would be applied to BCUCC that affect non-controlling shareholders of the receiving entity subject to an exception and an exemption for privately held entities. The current value approach would be the acquisition method set out in IFRS 3. To address a feature not present for transactions within the scope of IFRS 3, that method would be complemented by a requirement to recognise any excess identifiable net assets acquired as an increase in the receiving entity’s equity (contribution), not as a gain on a bargain purchase in the statement of profit or loss.
• b) a predecessor approach would be applied to all other transactions within the scope of the project, including transactions that affect lenders and other creditors of the receiving entity and potential equity investors.

This paper discusses what information about BCUCC should be disclosed. This topic completes the Board’s discussion of reporting BCUCC if the Board decides to publish a Discussion Paper for this project – refer to Agenda Paper 23B below. The staff asked the Board for decisions regarding their recommendations which are to be included in the applicable consultation document for the project.

Staff recommendation

The staff recommend that:

• a) when the current value approach (acquisition method) is used:
  • i. the Board applies all the disclosure requirements in IFRS 3 and all the proposals on disclosure in the Goodwill and Impairment project;
  • ii. the Board does not require any additional disclosures about the transaction price on top of those required by IFRS Standards and proposed in the Goodwill and Impairment project;
• b) when the predecessor approach is used:
  • i. the Board applies particular disclosure requirements in IFRS 3 and particular proposals on disclosure in the Goodwill and Impairment project;
  • ii. the Board requires entities to disclose the amount of the difference recognised in equity between the consideration paid and the carrying amounts of assets and liabilities received, and also the component of equity in which that difference is recognised; and
  • iii. the Board does not require any additional disclosures related to pre-combination information or the transaction price on top of those required by IFRS Standards as modified by the Board’s preliminary view in the Goodwill and Impairment project.

Current Value Approach (Acquisition Method)

The majority of Board members agreed with the staff proposals in relation to requiring the IFRS 3 disclosures for BCUCC transactions as the same information would be useful for non-controlling users as would be for users in third party acquisitions. One Board member noted that the disclosures on synergies should be retained, because tax synergies, in particular, may be relevant information in a BCUCC transaction.

The majority of Board members agreed with the staff proposal to not require any additional disclosure in relation to the transaction price.

Some Board members expressed a view that additional disclosure on the governance of a transaction, such as any approval procedures or reviews, as included in paragraph 40(c) of the staff paper should be included for a BCUCC transaction. In addition, a question was raised around whether any disclosures of a related party nature should be included within IAS 24 rather than IFRS 3 or a new BCUCC standard.

Predecessor Approach

Some Board members expressed the view that the needs of creditors, as opposed to equity holders, are focused on cash flows more than the transfer of value to ensure there is sufficient cash to meet the liabilities of the company. As such, the full list of disclosures recommended by the staff was too long and not proportionate to the needs of the users. It was suggested that the disclosures on the fair value of non-cash assets, goodwill that is non-deductible for tax purposes and pro forma profit or loss were not necessary in the instances in which the predecessor approach is to be used.

One Board member suggested that they consider whether any disclosures should be included within a set of consolidated accounts for a group that has had a BCUCC transaction.

Another Board member noted that the financial statements of the receiving entity must be able to stand alone and have sufficient information for users to understand the impact of the transaction even if those users are not equity holders.

Board Decisions

The Chairman was absent from the meeting so each vote was comprised of 13 Board members.

11 Board members voted in favour of the staff recommendation to apply all the disclosure requirements in IFRS 3 and all the proposals on disclosure in the Goodwill and Impairment project for the current value method.

13 Board members voted in favour of the staff recommendation to not require any additional information to be disclosed for the current value method, subject to the qualification that specific disclosures, as outlined in paragraph 40(c) of the paper on approvals for the transaction, are considered.

9 Board members voted in favour of the staff recommendations in relation to the disclosures for the predecessor approach subject to the removal of certain suggested disclosures in paragraph 46(e), (g) and (l) of the paper.

10 Board members voted in favour of the staff recommendation to disclose the amount of the difference recognised in equity between the consideration paid and the carrying amounts of assets and liabilities received.

11 Board members voted in favour of the staff recommendation to not require any additional disclosures related to pre-combination information or the transaction price on top of those required by IFRS Standards.

Due Process (Agenda Paper 23B)

The purpose of the paper was to discuss what type of consultation document to publish for the project, what comment period the Board wishes to set for that document and whether the Board gives the staff permission to begin the balloting process for that document.

Staff recommendation

The staff recommended that the next consultation document should be a Discussion Paper. They asked whether the Board is satisfied with the due process steps set out in the paper and whether the staff have the Board’s permission to begin the balloting process for the Discussion Paper.

Board Decisions

The Chairman was absent from the meeting so each vote was comprised of 13 Board members.

13 Board members voted in favour of the next consultation document being a Discussion Paper.

13 Board members voted in favour of being satisfied that the due process steps had been properly taken.

13 Board members voted in favour of giving permission to ballot.

The comment period was not voted on—this will be confirmed nearer to the time for releasing the Discussion Paper.