Post-implementation Review of IFRS 10, IFRS 11 and IFRS 12

Date recorded:

Feedback summary (Agenda Paper 7)


In December 2020, the Board published a Request for Information (RFI) as part of its Post-Implementation Review (PIR) of IFRS 10-12 which was open for comment until 10 May 2021.

The purpose of this session was for the Board to consider the feedback received within the comment letters (as detailed within Agenda Papers 7A and 7B), from the outreach activities (Agenda Paper 7C) and also from an updated academic literature review (Agenda Paper 7D). The Board was not asked to make any decisions during this meeting and will present its findings in a feedback statement after completing its deliberations.

Overview of the feedback on the RFI

The feedback on the RFI generally supports the findings from the first phase of the PIR and provides useful insight on the matters raised. The key points addressed are as follows:

  • IFRS 10: It was noted that many stakeholders agree with the use of control as the single basis for consolidation. In developing this Standard, the Board concluded that judgement must be applied in determining if an entity controls another, requiring a holistic and qualitative assessment of all legal, contractual and other facts and circumstances. Many respondents acknowledged this need for judgement and highlighted that this can be challenging in complex scenarios, leading some to stress the importance of application guidance and illustrative examples.

With regard to investment entities, respondents noted that the definition of an investment entity can be difficult to apply in certain situations and raised concerns about the loss of information when an investment entity measures at fair value a subsidiary that is itself an investment entity.

  • IFRS 11: Respondents to the RFI highlighted the usefulness of the IFRIC agenda decisions in applying IFRS 11 and some asked for these to be incorporated into the Standard.

With regard to collaborative agreements that are outside the scope of IFRS 11, the RFI asked how they are accounted for in practice. Many respondents noted that these are common in certain industry sectors and whilst most said that these are usually analogised to joint operations accounting under IFRS 11, some noted that the equity method is applied.

  • IFRS 12: Feedback from respondents noted that IFRS 12 had resulted in significant improvements to financial reporting, however there were some requests for additional information.

Board discussion

Several Board members commented that it was encouraging that the overall feedback received in relation to these three Standards was very positive on the whole and supported that the Standards were working effectively. Board members agreed that the feedback gathered demonstrated the benefit of allowing a number of years to pass before carrying out a PIR to give stakeholders time to become accustomed to any new concepts.

It was noted by Board members that there was a recurring theme throughout the feedback received in relation to the difficulties faced in applying judgement which was also highlighted during phase 1 of the project.

Some Board members stressed that it was important to consider whether the feedback received was indicative that the framework given within the Standards is inadequate or just that it is difficult to apply.

In relation to requests made to include further guidance or illustrative examples within the Standards, some Board members expressed that, whilst consideration should be given to adding examples that could aid understanding or enhance consistent application, caution should be exercised in this regard to ensure that an appropriate balance is achieved. These Standards were designed to be principle-based and therefore it was anticipated that management will need to apply significant judgement. It was acknowledged by Board members that this can often be challenging but adding further guidance or examples could make the Standards overly complex and will never cover every eventuality. Board members requested that the staff distinguish between concerns highlighting areas of the Standards which may need to be revisited from concerns relating to judgement calls which management may find difficult but are encouraged to make.

One Board member added that the encouragement to add IFRIC agenda decisions into the Standards should be considered on a wider basis as a separate project outside of this PIR to ensure that the same approach was taken across all Standards. Another Board member suggested that a possible solution could be to provide webinars or educations sessions to make stakeholders aware of the conclusions reached due to concerns that agenda decisions were not always easily accessible.

Next step

The Board will decide how to respond to the feedback received and determine what steps to take as a result of the PIR.

Analysis of feedback — IFRS 10 (Agenda Paper 7A)

This agenda paper analysed the feedback received in comment letters on the RFI on IFRS 10.

Board Discussion

The Board discussion on this paper focused on the following topics:

  • De facto control — a number of Board members addressed the concerns raised in relation to de facto control and the potential inconsistencies caused, however one member challenged whether this came up frequently enough to recommend taking action. Another Board member added that control is a positive assessment as set out in paragraphs B42 and B46 of IFRS 10, therefore perhaps it would be useful to add more emphasis to these paragraphs in relation to a de facto control assessment.
  • Veto rights and lenders rights — some members of the Board noted that whilst it is tempting to try and resolve the issues raised, only a few respondents commented on this, adding that it is important to challenge whether there is a benefit to all users of IFRS Standards that would make it worthwhile.
  • Relevant activities — in relation to the feedback received around the difficulties faced in identifying relevant activities of an investee, one Board member suggested that some of the comments could be resolved by commenting on whether an assessment is made based on current conditions and reassessed at reporting dates or whether at day one to take a ‘whole of life’ approach and only update this if expectations change.
  • Investment entities — a number of Board members expressed concerns in relation to the feedback that the requirement for an investment entity to measure at fair value its investment in a subsidiary that is itself an investment entity results in a loss of information, adding that this is an area that should be explored further to identify a solution that would enhance transparency in these circumstances. One Board member added that additional disclosures could help address this without requiring a change in the accounting treatment however another Board member noted that when this Standard was written, a lot of thought went into this aspect. Therefore it would be important to revisit the conclusions made at that time.
  • The link between power and returns — one Board member noted that concerns had been raised with regards to the principal versus agent considerations being challenging and costly, however added that this assessment is only made once at the inception of a contract so the fact that there may be some higher upfront costs for assessing a complex relationship would be expected and would only need to be updated if there was a change in the agreement.

In response to the feedback asking for guidance on what weight to give to the various factors involved in making this judgement, one member of the Board highlighted that the Standard must be capable of being applied against all types of arrangements and industries therefore this is unlikely to add value. Instead, it might be more appropriate to highlight that these significant judgements require disclosure under IAS 1.

Analysis of feedback — IFRS 11, IFRS 12 and other (Agenda Paper 7B)

This agenda paper summarised the feedback received in comment letters on the RFI regarding IFRS 11, IFRS 12 and other matters raised by respondents.

Board Discussion

The Board discussion on this paper focused on the following significant topics:

  • Collaborative arrangements outside the scope of IFRS 11 — a number of the members of the Board noted that the feedback obtained highlighted diversity in practice due to lack of guidance and definition leading to difficulty in identifying common characteristics. Some suggested that this topic should be considered, potentially as a separate project by the Interpretations Committee.
  • Classifying joint arrangements — in response to the feedback that it is difficult to override the legal form when classifying a joint arrangement, one Board member commented that they would be opposed to reopening this aspect of the Standard which has already been considered within a number of agenda decisions.
  • Proportionate consolidation — one Board member expressed concern over the feedback that this method provided better information and did not believe this matter should be considered further as it was explored in depth during the standard-setting process when it was concluded that the additional disclosures would give users the information they previously got from proportionate consolidation. Some Board members noted that the issue might be related to poor quality of associated disclosures which do not achieve what they are designed to do and suggested that this could be explored further, potentially as part of the ongoing disclosure project.
  • Unconsolidated structured entities — one of the Board members addressed the comments received in relation to identifying unconsolidated structured entities and the surrounding disclosures which were noted by some to be quite onerous and suggested that this is considered further.

Outreach summary (Agenda Paper 7C)

The purpose of this agenda paper was to provide a summary of feedback on the RFI gathered from outreach activities during the comment period.

Board Discussion

The feedback received in the outreach work performed largely mirrored the comment letters received, the key comments discussed were as follows:

One member of the Board asked the staff to explain the meaning of the feedback that it would be helpful if financial statements included information on the share of joint ventures or associates within the segmental reporting. A staff member clarified that this meant adding additional non-GAAP disclosure to give additional segmental reporting.

With regards to disclosure requirements, following the discussion held earlier in the meeting, some Board members commented further on the point that the issue is sometimes that the disclosures being made are non-compliant with too much boilerplate and not enough specific information. It was noted that there appears to be some tension and differing views in relation to this issue and one Board member suggested that educational material might be useful to try and address this. Another Board member added that it is important to establish the appropriate question that needs to be answered, for example, if the disclosures made are compliant with the requirements, do they give sufficient and useful information to the reader.

Academic literature review update (Agenda Paper 7D)

This paper provided an overview of the academic literature relevant to the PIR of IFRS 10-12.

Board Discussion

This paper was not discussed during the meeting.

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