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IAS 21 — CTA recycling in IAS 27 (revised) transactions

Date recorded:

The IFRIC held an initial discussion on whether the separate foreign currency equity reserve related to the translation of the net assets of an investor's net investment in a subsidiary (often referred to as the cumulative translation adjustment, or 'CTA') should be recycled and if so, when such recycling is appropriate. The discussion focussed on whether the recycling should apply for transaction in which there is a reduction in proportionate (relative) equity ownership in a foreign operation or in absolute interest (for example, pro-rata repayment of capital to all equity holders).

One IFRIC member noted that there are two connected issues: what is the disposal and partial disposal and what are the principles connected to recycling connected to disposal and partial disposal. In his opinion this is a broad issue that is unlikely to be an Annual Improvement project but rather an interpretation.

Another IFRIC member agreed and noted that the current practical application of the guidance would limit recycling to cases when the investor actively participated in the transaction (that is, there would be no recycling of CTA if there was a deemed disposition, e.g. because the investor's interest was diluted by a transaction in which it did not participate).

Several IFRIC members expressed their conceptual preference for the absolute interest view, but some expressed unease for developing an interpretation related to recycling, as this is a concept the Board does not support. In response, another IFRIC member noted that as the Board did not address recycling as part of the Financial Statement Presentation project, interpretation related to CTA recycling might be necessary.

Some IFRIC members, on the other hand, noted that the issue might be too broad for an Interpretation.

The IFRIC did not make any decision and will continue to consider this issue at the May IFRIC meeting.

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