IAS 27 — Puts on non-controlling interest

Date recorded:

The Committee started its discussion on the request for additional guidance how an entity should account for changes in carrying amount of financial liability for a put option, written to a non-controlling interest shareholder (NCI put), in the consolidated financial statement of a parent. The staff clarified that there is a potential conflict between IAS 32 Financial Instruments: Presentation and IAS 39 Financial Instruments: Recognition and Measurement on one side and guidance in IAS 27 Consolidated and Separate Financial Statements on the other side.

As the IFRIC considered the issue in the connect of the pre-2008 amendments guidance in IAS 27 and IFRS 3 Business Combinations, the Committee focused on the NCI puts arising after application of IAS 27 (2008) and IFRS 3 (2008).

During the discussion, a majority of the Committee members preliminary supported the view that changes in the carrying amount of the NCI puts should be recognised in profit or loss in accordance with IAS 39, whereas a minority of Committee members preferred to recognise them in equity (either as NCI or as a separate component of equity). The Committee members saw the issue as cash of two major concepts - the single economic entity concept and the derivatives theory. In their view reconciliation of these two issues was very difficult. Some Committee members supported their views by analogy to IFRS 3 and consistency with the treatment of put on majority interests. Others would distinguish between stand-alone put on NCI that are traded and the NCI puts that need to be settles on a gross basis.

The Committee members noted that there is diversity in practice related to this issue and referred to views expressed by some regulators. They also noted that several linked issues need to be addressed as part of this issue, in particular the question from which component of equity shall the entity reclassify the NCI put liability.

The staff also explained that the Financial Statements with Characteristics of Equity project was not likely to address the issue in their amendments to IAS 32.

Without reaching any consensus, the Committee decided to deliberate the issue further based on additional staff analysis. On that basis the Committee decided to add this project to its agenda. Several Committee members underlined that it would be very important to contain the scope of this project in order for the Committee to come to a consensus on a timely basis. The Chairman clarified that the project might lead to an interpretation or to an interpretation accompanied by a recommendation to the Board to propose amendments to the IFRSs. From a procedural standpoint, the latter would require a positive Board vote before being issued.

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