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IAS 27 and IAS 32 – Accounting for put options written over non-controlling interests

Date recorded:

The primary issue discussed by the Committee relates to the accounting for the subsequent measurement of the NCI put prior to exercise or lapse. The financial liability recognised for an NCI put with a variable exercise price is updated at each reporting date to reflect current estimates of the exercise price. There is agreement over the need to remeasure the financial liability at each reporting date; the issue leading to diversity in practice is whether that remeasurement should be recognised (a) in profit or loss; or (b) in equity.

The staff from the Financial Instruments with Characteristics of Equity (FICE) project provided a short summary of the project, commenting that reporting the change in earnings would be consistent with the treatment of any other type of derivative. The staff from the FICE project expressed a concern around putting the change through equity since neither US GAAP nor IFRS follow that treatment unless the change is relating to a derivative that is classified in equity. It is likely to be two years until the FICE project will be completed. It was therefore suggested that the Committee might be able to deal with this matter on a timelier basis.

One of the Committee members is currently researching the impact that amending IAS 32 would have, and how extensive these amendments would need to be. The impact of an amendment in IAS 39 to clarify that the NCI put should be accounted for in equity would be less extensive, and is also being considered.

The Committee was unable to reach a consensus as to what current IFRSs require. It was suggested that if the Committee decides on the net approach, then perhaps NCI puts should simply be scoped out of IAS 39 and net accounting be mandated. The staff of the FICE thought that ringfencing would be a good idea if it was considered achievable.

It was tentatively agreed to continue researching this matter. The staff plans to bring papers to the March 2011 Committee meeting with detailed proposals for a short-term solution.

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