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Due process documents — annual improvements

Date recorded:

IFRS 8 Operating Segments: Aggregation of operating segments

In May 2012, the IASB issues for public comment Exposure Draft ED 2012/1 Annual Improvements to IFRSs 2010 –2012 Cycle, which included a proposal to amend paragraph 22 of IFRS 8.

This amendment would result in the inclusion of an additional disclosure in paragraph 22 that would require a description of the judgements made by management in aggregating operating segments, including the economic indicators that management has assessed to conclude that operating segments have ‘similar economic characteristics’ in accordance with paragraph 12 of IFRS 8. The staff presented to the Committee an analysis of the comment letters received on the proposal to amend paragraph 22 of IFRS 8. As a result of this analysis, the staff recommended that the IASB should proceed with the proposed amendment to paragraph 22 of IFRS 8 which proposes adding paragraph 22(aa), but also recommended that the Committee should recommend to the IASB the inclusion of additional edits to paragraph 22(aa) to further clarify the focus of the proposed disclosure (as summarised in the staff paper).

Several members of the Committee expressed some scepticism as to what value the changes to the amendments from those included in ED 2012/1 would bring as a disclosure requirement, to which the staff responded that this improvement is the result of the request of the European Securities and Markets Authority (ESMA).

One member of the Committee disliked the use of the parenthetical examples in paragraph 22(aa) since he purported that providing examples reduced the scope of application, to which the Committee agreed.

It was therefore agreed to accept the staff recommendation, notwithstanding the removal of the parenthetical examples in paragraph 22(aa).

IFRS 8 Operating Segments: Reconciliation if the reportable segments’ assets to the entity’s assets

In May 2012, the IASB issues for public comment Exposure Draft ED 2012/1 Annual Improvements to IFRSs 2010 –2012 Cycle, which included a proposal to amend paragraph 28(c) of IFRS 8.

This amendment proposes to clarify that a reconciliation of the total of the reportable segments’ assets to the entity’s assets should be disclosed for a particular reportable segment if segments assets are reported in accordance with paragraph 23 of IFRS 8. This is, if the amounts are regularly provided to the chief operating decision maker (CODM). Upon amendment, this clarification would make this paragraph consistent with paragraphs 23 and 28(d) in IFRS 8.

The staff presented to the Committee an analysis of the comment letters received on the proposal to amend paragraph 28(c) of IFRS 8. As a result of this analysis, the staff recommended that the IASB should proceed with the proposed amendment to paragraph 28(c) of IFRS 8, but also recommended that the Committee should recommend to the IASB slight revisions to the proposals to amend paragraph BC5 of IFRS 8 as a result of comment letter feedback. The nature of these edits are summarised in the staff paper.

The staff requested that the Committee confirm whether they agreed with the staff recommendation and to consider any edits that would make the proposed amendment clearer.

One member of the Committee enquired as to what the FASB were doing in this regard and the Chair noted that it was important to correspond with the FASB staff in this regard. The Committee was in general agreement that this amendment was consistent with the overall approach to provide information to the users of financial statements information akin to that received and utilised by the CODM. The Committee agreed to accept the staff recommendation.

IFRS 13 Fair Value Measurement: Short-term receivables and payables

In May 2012, the IASB issues for public comment Exposure Draft ED 2012/1 Annual Improvements to IFRSs 2010 –2012 Cycle, which included a proposal to amend the Basis for Conclusions of IFRS 13.

The improvement clarified the IASB’s rationale for an amendment to IFRS 9 and to IAS 39 that resulted in the deletion of paragraphs B5.4.12 and AG79, respectively. This specifically related to the treatment of short-term receivables and payables with no stated interest rate which may be measured at the original invoice amount if the effect of discounting is immaterial.

The staff presented to the Committee an analysis of the comment letters received to the exposure draft, in which a question was raised regarding whether, by deleting paragraph B5.4.12, the IASB intentionally decided to remove the practical expedient noted above. The staff reiterated that in removing the paragraph, the IASB did not intend to remove the practical expedient since this is already covered in IAS 8 and IFRS 13, and as such, there were no changes to the measurement requirement.

One member of the Committee made the comment that the implicit mention of the practical expedient in paragraph B5.4.12 provided clarity and by deleting it, the IASB is therefore changing the measurement criteria. In response, several other Committee members disagreed with this analysis and noted that whilst it did support the Basis for Conclusion, clarification insofar as materiality considerations already exists in IAS 8 and IFRS 13.

Another Committee member made the point that the existing practical expedient was a choice which applied to a specific item, and as such, led to confusion.

The staff requested that the Committee confirm whether they agree with the staff recommendation to amend the footnote (BC138A) to the Basis for Conclusions on IFRS 9 and IAS 39 which explicitly notes that in deleting the paragraph, it was not the intention to delete the practical expedient.

The Committee then discussed the suggested wording and following discussion surrounding the need to include this and to what extent. The Chair summarised the two prevailing options to the Committee:

  1. Do nothing and keep paragraphs removed without guidance.
  2. Suggest minor amendments to footnote (BC138A) based on focus on materiality.

A vote was taken and point 2 gained the majority vote. The Chair noted that the extent and breadth of the discussions held should be communicated to the IASB.

IAS 12 Income Taxes: Recognition of deferred tax assets for unrealised losses

In May 2012, the IASB issues for public comment Exposure Draft ED 2012/1 Annual Improvements to IFRSs 2010 –2012 Cycle, which included a proposal to amend IAS 12.

The amendments proposed to clarify that:

  1. an entity assesses whether to recognise the tax effect of a deductible temporary difference as a deferred tax asset in combination with other deferred tax assets. If tax law restricts the utilisation of tax losses so that an entity can only deduct the tax losses against income of a specified type (e.g. if it can deduct capital losses only against capital gains), the entity must still assess a deferred tax asset in combination with other deferred tax assets, but only with deferred tax assets of the appropriate type;
  2. taxable profit against which an entity assesses a deferred tax asset for recognition is the amount before any reversal of deductible temporary differences; and
  3. an action that results only in the reversal of existing deductible temporary differences is not a tax planning opportunity. To qualify as a tax planning opportunity, the action needs to create or increase taxable profit.

The staff presented to the Committee an analysis of the comment letters received to the exposure draft, in which numerous concerns were raised. Analysing these comments, the staff believed that certain of these issues, considering both the extent and nature, could not be resolved by an annual improvement, but rather, would require consideration as a separate project on IAS 12. Some of these issues included what to do if there are taxable temporary differences, the interaction with paragraph 51 regarding expected manner of recovery of the carrying amount of the asset and the issue of whether and when deferred tax assets for unrealised losses on debt instruments are recognised. Comment letter responses led to many Committee member concerns, and after a lengthy debate, the Committee agreed that issues raised by constituents required response. The Committee acknowledged that it needed to seek the advice of the Board on, among other things, how to proceed and what scope issues should be added to the original issue considered. The Committee intends to seek the advice of the Board at its December 2012 or January 2013 meeting.

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