IFRS 10 and IFRS 11 — Transitional provisions: Impairment, foreign exchange and borrowing costs

Date recorded:

In January 2013, the Committee received a request to clarify the transitional provisions of IFRS 10 Consolidated Financial Statements and IFRS 11 Joint Arrangements. The transitional provisions of IFRS 10 and IFRS 11 provide relief from retrospective application in specific circumstances. However, the submitter observes that IFRS 10 and IFRS 11 do not provide specific relief from retrospective application in respect of the application of IAS 36 Impairment of Assets, IAS 21 The Effects of Changes in Foreign Exchange Rates or IAS 23 Borrowing Costs. The submitter thinks that retrospective application of these Standards could be problematic when first applying IFRS 10 and IFRS 11.

IFRS 10 does not provide specific transition relief in respect of the application of IAS 21, IAS 23 or IAS 36. The changes in the consolidation conclusion on transition to IFRS 10 would affect application in cases where an investor would have to retrospectively consolidate or deconsolidate an investee. This would affect past impairment tests of goodwill or, in some cases, may require complex calculations in relation to foreign exchange and borrowing costs. IFRS 10 provides relief from retrospective application in two specific cases where an investor:

  1. Should have consolidated an investee under IFRS 10 that it previously did not consolidate, retrospective consolidation is not required, and 
  2. Previously consolidated entity which would no longer satisfies control under IFRS 10, deconsolidation retrospectively would not be required when.

This would only apply when measuring the investee’s assets, liabilities and non-controlling interests from the date when the investor obtained control on the basis of IFRS 10 is impracticable (as defined in IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors). The impact of the initial application of IFRS 10 should have been recognised within equity. In order to be able to measure the investee’s assets, liabilities and non-controlling interests or the interest in the investee, and be able to determine the adjustment to be recognised to equity when first applying IFRS 10, the investor should apply other Standards retrospectively, which makes the requirements within the standards impractical.

IFRS 11 does not provide relief from retrospective application if an investor has joint control of an investee under IFRS 11 but does not have joint control of that investee under IAS 31. When first applying IFRS 11, the only changes resulting from the initial application are from proportional consolidation to equity accounting or from equity accounting to recognising a share of assets and a share of liabilities, which is linked to assessing whether a joint arrangement is a joint venture or a joint operation. In those situations, IFRS 11 already provides relief from retrospective application.

The Committee was satisfied with the analysis provided by the Staff. The Committee acknowledged these standards have been raised application issues  in the past. The Committee agreed not to take this issue onto its agenda. The Committee approved the decision not to amend the transitional provisions of IFRS 10 and IFRS 11, as they provide sufficient guidance and relief from retrospective application. An agenda decision was presented by staff which would explain how transitional provisions of IFRS 10 and IFRS 11 should be applied. Apart from editorial changes, as discussed within the meeting, the tentative agenda decision was approved.

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