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IFRS 11 — Joint arrangements

Date recorded:

Agenda paper 5: IFRS 11 Joint Arrangements — Remeasurement of previously held interests

The project manager introduced the agenda paper. He described the general principles identified by the staff to determine whether remeasurement of a previously held interest would be necessary. He said that (i) the significance of the underlying economic event should be the primary factor in assessing whether or not previously held interests should be remeasured; (ii) the measurement model (ie a cost model or a fair value model) applicable to the recognition of the previously held/retained interests should be considered; (iii) the accounting for previously held interests should be separately analysed for transactions involving assets or groups of asset that met the definition of a business versus those that do not; and (iv) the use of a cost accumulation model should be avoided where this could be justified.  He also clarified that the structure of the investment, and whether or not the investment was housed in a separate legal entity, should not affect the analysis. He then opened the discussion to the Committee.

There was general support for the staff analysis. Although several Committee members expressed concern on the fact that the investment was or was not a legal entity was considered not relevant by the staff.  One Committee member said for example that it had tax implication and accordingly, it would require more analysis. The Chairman pointed out that the structure of the entity was considered relevant in IFRS 11 and in some situations it was substantive, for example it was considered relevant whether a structure could be a legal entity in one jurisdiction and not a legal entity in another one. The Implementation Director also pointed out that the presence of a legal entity could change the rights and obligations to the parties.

The Chairman concluded that there was general support for the staff recommendation and the staff would consider the concerns discussed in the meeting.

Agenda paper 5A: IFRS 11 Joint Arrangements — Remeasurement of previously held interests—Acquisition of control over a joint operation

The project manager introduced the agenda paper.  He explained that in developing the proposal the staff applied the principles outlined in agenda paper 5. He said that the transaction (obtaining control of a joint operation, either from having joint control in, or being a party to, a joint operation prior to the transaction (hereafter referred to as the ‘acquisition of control over a joint operation’)) represented a significant economic event and the fair value measurement model of IFRS 3 should be applied and previously held interests should be remeasured to fair value on the date control is acquired. He then said that the structure of the entity (whether or not it was a legal entity) should not lead to a different accounting treatment and finally that the staff proposed to amend IFRS 3 to clarify this issue. He then opened the discussion to the Committee.

There was general support for the staff recommendation.

One Committee member suggested not defining what equity interest meant.

One Committee requested clarification as to the meaning of prospective application. The Project manager indicated that it would be applicable to transactions entered into after the effective date.

Another Committee member asked to consider whether having “interest” in an entity (for example debt interest rather than equity interest) would have any implication.

Another Committee member asked the staff to analyse paragraph 42 of IFRS 3 because that paragraph mentioned remeasurement though P&L and OCI.

The Chairman concluded that there was general support for the staff recommendation.

Agenda paper 5B: Remeasurement of previously held interests — Loss of control transaction

The Project manager introduced the agenda paper. He said that in applying the principles identified in agenda paper 5, the staff concluded that the transaction was a significant economic event; the staff also concluded that the structure of the entity did not matter and in their view retained interests should be remeasured with the resulting gain or loss being recognised in profit or loss in loss of control transactions involving a business. However, the staff acknowledged that the wording in paragraph 25 of IFRS 10 could provide a technical basis for reaching different conclusions, depending on whether or not the business was structured through a separate legal entity. The staff concluded that given potential conflicts that were identified by the Board between IFRS 10 and IAS 28, the Committee should deferred discussions until a final decision was made by the IASB.  He then opened the discussion to the Committee.

There was some concern raised by the Committee members about not taking this project further. The Implementations Director suggested presenting the conclusion to the Board and then asking the Board for advice as to how the Committee should move forward.

There was general support for this suggestion and the Chairman concluded that they would take the issue to the Board.

Agenda paper 5C: Remeasurement of previously held interests — Change of interests’ transaction resulting in an acquisition of joint control

The Project manager introduced the agenda paper. He said that it related to the original submission received by the Committee, to clarify whether a previously held interest in the assets and liabilities of a joint operation should be remeasured to fair value when an investor’s acquisition of an additional interest resulted in the investor becoming a joint operator (ie assuming joint control) of the investee. He said that the staff concluded that (i) the change of interests did not represent a significant economic event and the previously held interests should not be remeasured; (ii) the structure of the joint operation did not affect the analysis and (iii) it would be necessary to add guidance in IFRS 11 to clarify this issue.  He then opened the discussion to the Committee.

No significant comments were raised and the Chairman concluded that there was general support for the staff recommendation.

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