IFRS 11 Joint Arrangements - Remeasurement of previously held interests — Loss of control — Agenda paper 4

Recap

The IFRS Interpretations Committee has been considering the requirements in IFRS when an entity transfers an asset (or group of assets) it controls to a joint operation, but retains an interest in that asset (or group of assets). Specifically, does IFRS require that the retained interest(s) be remeasured?

Some members of the Interpretations Committee think the retained interest should be remeasured when the asset, or group of assets, constitutes a business. However, the Interpretations Committee concluded that there is a conflict between the requirements in IFRS 10 and IFRS 11 with respect to the loss of control transaction which is similar to the conflict that exists between IFRS 10 and IAS 28. IFRS 11 requires an entity to recognise gains or losses on the sale or contribution of assets to a joint operation only to the extent of the other parties’ interests in the joint operation whereas IFRS 10 requires that an entity should remeasure any retained interest when it loses control of a subsidiary.

The Board is considering the relationship between IFRS 10 and IAS 28 as part of its research project on equity accounting, and has already deferred amendments to IFRS 10 and IAS 28. On this basis, the Interpretations Committee exposed for comment a tentative agenda decision that these matters should be considered by the Board and not the Interpretations Committee.

The purpose of this session is to consider the comment letters received and consider the staff recommendations to finalise the agenda decision.

Comment letter analysis

The Interpretations Committee received four comment letters. Two comment letters supported the tentative agenda decision and two disagreed.

The disagreement centres on whether a “loss of control” transaction is similar to a sale or contribution of assets to an associated or joint venture and whether the equity method of accounting is relevant.

The staff reiterates their analysis included in the Mach 2016 Agenda paper 3 which outlined the reasons they recommended that the Interpretations Committee publish the tentative agenda decision. The staff do not agree with the respondent that stated that the sale or contribution of assets to an associate or a joint venture is an intra-group transaction, on the grounds that a group is defined as “a parent and its subsidiaries”, and associates, joint ventures and joint operations are not part of a group.

The staff also indicates that although there is diversity in practice, they do not think the matter is urgent.

Staff recommendations

The staff recommendation is that the Interpretations Committee confirm the tentative agenda decision.