Amendments to IAS 19 - The Asset Ceiling

At the January meeting, the Board agreed to issue an exposure draft of a limited amendment to IAS 19. The purpose of the amendment is to prevent the interaction of the deferred recognition option and the asset ceiling giving rise to reported gains on the occurrence of actuarial losses and past service cost, and reported losses on the occurrence of actuarial gains.

The Board considered two versions of a draft exposure draft, a long version with an illustrative appendix including four examples and a short version with one simple example and no illustrative appendix. It was agreed that the longer version should be issued as an exposure draft.

Improvements to IAS 27 and IAS 28

Measurement in an investor's separate financial statements - Investments in subsidiaries, associates and joint ventures included in consolidated financial statements (IAS 27/28/31)

It was agreed that where separate financial statements are prepared by the parent, there should be a disclosure that makes reference, in the separate financial statements, to the existence of the consolidated financial statements.

It was agreed that, in the investor's separate financial statements, investments in subsidiaries, associates and joint ventures should be either measured at cost or accounted for as a financial asset under IAS 39, Financial Instruments: recognition and measurement. It was agreed that it was necessary to incorporate words to make it clear that IAS 39 can be used even though investments in subsidiaries, associates and joint ventures are otherwise excluded from the scope of IAS 39. The alternative to use the equity method would, therefore, be removed.

Investments in subsidiaries excluded from consolidated financial statements (IAS 27)

Investments in subsidiaries excluded from consolidation and accounted for under IAS 39 in the consolidated financial statements should also be accounted for under IAS 39 in the separate financial statements. The Board agreed that there was no reason for a change in treatment between the individual and consolidated statements.

Investments in associates by an investor that does and does not issue consolidated financial statements (IAS 28)

It was agreed that all references to consolidated financial statements would be removed from IAS 28, to make it clear that when accounting for associates the equity method should be used, except for in the individual financial statements of the investor where the proposed amendments to IAS 27 will apply (that is, cost method or IAS 39).

Measurement of interests in jointly controlled entities (IAS 31)

All references to consolidated financial statements would be removed from IAS 31, to make it clear that paragraphs 25-37 apply to the financial statements of a venturer whether those statements are consolidated or company-only.

Exemption from consolidated financial statements - wholly owned subsidiaries

IAS 27.8 permits wholly owned (and virtually wholly-owned) subsidiaries to be excluded from the requirements of preparing consolidated financial statements. The Board agreed to modify the exemption in IAS 27.8 along the following lines:

(a) A wholly-owned subsidiary is exempted from presenting consolidated financial statements if and only if:

i. its equity and debt securities are not publicly traded; ii. it is not in the process of issuing equity or debt securities in public securities markets; iii. the immediate parent or ultimate parent publishes consolidated financial statements that comply with International Financial Reporting Standards; and iv. in the case of one that is not wholly owned, the parent obtains the approval of the owners of the minority interest; and

(b) If the exemption is applied, an entity should disclose:

i. the reason for not publishing consolidated financial statements; and ii. the name of the parent that publishes consolidated financial statements that comply with International Financial Reporting Standards.

It should be noted that reference to a 'virtually wholly-owned subsidiary' has been removed and not-wholly-owned subsidiaries are able to take advantage of the exemption if they have the permission of the minority interest.

Venture Capital Investments

The Board agreed that there should be a scope exclusion in IAS 28 and IAS 31 for investments held by venture capital organisations, mutual funds, unit trusts and similar entities that are measured at fair value in accordance with IAS 39.

Exceptions to Consolidation (IAS 27)

Temporary investment

IAS 27.13(a) excludes a subsidiary from consolidation when control is intended to be temporary because the subsidiary is acquired and held exclusively with a view to its subsequent disposal in the near future. The Board agreed that this exception should be retained, but that there was a need to clarify that the investment should be kept at the fair value on acquisition (subject to any impairment). Also, if there is no likelihood of sale within 12 months, then the subsidiary should be consolidated.

Restrictions on transfer of funds

IAS 27.13(b) excludes a subsidiary from consolidation 'when it operates under severe long-term restrictions which significantly impair its ability to transfer funds to the parent'. A similar exception is included in IAS 28.8(b) and IAS 31.35(b). It was agreed that the exemption should be removed and that there should be a form of words that makes it clear that this is not necessarily a reason for not consolidating. In addition, it was agreed that disclosure of any restrictions was necessary, but that this was probably already caught by IAS 1.

Revision to IAS 21, The Effects of Changes in Foreign Exchange Rates

IAS 21 would be amended to take account of the situation recently experienced in Argentina, where a currency is suspended and this straddles a year end. At present the standard is silent on this issue. The revision states that where there is non-exchangeability of a currency at the year-end, the rate that should be used is the exchange rate at the date when exchangeability is first re-established.