Date recorded:

IAS 33, Earnings per Share

The Board discussed whether EPS may be presented in parent-only accounts. There was concern over whether the presentation of two EPS figures (one for the consolidated accounts and one for the parent-only accounts) would be misleading. The Board noted the usefulness of this figure in limited situations and decided to retain the option proposed in the Exposure Draft. The Board further decided that, to avoid confusion, the Standard should prohibit presentation of the parent-only EPS amount in the consolidated financial statements (either on the face of the financial statements or in the notes).

A first pre-ballot draft will be distributed to the Board members later this week. One Board member noted that the Board's decision to classify put-options as a liability in its proposed amendments to IAS 32 may change their effect on the EPS calculation. The Board noted that it expects to complete the improvements to IAS 33 prior to the amendments to IAS 32 and, therefore, it may have to make a consequential amendment to IAS 33 once the project on IAS 32 is completed.

The staff also noted that the FASB has decided to converge with the IASB on the calculation of diluted EPS. Therefore, there is no need to consider a possible change to IAS 33 in this regard.

Assets Disposal

A final pre-ballot draft will be sent to the Board members during this week. The staff noted that FAS 144 removed the exception from consolidation for entities for which control is intended, at acquisition, to be temporary. The exemption exists in IAS 27. The Board noted that if this exemption were removed from IAS 27, the effect would be that groups of assets may only be de-consolidated if they meet the criterion of being held for disposal. The Board decided to propose removing this exemption from IAS 27 in the Exposure Draft.

The Board noted that there would be a measurement difference between the Exposure Draft and FAS 144 in that the Exposure Draft would not reduce the fair value by costs expected to be incurred to sell the assets. The Board decided to converge with US GAAP on the recognition criteria and to hold the measurement issue to Business Combinations Phase II.

IAS 12, Income Taxes

The Board discussed the following four issues relating to deferred taxes:

  • Goodwill and negative goodwill
  • Investments in subsidiaries, branches, associates, and interests in joint ventures
  • Intercompany transfers of assets remaining within the group (different tax rates between the transferor and the transferee)
  • Foreign non-monetary assets and liabilities

Goodwill and negative goodwill. The staff recommended that deferred taxes be recognised for goodwill and negative goodwill. Both US GAAP and IAS 12 prohibit the recognition of deferred taxes on goodwill and negative goodwill. The Board decided to leave IAS 12 as it is because (a) it is already converged with US GAAP, (b) of the practical difficulties with tracking goodwill into perpetuity, and (c) there may not in many cases be a difference between the tax base and the carrying amount.

Investments in subsidiaries, branches, associates, and interests in joint ventures. Under IAS 12, a deferred tax liability is not recognised for taxable temporary differences for investments in subsidiaries, branches, associates, or joint ventures if certain criteria are met. At its April 2003 meeting, the Board decided to eliminate the exception for investments in associates. The Board did not reach any further conclusions on this issue and requested the staff prepare a follow-on paper addressing different types of investments for the Board to consider at a future meeting.

Intercompany transfers. US GAAP and IAS 12 require recognition of deferred taxes on the difference between an asset's tax base and its carrying amount if the carrying amount is adjusted as a result of an intercompany transfer within a consolidated group. However, the deferred tax is measured using the buyer's tax rate under IAS 12 and using the seller's tax rate under US GAAP. The Board agreed (7-6, one abstention) with the Staff recommendation to leave IAS 12 as is. The Board asked the staff to liaise with the FASB to seek convergence on the rate to be used.

Foreign non-monetary assets and liabilities. The staff asked the Board to decide whether a deferred tax should be recognised in the consolidated financial statements when the assets or liabilities are remeasured locally (in a foreign subsidiary) due to the change of the foreign currency. The Board decided that a deferred tax should be recognised by a vote of 11 to 3. Therefore IAS 12 will be not amended, and a difference with US GAAP will remain. The Board asked the staff to liaise with the FASB to seek convergence.

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