Consolidations including SPEs

Date recorded:

The Board discussed two issues that involved the detailed consideration of examples prepared by staff:

Options over assets versus options over equity instruments

This discussion centred on considering whether there is any anomaly in the timing of recognition of assets when options are held over an asset compared with when options are held over an entity that holds the assets.

Board members noted that the 'control' notion is different when applied to a subsidiary and parent relationship compared to other types of assets in general. A concern was expressed that the potential voting rights introduced by options over equity interests should not be the determinant of whether control exists where that option has not yet been exercised. Instead, other rights attaching to that option (such as the ability to appoint Directors to the Board of a company) would be the determinants of whether control exists.

Some Board members were asked to work with the staff in exploring further the differences inherent in the definition of control.

The issue of references within specific standards to 'separate' and 'individual' entity financial statements was raised as part of this discussion. The staff were asked to explore this issue and ensure that the wording across all the standards is made consistent.

Attribution of profits or losses in the context of potential voting rights

The Board had a detailed discussion of the examples prepared by the staff. The Board agreed that the staff should continue developing examples to highlight issues and that those examples should include SPEs.

The Board discussed an outline of the plan to develop standards. It was noted that this is not yet a convergence project with the FASB although an assessment would be made in the future whether the FASB would also work on this project.

The Board decided not to expose for comments, at this time, amendments to IAS 27 arising from decisions already made regarding control (a 'clean up project' for IAS 27). Instead, the Board will pursue a single project that will also include the issues that are currently under discussion. At subsequent meetings, the Board will also consider examples related to variable interest entities.

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