Annual improvements

Date recorded:

IFRS 5 – Accounting in consolidated financial statements of a subsidiary held for sale

The IFRIC was asked to provide guidance on applying IFRS 5 Non-current Assets Held for Sale and Discontinued Operations when an entity is committed to a plan to sell the controlling interest in a subsidiary. The request considered situations in which the entity retained a non-controlling interest in its former subsidiary, taking the form of either an investment in an associate, an investment in a joint venture or a financial asset.

The IFRIC recommended to the Board that IFRS 5 be amended to clarify the following issues:

  • What triggers classification of the subsidiary's assets and liabilities as held for sale under IFRS 5?
  • When classification as held for sale is required, should all the subsidiary's assets and liabilities be classified as held for sale or only the proportion to be sold?

The Board decided to propose an amendment to IFRS 5 stating:

An entity that is committed to a plan to sell a subsidiary involving loss of control of that subsidiary shall classify the assets and liabilities of that subsidiary as held for sale, regardless of whether the entity retains a non-controlling interest in its former subsidiary after the sale.

Given that IFRS 5 and FAS 144 are to be converged and that the FASB has a project on a similar issue (Proposed FSP FAS 144-c), the Board decided to inform the FASB about the intended amendment. There seemed to be a consensus that the amendment should not be added to the omnibus exposure draft if the FASB disagrees with it.


IAS 41 – Replanting obligations

The Board continued its deliberations on an issue relating to the interaction of the requirements of IAS 37 Provisions, Contingent Liabilities and Contingent Assets and IAS 41 Agriculture. Paragraph 22 of IAS 41 requires that the calculation of fair value is not reduced by future replanting costs.

The Board discussed a number of possible solutions but did not reach a consensus. Because the Board was not able to reach consensus in two lengthy discussions, the Board concluded that this issue is not minor in nature and therefore does not qualify as an annual improvement. No further decision on how to address this issue was made.


IAS 36 – Disclosures for value in use and fair value less costs to sell

The staff identified an inconsistency in the disclosure requirements in IAS 36 Impairment of Assets.

The Board decided to address this inconsistency by clarifying in paragraph 134(e) of IAS 36 that 'if fair value less costs to sell is determined using discounted cash flow projections, the disclosures required by paragraph 134 (d) shall also be given'.


IAS 17 – Classification of leases of land and buildings

The staff was notified of a perceived inconsistency in the guidance on the classification of leases of land and buildings in IAS 17 Leases.

Paragraph 14 of IAS 17 states:

However, a characteristic of land is that it normally has an indefinite economic life and, if title is not expected to pass to the lessee by the end of the lease term, the lessee normally does not receive substantially all of the risks and rewards incidental to ownership, in which case the lease of land will be an operating lease.

The staff noted that there is concern that this additional guidance is unnecessary and potentially hinders the application of the general lease classification guidance in paragraphs 8 to 12 of IAS 17. The consequence of the current wording is that more leases of land and buildings are bifurcated between an operating lease for the land and a finance lease for the building than might otherwise arise from a simple application of the criteria in paragraphs 8 to 12 of IAS 17. Therefore, the staff proposed to delete this sentence.

The Board stated that the guidance in question was added as an improvement in 2003 and that the concern is obviously caused by reading 'normally' as 'always'.

One Board member suggested addressing this issue by rephrasing both paragraphs 14 and 15 of IAS 17 as these paragraphs nearly say the same.

The Board agreed and the Board member was asked to circulate the proposed rephrasing offline.


IAS 10 – Dividends declared after the balance sheet date

The staff identified that the reference to IAS 37 in paragraph 13 of IAS 10 Events after the Balance Sheet Date may imply that a liability can be recognised for dividends not declared until after the balance sheet date on the basis of a constructive obligation. Such circumstances may arise, for example, when there is an established pattern paying a dividend.

The Board agreed to propose the following amendment to paragraph 13 of IAS 10:

the dividends are not recognised as a liability at the balance sheet date because no present obligation exists at the balance sheet date they do not meet the criteria of a present obligation in IAS 37.


IAS 19 – Accounting for plan administration cost

The Board decided to align the definition of return on plan assets with the guidance in paragraph 107 of IAS 19 Employee Benefits by proposing the following amendment to paragraph 7 of IAS 19:

The return on plan assets is interest, dividends and other revenue derived from the plan assets, together with realised and unrealised gains or losses on the plan assets, less any costs of administering the plan (other than those included in the actuarial assumptions used to measure the defined benefit obligation) and less any tax payable by the plan itself.


IAS 23 – Definition of borrowing cost

To improve consistency between standards the Board decided to revise the components of borrowing costs given in paragraph 6(a) to (c) of IAS 23 Borrowing Costs by making reference to the guidance in IAS 39 Financial Instruments: Recognition and Measurement relating to effective interest rate.


IAS 34 – Earnings per share disclosures

The Board agreed to propose an amendment to paragraph 11 of IAS 34 Interim Financial Reporting clarifying that the requirement to present earnings per share in an interim report only applies to entities that fall within the scope of IAS 33 Earnings Per Share.


IAS 1 – Reporting compliance with IFRSs

The Board redeliberated its December 2006 decision to amend IAS 1 Presentation of Financial Statements in respect of reporting compliance with IFRSs. Members of the Standards Advisory Council raised the following concerns over the proposed amendment:

  • The statement of compliance with IFRSs should refer to 'IFRSs as published by the IASB' to draw a greater distinction with a statement of compliance with 'IFRSs as adopted for use in country X'. This would also align the compliance statement with the basis on which the SEC is proposing to exempt a Foreign Private Issuer from presenting a reconciliation with US GAAP
  • The ability to refer to IFRSs in the financial statements and disclose the differences between the financial statements as presented and the financial statements prepared in accordance with IFRSs as published by the IASB should be restricted only to circumstances when:
    • the reporting framework which deviates from IFRSs published by the IASB is imposed by law or by an empowered authority in its jurisdiction
    • the reporting framework used is not significantly different from IFRSs as published by the IASB.

Some Board members noted that paragraph 14A should apply equally for all entities not only for those who are required by law/regulation and expressed a lack of understanding for the proposed restriction. One Board member noted that it is not the business of the IASB do deal with entities that are not in compliance with IFRSs. This should be referred to regulators. The Board decided by majority vote to confirm the proposed amendment as currently drafted.


Exposure draft

With regard to the omnibus exposure draft the following decisions were made:

  • All proposed changes should be applied retrospectively
  • No new reliefs should be provided for first time adopters
  • Early adoption should be permitted but if the amendments are adopted early, all of the amendments should be adopted at the same time. The Board noted that a number of amendments affect more than one standard and that permission of selective early adoption would make the ED unnecessarily complicated.

The comment period will be 90 days.

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