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Post-implementation Review of IFRS 10, IFRS 11 and IFRS 12

Date recorded:

Responding to the feedback (Agenda Paper 7)


In December 2020, the Board published a Request for Information (RFI) as part of its Post-Implementation Review (PIR) of IFRS 10-12 which was open for comment until May 2021. The feedback received from this process was discussed by the Board in July 2021 and the feedback summaries have been reproduced as agenda papers 7A and 7B which accompany this paper.

The purpose of this session was for the Board to assess, based on this feedback, whether IFRS 10, 11 and 12 are working as intended and also for the Board to consider whether this PIR has identified any topics that should be considered for further action. This paper is the first of two papers addressing this subject as the staff are undertaking additional research on two of the areas identified for potential further action, which will be brought to a future Board meeting.

It is noted that the Board is undertaking its Third Agenda Consultation to determine how to prioritise its activities and what new projects to add to its work plan for 2022-2026. As such, any further action arising from this PIR will be considered together with the outcome of the Third Agenda Consultation.

Staff recommendations

Overall, the staff consider that the RFI supports the conclusion that IFRS 10, 11 and 12 are working as intended. They have, however, identified a number of areas which the Board may wish to consider for further action while developing its work plan for 2022–2026. The identified topics have been arranged by priority as follows:

  • High priority:
    • Investment entities—subsidiaries that are investment entities
    • Collaborative arrangements outside the scope of IFRS 11
  • Medium priority:
    • Investment entities—definition of an investment entity
    • Corporate wrapper
  • Low priority—Transactions that change the relationship between an investor and an investee

The staff assigned the above priority ratings based on the feedback from the RFI, the outreach activities and additional research.

Board Discussion

Board members noted their agreement with the staff’s conclusion that the feedback received through the PIR supports the conclusion that IFRS 10, 11 and 12 are working as intended. One Board member noted that this is reinforced by the fact that the vast majority of the issues identified through the process were requests for further examples or guidance as opposed to giving any indication that the standards are not working overall.

The topics identified for consideration were discussed in turn as follows:

Investment entities—subsidiaries that are investment entities (high priority)

The staff suggested that if the Board were to take action on this topic, they could either research additional disclosure requirements for subsidiaries that are investment entities themselves to address information needs or reconsider which subsidiaries an investment entity parent consolidates and which are recognised at fair value.

Several Board members agreed that this topic should be considered by the Board based on the feedback received. One Board member expressed concerns that the first option, including further disclosures for subsidiaries that are investment entities themselves, would essentially require entities to account for the same investment in two ways, at fair value and also as a consolidated entity for disclosure purposes which would not be a time or cost-efficient approach. Some Board members noted that, if any work were to be done in this area, the first thing to do would be to revisit what was previously considered by the Board given this topic has been discussed at length in the past and there were good reasons as to why lines were drawn in particular places, despite the Board being aware of potential issues this may cause. Another Board member added that there had been a significant level of debate regarding the appropriateness of the exception available to certain investment entities from applying fair value in specific circumstances, which was crafted to meet the needs of a particular group of preparers and their investors (private equity), noting that what we ended up with doesn’t necessarily satisfy those groups so we need to question whether it delivers what it set out to achieve.

Investment entities—definition of an investment entity (medium priority)

One Board member noted overall that they were not concerned when feedback was received from stakeholders in a PIR stating that it is difficult to apply judgement as this is expected to be the case. Conversely, they were concerned around the questions and uncertainty arising over the definition of an investment entity as this determination will fundamentally change how you prepare your accounts. This Board member expressed surprise that this topic had only been assigned medium priority given the fundamental decision having to be made here. The Chairman highlighted that this may be because only a few stakeholders commented on this issue and the majority are comfortable with the requirements therefore perhaps the question here is whether the definition of an investment entity needs to be changed or if some clarification is required either within the Standard or outside of it, by providing additional education.

One Board member commented that the paper categorises both of the investment entity topics as “high” in terms of acuteness and pervasiveness and wanted to highlight somehow that this was only in the context of certain sectors as opposed to for all entities applying IFRS 10-12. Another Board member added that it can be very difficult to separate pervasiveness and acuteness and asked whether those two things could be considered separately going forward. The staff clarified that in the case of these two particular items, they were considered to be both pervasive and acute in the sector concerned.

Collaborative arrangements outside the scope of IFRS 11 (high priority)

The staff recommended that the Board should firstly consider if it can identify any groups of collaborative arrangements that share common features and if so, it can then assess if the current accounting faithfully represents the rights and obligations arising from these arrangements and thereafter decide whether a standard-setting exercise is required or not.

A number of Board members agreed with the staff analysis and the proposal to try and identify homogenous groups, however one Board member expressed concern that there will be a large number of permutations within various jurisdictions and industries and questioned whether or not it was possible to narrowly define what needs to be fixed.

Several Board members commented on the use of the term “risk-sharing agreements” within the paper and raised concerns that given the purpose of these arrangements is to share risk, they are likely to have a lot of unique characteristics and whilst the project may lead to the identification of additional disclosure needs, it would be extremely difficult to develop an accounting framework which would work effectively across a large enough number of transactions.

One Board member asked the staff to explore this further by thinking about whether the collaborative arrangements outside the scope of IFRS 11 are predominantly risk-sharing arrangements and what information investors need about this type of arrangement.

The Vice-Chair expressed concerns that this question had been raised in the context of IFRS 11 as some respondents had noted that certain arrangements are the same as a joint arrangement but without joint control, however that is what a joint arrangement is therefore she queried whether in fact this was an IFRS 11 issue at all.

Some Board members commented that if a project were to go ahead in this area, it would be important to consider the interaction with executory contract considerations and the potential scale of work involved. One Board member questioned the feasibility of a standard-setting exercise in this area, noting it would be very difficult to balance the associated costs and benefits.

Corporate wrapper (medium priority)

The staff set out two possible alternatives for the Board to explore to address the respondents’ query regarding whether accounting for certain transactions should differ depending on whether they are structured through a corporate entity or not. Firstly, to conduct research to decide whether it is appropriate or possible to develop a principle for transactions that involve a corporate wrapper; or secondly, to consider addressing only particular types of transactions.

Several Board members expressed that they would be very cautious in taking this topic forward given corporate wrappers are a legal matter and will be treated differently in different jurisdictions. One Board member noted that in their view, it would be very unlikely to ever address this by only considering particular types of transactions as it would be very specific to each jurisdiction so the only way to take forward would be to develop principles.

The Chairman challenged whether the legal form was relevant given generally within IFRS Standards the requirement is to apply judgement based on economic substance and not legal form, however another Board member noted that the existence of a corporate wrapper can change the rights and obligations of stakeholders so you cannot ignore the legal form. It was however agreed that the legal substance should be considered as opposed to the legal form.

One Board member noted how much time had been spent when developing IFRS 3 to give guidance on how to determine whether an acquisition represents a business or not and that in essence, the question being asked now is whether this should be further subdivided further when it is determined that it is not a business and determining where you would draw the line in that assessment would be very challenging.

Transactions that change the relationship between an investor and an investee (low priority)

The staff set out their recommendation that the Board could undertake research to identify the frequency of these transactions and whether there is diversity in accounting before starting any standard-setting activity.

One Board member queried why this topic was categorised as low priority as opposed to medium. The staff responded that most of the transactions were already covered by other IFRS Standards and those that were not were low in frequency.

No further comments were made by the Board.

Board Decision

All 12 Board members agreed with the staff’s overall conclusion that IFRS 10, 11 and 12 are working as intended.

All 12 Board members agreed with the staff recommendation for the Board to consider the topics identified within this paper while developing its work plan for 2022-2026 as part of the Third Agenda Consultation. The Chairman clarified that for this question, Board members were being asked whether they agreed that the staff had identified the appropriate topics for further consideration and whether these had been appropriately categorised in terms of priority.

Next steps

As noted above, the staff are conducting additional research in relation to the feedback received on a further two topics, being the disclosure of interests in other entities and assisting the application of IFRS 10 and IFRS 11, to assess whether to recommend that these are considered by the Board for further action. These topics will be brought to the Board at a future meeting. The staff will then prepare a “Report and Feedback Statement” on the PIR.

Analysis of feedback—IFRS 10 (Agenda Paper 7A)

This agenda paper analyses the feedback received in comment letters on the RFI on IFRS 10. It has been reproduced from the July 2021 meeting for the purposes of background information and was not discussed during the October 2021 meeting.

Analysis of feedback—IFRS 11, IFRS 12 and other (Agenda Paper 7B)

This agenda paper summarises the feedback received in comment letters on the RFI regarding IFRS 11, IFRS 12 and other matters raised by respondents. It has been reproduced from the July 2021 meeting for the purposes of background information and was not discussed during the October 2021 meeting.

There was no discussion on this paper.

Correction list for hyphenation

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