Post-implementation Review of IFRS 10, IFRS 11 and IFRS 12
Responding to the feedback (Agenda Paper 7)
Background
In December 2020, the IASB published its Request for Information (RfI) Post-implementation Review of IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements and IFRS 12 Disclosure of Interests in Other Entities. The comment period ended on 10 May 2021. In this session, the IASB continued the discussion of the feedback received on the RfI.
Based on the feedback received, the IASB concluded that IFRS 10-12 are working as intended and also identified the following topics arising from the Post-Implementation Review (PIR) to be considered for further work:
- Investment entities—subsidiaries that are investment entities (topic 1)
- Collaborative arrangements outside the scope of IFRS 11 (topic 2)
- Transactions that involve corporate wrappers (topic 3)
- Investment entities—definition of an investment entity (topic 4)
- Transactions that change the relationship between an investor and an investee (topic 5)
- Disclosure of interests in other entities (topic 6)
- Application questions on IFRS 10 and IFRS 11 (topic 7)
Before concluding on whether to take future action on topic 6 and 7, the IASB decided to further develop its strategy for deciding whether and when to take further action based on feedback from PIRs, which was discussed at its January 2022 meeting.
The purpose of this paper was for the IASB to prioritise topics 1-5 applying the approach agreed at the January 2022 meeting, to decide whether or not to take further action on topics 6-7, and if so, to decide on the priority of these topics. Additionally, the IASB was asked to decide whether or not to act on other matters raised in the feedback received.
Staff recommendations
Applying the approach discussed by the IASB at its January 2022 meeting, the staff recommended the IASB prioritise the topics arising from the PIR as follows:
- Topics 1-3: medium priority, to be added to the research pipeline
- Topic 4: to be referred to the IFRS Interpretations Committee
- Topics 5-6: low priority, to be addressed only if identified as a priority in the next Agenda Consultation or when the related IFRS Accounting Standard is next amended in some cases
- Topic 7: this topic has been divided into fifteen subtopics. The staff recommend that four of these subtopics are referred to the IFRS Interpretations Committee (the relationship between substantive rights and protective rights, changes in the relevant activities during the lifecycle of an investee, assessing non-contractual agency relationships and accounting for a joint operator’s disproportionate share of output compared to share of ownership) and that the remaining subtopics are not addressed further
IASB discussion
A number of IASB members commented on how useful the new framework for dealing with topics raised by PIRs had been in assessing these topics. One IASB member noted that it was important to be strict when deciding which topics should be taken forward so as not to set unrealistic expectations. Another IASB member emphasised the overall response to the PIR that these standards are working as intended, therefore it would be expected that very few topics would require further attention.
The topics identified for consideration were discussed as follows:
Topic 1 (Investment entities—subsidiaries that are investment entities)
Several IASB members noted their agreement with the staff’s proposal to assign a medium priority to this topic given that, despite being concentrated within certain industries, for those affected it can have a significant impact. Two IASB members disagreed and recommended that this topic is reduced to low priority due to concern that the feedback received was pertinent to a very small subset of respondents and therefore additional voluntary disclosure would better address this issue.
Topic 2 (Collaborative arrangements outside the scope of IFRS 11)
A number of IASB members suggested that this topic be reduced to low priority and potentially be picked up again in the next PIR. One IASB member questioned whether this was in fact a pervasive issue given that it occurs in some industries but is not common across all. Some IASB members expressed a view that this issue was not a finding of the PIR, rather that it was an additional consideration that respondents raised whilst reflecting on IFRS 11, and therefore should not be addressed within this PIR.
Other IASB members disagreed with these views and supported the staff’s categorisation as medium priority, noting that there was sufficient demand noted amongst respondents and that there is a known gap in the guidance that should be taken further, at least by carrying out initial research.
Topic 3 (Transactions that involve corporate wrappers)
Several IASB members recommended that this topic be classified as low priority as opposed to medium, expressing concern that the initial research phase alone could take up a vast amount of time and resource given that the legal position can vary widely between jurisdictions. One IASB member added that opening up this topic could lead to a large number of questions being raised and would disrupt current practices. Another IASB member suggested that this topic should not be taken further at all.
One IASB member disagreed and proposed that this topic should be taken forward and that some initial research should be performed.
Topic 5 (Transactions that change the relationship between an investor and an investee)
A number of IASB members agreed with the proposed prioritisation of this topic as low for the time being, pending completion of the ongoing equity project which may serve to address some of the issues identified.
One IASB member disagreed and expressed surprise that this was not given a higher priority as these changes in relationships are common throughout the world and there is no guidance currently provided in this area, posing a risk that entities could be reaching very different outcomes when approaching this issue.
Topic 6 (Disclosure of interests in other entities)
One IASB member questioned whether this topic addressed an issue with the requirements themselves or rather a compliance issue. Another IASB member questioned whether there was scope to produce some educational material in this area.
Topic 4 (Investment entities—definition of an investment entity) and Topic 7 (Application questions on IFRS 10 and IFRS 11)
Whilst noting general support for referring items to the Interpretations Committee, some IASB members commented that care should be taken to only refer items when it was considered possible for the Interpretations Committee to publish something that would be useful to stakeholders.
Several IASB members expressed a view that none of these topics should be referred to the Interpretations Committee as they did not address specific fact patterns therefore it would be very difficult to draw any conclusions, adding that preparers should instead apply judgement in these areas. Other IASB members agreed, noting that the Interpretations Committee can only point to guidance that exists already in the Standards and in some of these cases there are known gaps therefore the Interpretations Committee would be unable to produce an Agenda Decision. One IASB member added that it would be more appropriate for preparers facing application issues to present their specific fact pattern to the Interpretations Committee for consideration.
Other IASB members disagreed and suggested that the topics are presented to the Interpretations Committee for initial consideration given the committee’s vast experience in dealing with application questions.
In relation to the application question ‘accounting for a joint operator’s disproportionate share of output compared to share of ownership’, several IASB members noted that this topic had already been addressed and concluded by the Interpretations Committee in the past and therefore should not be presented to them again.
IASB decisions
3 out of 12 IASB members agreed with the staff’s recommendation to prioritise topic 1 as medium priority.
3 out of 12 IASB members agreed with the staff’s recommendation to prioritise topic 2 as medium priority.
No IASB members agreed with the staff’s recommendation to prioritise topic 3 as medium priority.
10 out of 12 IASB members voted in favour of assigning low priority to topic 5, pending the outcome of the equity method project.
All IASB members voted in support of the staff recommendation that topic 6 should be low priority.
A majority of IASB members voted not to refer any of the application guidance subtopics to the Interpretations Committee.
Next step (Agenda Paper 7A)
This paper summarised the work undertaken in the PIR. The IASB was asked whether it agrees that sufficient work has been completed to conclude the PIR and for the staff to prepare the Report and Feedback Statement on the PIR.
IASB discussion
There was no discussion on this paper.
IASB decision
The IASB voted unanimously in agreement that sufficient work has been completed to conclude the PIR and for the staff to prepare the Report and Feedback Statement on the PIR.