IAS 41 Agriculture and IFRS 13 Fair Value Measurement: Valuation of biological assets using a residual method

The Committee continued the discussions from November 2012 meeting on the application of paragraph 25 of IAS 41, with a goal of finalising an agenda decision in this meeting. The paragraph in question permits the use of a residual method to arrive at the fair value of biological assets that are physically attached to land, if the biological assets have no separate market but an active market exists for the combined assets. This might result in nil or marginal fair value for the biological assets. In the November 2012 meeting, the Committee tentatively decided not to take this issue onto its agenda and to issue an agenda decision on the basis that the IASB had tentatively decided to undertake a limited-scope project on IAS 41 to address the accounting for bearer biological assets. Guidance on the application of highest and best use concept in IFRS 13 will also form part of the broader educational material planned for IFRS 13. The tentative agenda decision was published in November 2012 and comments received were brought to the current meeting.

At this meeting, the staff informed the Committee, considering outreach activity and results of conversation with the IFRS 13 educational material team, that the IFRS 13 educational material would not address the specific issue submitted. The staff also noted that the educational material is not authoritative and this specific issue with far reaching implications should not be dealt with only through that material. The staff also noted that constituents feedback had commented that the issue was broader than strictly valuation of biological assets, and even though the project on biological assets is expected to take pressure off of this specific issue, it would not resolve the issue in and of itself.

Hearing this general feedback, Committee discussion revealed a lack of clarity regarding application of the highest and best use concept in IFRS 13 when two or more non-financial assets are physically attached to each other. This lack of clarity was derived from a perceived tension between the requirements of paragraphs 13, 31(a)(iii), 31(b) and 32 of IFRS 13. The requirement in paragraph 31(a)(iii) of IFRS 13 for consistent valuation principles for similar assets in a group of assets combined with the identification of the highest and best use for each of the combined assets was identified as one of the main origins for the issue.

On the basis of the above, while the Committee members presented specific drafting comments on the agenda decision, it was decided to ask the IASB to clarify the meaning and correct application of the above mentioned paragraphs in IFRS 13.

IFRS 3 Business Combinations: Accounting for reverse acquisition transactions where the acquire is not a business

The Committee previously considered two separate requests to clarify the accounting for reverse acquisition transactions where the accounting acquiree is not a business. Such transactions are not business combinations, and thus, not included within the scope of IFRS 3. Based on the previous discussions on the guidance in paragraph B7 of IFRS 3, the accounting acquiree in the fact patterns presented is not a business. Therefore, the Committee concluded the transaction should be accounted for as a share-based payment transaction in accordance with IFRS 2 Share-based Payment. At this meeting, the Committee was asked to finalise the agenda decision considering the feedback received on the tentative agenda decision published in November 2012.

One Committee member repeated his concerns from previous discussions on the argumentation leading to the conclusion without questioning the conclusion itself. In his opinion, application of the control concept in the context of IFRS 2 was not appropriate.

The remainder of Committee redeliberations focused on editorial changes to the proposed agenda decision wording included in the staff paper. For example:

• The Committee members wanted to ensure that the agenda decision could not be interpreted as saying that all non-operating entities would not be considered to be businesses. Drafting comments were made to word the conclusion in a way that would imply the applicability of that assumption only in the context of the fact pattern presented to the Committee.
• A couple of Committee members questioned whether the finalisation of the tentative agenda decision was expected to result in a change in practice, and if so, whether the issue would be best addressed as an amendment or interpretation rather than as an rejection notice. However, some members commented that agenda decisions do not compel changes in current practice, and therefore, preferred issuance of an agenda rejection.
• The Committee agreed to remove the agenda decision sentence referring to diversity in practice.

The Committee approved the agenda decision (as modified by several drafting comments) with a clear majority. The issue is also expected to be picked up in the post-implementation review of IFRS 3.