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IFRS 5 – Non-current assets held for sale and discontinued operations

Date recorded:

The project manager introduced the two issues highlighted in the Agenda Paper 3A (link to IASB's website):

  • Issue 1: how to recognise an impairment loss for a disposal group when the difference between its carrying amount and its fair value less costs to sell exceeded the carrying amount of non-current assets in the disposal group; and
  • Issue 2: how to account for the reversal of an impairment loss for a disposal group when the reversal related to an impairment loss recognised for goodwill.

The Committee had not reached a conclusion on these issues and therefore asked staff to perform further work. The result of this work is presented in agenda papers 3B to 3D.

Agenda Paper 3B (link to IASB's website) comprised other IFRS 5 issues that the IASB had previously considered but not addressed. Two major topics were ‘definition and disclosures’ and ‘presentation of OCI items’. Both issues were referred to the financial statements presentation project which remained inactive.

Agenda Paper 3C (link to IASB's website) summarised feedback from consultations with IASB staff and members who were involved with the development of IFRS 5. The staff consulted one former staff member and two former IASB members. On Issue 1 they had divergent views. On Issue 2 they agreed that reversal of a previously impaired goodwill would not be recognised until the disposal group is disposed of.

Agenda Paper 3D (link to IASB's website) contained further analysis of the issues using more complex fact patterns. Staff had examined two situations. In Situation 1 the entity had committed to a sale plan and the sale was highly probable but there was no binding contract to sell. In Situation 2 the entity had entered into a binding contract with the buyer of the disposal group. In Situation 2 the fair value was negative and therefore the entity had to pay the (negative) fair value to the buyer to dispose of the group. The staff thought that in Situation 1, the entity would not recognise a liability and in contrast, in Situation 2, the entity would recognise a liability because its obligation to pay to a buyer met the requirements for recognising a provision for onerous contract in IAS 37.

Agenda Paper 3E (link to IASB's website) considered the next steps and categorised the issues around IFRS 5:

  • Category A: Issues that had already been discussed by the Committee (i.e. Issues 1 and 2 from above);
  • Category B: Issues that had been discussed by the IASB but had not been addressed (i.e. the two issues in Agenda Paper 3B); and
  • Category C: New issues that were submitted to the IFRS Interpretations Committee that had not yet been discussed.

Staff recommended that all categories of issues should be discussed together as they were partly interrelated. The staff suggested informing the IASB of all issues and asking whether it intended to address all issues in a broader-scope project of IFRS 5. The IASB would then be asked whether it wanted the Interpretations Committee to perform further work on its behalf.

The Chairman asked the Senior Director for Technical Activities whether a broader project had to be part of an agenda consultation. The Senior Director for Technical Activities replied that this would not be a requirement. He reminded the Committee that the Board had started a research project on performance reporting and that some of the issues could be addressed in that project. He conceded that some of the issues would not be within the scope of the project.

A Committee member agreed with staff to ask the IASB. He said on Issue 1, which is a unit of account issue it would be simple to clarify without the IASB’s help as there had been many discussions around that topic. Another Committee member found it unfortunate that Issue 1 was not resolved by the Interpretations Committee. He said that if this could still not be resolved by the Committee, it should be handed over to the IASB with a strong recommendation to take the issue onto its agenda. A fellow Committee member agreed and suggested separating the recognition and measurement issues (i.e. Issues 1 and 2) from the presentation issues to address the former more expeditiously. One Committee member suggested a post-implementation review of IFRS 5.

The Chairman proposed to develop a paper that presented the problems concisely. This paper could then be referred to the IASB. The Director of Implementation Activities agreed that the Committee’s discussions around the issues provided sufficient basis for a referral to the IASB. The Chairman asked whether this included the issues in Category C that had not yet been discussed. The Director of Implementation Activities said that the issues in Category C were different from the others.

The Chairman asked the Committee whether they wanted to discuss the issues in Category C before they referred the issues to the Board. 9 of the 13 Committee members agreed. These issues would consequently be brought back to the Committee at its next meeting.

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