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

Date recorded:

Agenda Paper 2: Cover paper

The Visiting Fellow introduced the series of agenda papers to be discussed and noted that the issues covered had been discussed in the Committee’s May meeting. It had been decided to take the issues (and conclusions reached) to the IASB to discuss the next steps to be taken. The IASB, at their July meeting, agreed with the conclusions reached by the Committee in May regarding the split of issues into those to be dealt with in the short term and those to be dealt with in the medium to long term.

The staff prepared the series of papers for this meeting following the IASB’s discussions and decisions in July.

Agenda Paper 2A: Report back on the IASB’s discussion and decisions on IFRS 5 issues

The Visiting Fellow discussed the two IFRS 5-related topics taken to the IASB in July.  The first related to the next steps to be taken relating to unresolved IFRS 5 issues and the second related to a proposal to address one of the issues (the disclosure issue relating to the interaction between IFRS 5 and IFRS 12) through the IASB’s annual improvements process.

The Visiting Fellow noted that the staff were of the opinion that the accumulation of unresolved
IFRS 5 issues was an indication of the need for a comprehensive review of IFRS 5, which should be undertaken by the IASB. Consistent with the views of the Committee members, the staff proposed to the IASB that the unresolved issues could be broken into those to be dealt with in the short term and those to be dealt with in the medium to long term.  As a result, the IASB has published a request for views, including the IFRS 5 issues within the possible additional research topics section of the document, with comments due by the end of 2015.

The Visiting Fellow noted that, of the three issues considered to be short term issues, two of these were to be discussed by the Committee at this meeting. The Visiting Fellow confirmed that the other issue, relating to a possible conflict between IFRS 5 and IFRS 12 disclosure requirements, had been considered by the IASB as part of their annual improvements. The related balloting process was ongoing and an ED was expected during Q4 of 2015.

The Visiting Fellow asked if the Committee had any comments relating to Agenda Paper 2A and no comments were made.

Agenda Paper 2B: To what extent can an impairment loss be allocated to non-current assets within a disposal group

The Visiting Fellow introduced the paper and the specific issue of whether impairment losses allocated to the non-current assets within a disposal group can reduce the carrying amount of such assets below their fair value less costs to sell and value in use. This issue had been discussed by the Committee in its May meeting. The staff, at that meeting, presented analysis that indicated that the impairment losses should not be restricted by the non-current assets’ fair value less costs to sell and value in use. The Visiting Fellow added that, at that time, given the existence of two further unresolved measurement issues that no agenda decision relating to this issue should be proposed and that the Committee decided to take all of the IFRS 5 issues, including this issue, to the IASB.

However, Committee members, during the May meeting, concluded that this issue could be resolved within the confines of IFRS 5 and, consequently, the staff therefore recommended to the IASB that this issue be addressed separately through an agenda decision.  The IASB agreed.

The Visiting Fellow then stated that, consistent with the analysis presented to the Committee in the May meeting, the staff were of the view that paragraph 23 of IFRS 5 provides sufficient guidance relating to the extent to which impairment losses can be allocated to the non-current assets within a disposal group given that paragraph 105 of IAS 36 is not referred to in paragraph 23 of IFRS 5.

The Visiting Fellow then stated that the staff recommend that the Committee do not add this issue to its agenda.

One Committee member disagreed with the staff analysis. He said that just because a paragraph is not directly referenced, does not preclude the principles of IAS 36 to be considered. He felt this requirement to reference paragraphs directly may be problematic in a principle-based framework.

Another Committee member also disagreed stating that the individual assets within the disposal group may be misstated, and could indeed be negative, and therefore users would not have access to useful information.

The Chair clarified the situation stating that the situation under discussion may be one where an amount would have to be paid by the entity for the asset to be taken over by another entity.

Another Committee member agreed with the staff analysis but raised a potential conflict between the unit of account as determined by IFRS 5 and IAS 36, as these are different. He suggested that the agenda decision be clarified to indicate that the situation being dealt with is where the disposal group consists of non-current assets and not financial assets, as this is an issue that has been included as a medium to long term issue.

Another Committee member agreed with the staff but suggested a wording amendment to the decision to clarify that there should be no restriction to the amount of loss to be recognised as this would provide more useful information to the users.

Another Committee member questioned whether the disposal group in total could be carried at an amount below zero and what such a situation would lead to be recognised in an entity’s accounts. She highlighted the fact that a linked issue was to be discussed in the medium term, and, given this, the agenda decision relating to this issue may resulting in uncertainty as to whether an amount below zero could be recognised.

An observing IASB member agreed with the staff view if the disposal group is disposed of as one group. However, he added that, should the disposal be piecemeal, potentially given a change in plans to sell, allocation to different assets within the group would be necessary.

The point was raised by a Committee member that disclosure is already required of the major asset and liability components, therefore allocation of losses would be necessary. She also echoed the concern regarding recognition of amounts below zero.

When called to vote, ten members supported the staff’s recommendations subject to wording changes being made to the agenda decision. The Chair requested that the members provide the staff with their suggested amendments to the wording of the agenda decision.

Agenda Paper 2C: Presentation of intragroup transactions between continuing and discontinued operations

The Visiting Fellow introduced the paper which discussed an issue discussed at the May 2015 Committee meeting. He explained that the issue had been taken to the IASB for discussion at their meeting in July.

He stated that the majority of the Committee members had agreed with the staff’s analysis relating to the issue which would require elimination of intragroup transactions between continuing and discontinued operations in the income statement (View 1) but questioned the staff’s recommendation that additional information (which included showing how eliminated transactions would impact continuing operations going forward) (View 2) be presented in the income statement. Rather, the Committee suggested that such information would be more useful (and would not lead to departure from presentation requirements) if provided in the notes.

The issue, taking into account the Committee’s discussion, was taken to the IASB with the proposal that the issue could be addressed by a Committee agenda decision. The IASB agreed with this proposal.

The Visiting Fellow summarised the analysis first presented to the Committee in May, stating that the staff are of the belief that there are no current IFRS requirements that override the consolidation requirements of IFRS 10 and, therefore, full elimination of the transactions would be required. In addition, the Visiting Fellow stated that the staff were of the view that if an entity feels that this would not be the best way to disclose its results and additional information would be useful to users, they could provide this in the notes in accordance with paragraph 30 of IFRS 5. The staff also believe that any amendment to the required presentation of the income statement would require a broader project than the Committee could undertake.

The Visiting Fellow stated that the staff recommend that the Committee should not add this issue to its agenda.

A number of Committee members agreed with the proposal, but raised concerns that the resulting disclosure on the face of the income statement would not constitute useful information.

A few Committee members agreed with the staff recommendation but felt that the decision may be seen as the Committee dictating how the transactions should be presented.

Other members raised a concern that by advocating a single approach, entities that may have been applying different approaches may be seen as having made an error. They said that the wording of the agenda decision should be clear that this was not the case.

One member agreed with proposal and stated that if further disclosures were required, this would entail an amendment to the standard or raising of another issue for discussion by the IASB. In addition he questioned the importance of any additional information provided given the fact that transfer prices and therefore margins could be negotiated which would not be the case with non-group transactions.

An observing IASB member summarised the conclusion from the previous Committee meeting in that the Committee agreed that View 1 is the correct interpretation of the standard regardless of how good the resulting disclosure may or may not be and that any supplementation of the standard should not necessarily be discussed by the Committee. Rather, the Committee was trying to confirm the requirements in the standard while acknowledging that other disclosures may be useful.

The Chair called for a vote aware that the wording of the agenda decision could be reworded (in response to many Committee members requesting rewording to the agenda decision) and eleven members voted in favour of the staff recommendation.

After the vote the wording of the proposed agenda decision was discussed further, especially regarding a portion of the agenda decision that was perceived to require inclusion of pro-forma financial information based on the way the agenda decision was currently drafted. It was clarified that this was not the intention of the agenda decision.

The Chair suggested that the portion of the agenda decision that was under discussion simply be removed and called for a vote. Five members agreed with this. The Chair concluded that the portion would not be removed but that the agenda decision would instead be reworded.

Agenda Paper 2D: Proposal to publish a tentative agenda decision on various IFRS 5 related issues

The Visiting Fellow introduced the paper stating that its purpose was to propose that the Committee close the medium to long term issues through the agenda decision process. He said that this would acknowledge that the issues remain unresolved but that the Committee would not discuss these issues in the short term and until there is a request for it to do so by the IASB.

The Visiting Fellow clarified that the issues in question are those not discussed at the meeting and the other short term disclosure issue which was in the hands of the IASB. Further, of the eleven issues two of these did not arise through a submission to the Committee, but the staff were of the opinion that these two should be covered by the agenda decision.

The Visiting Fellow asked whether the Committee agreed with the staff that these medium to long term issues should be closed by an agenda decision.

The Chair suggested that the wording of the agenda decision should be altered to indicate that the issues were part of the IASB’s agenda consultation.

One member agreed with the analysis but suggested that these issues may return to be discussed in the future especially if the IASB after its agenda consultation did not address the issues. But he suggested that some of the wording of the agenda decision draft would be prohibitive should the Committee seek to discuss these issues in the future.

Another member questioned, and other members agreed, whether a decision could be made regarding the issues that had not been submitted to the Committee.

Another member requested further detail to be provided regarding the issues discussed to aid external understanding of the matters submitted to the Committee.

The Chair agreed regarding the request to exclude the issues that not been submitted to the Committee from the agenda decision. He went on to explain that on the last occasion a number of issues were dealt with by one agenda decision, the agenda decision had been broken down into a number of individual, separate agenda decisions. He requested three volunteers to assist the staff in breaking down and rewording the agenda decision.

A Committee member raised a concern regarding the approach to break the agenda decision down and providing more detail as this may lead to the Committee reopening the issues. He suggested that the situation in question was actually one where the issues concerned were being ‘parked’ until the completion of the IASB’s agenda consultation. Further, he suggested that it could be explained that a number of issues had been submitted to the Committee regarding IFRS 5 and that the Committee would only determine a way forward based on the outcome of the IASB’s agenda consultation – in other words not to list the issues individually.

The Chair requested a vote on how many members would favour the approach suggested and seven members agreed with this suggestion. However, a concern was raised regarding the clarity and usefulness of the agenda decision if the issues were not described in some detail.

The Chair again requested three volunteers to assist the staff in the drafting of the agenda decision and three members volunteered.

An observing IASB member requested that the drafting be done carefully to ensure that the true status of the issues was communicated.

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