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Problem with IAS 27 for UK companies

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06 May 2005

The Institute of Chartered Accountants in England and Wales (ICAEW) has submitted to the IASB and others a briefing paper on a problem in applying IAS 27 Consolidated and Separate Financial Statements by companies in the United Kingdom (and, most likely, elsewhere).

IAS 27 requires investors to recognise income from a subsidiary "only to the extent that the investor receives distributions from accumulated profits of the investee arising after the date of acquisition". Any distributions received out of preacquisition profits are treated as a recovery of part of the cost of the investment. Because of the retrospective transition requirements of IFRS 1 for first-time adopters of IFRSs, "a parent company must examine all past distributions made by each of its subsidiaries to determine whether they were paid from pre-acquisition profits. Some parent companies have a substantial number of subsidiaries and will need to locate and examine data – which in some cases may no longer be available or obscured by intra-group reorganisations – from the date of the initial acquisition of the investment. In many cases this is likely to prove a highly onerous task." The ICAEW urges an early amendment to IFRS 1 to ease the burden. Click to (PDF 29k).

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.