IASB ED/2012/3

In relation to ED/2012/3, EFRAG agrees that diversity in practice exists on how investors should recognise their share of the changes in the net assets of an investee that are not recognised in profit or loss or other comprehensive income of the investee, and are not distributions received.

EFRAG members have three views on how these other net asset changes should be recognised:

• View 1 - Agree with the IASB's proposal that other net asset changes are recognised in equity and reclassified to profit or loss when the investor discontinues the use of the equity method.  This view effectively considers equity accounting to be a 'one line consolidation'
• View 2: The investor should only recognise changes in the investee’s net assets that arise from profit or loss, other comprehensive income and distributions received.  This view sees equity accounting as a 'valuation method' and other net asset changes are considered equity transactions that are unrelated to the investor and which should therefore not affect the investor’s accounting under the equity method
• View 3: The investor should account for the investee’s other net asset changes that result in indirect decreases and increases in the investor’s ownership interest in the same way as actual disposals and acquisitions of interest in the investee.  Under this view, the IASB's proposals are seen as inconsistent with concepts and principles in IFRS (such as the limits of consolidated groups), and treating these changes as acquisitions and disposals is considered consistent with existing practice.

Reclassification to profit and loss would only occur under View 1.

Comments on the draft comment letter close on 28 January 2013.  Because EFRAG has split views on the proposals in ED/2012/3, EFRAG is requested specific feedback on which view expressed above should be supported.

Click for access to the draft comment letter on ED/2012/3 (link to EFRAG website).

IFRS Interpretations Committee tentative agenda decision on IAS 39

EFRAG has decided to comment on the IFRS Interpretations Committee tentative decision on the implications for presentation of negative interest rates.

EFRAG raises the following concern about the tentative agenda decision:

In our view, the wording for rejection used by the Committee in its publication of the ‘IFRIC Update’ to explain the agenda rejection is in itself akin to an interpretation. We urge the IFRS Interpretations Committee not to issue any rejection notice that would be akin to an interpretation. While rejection notices have no authoritative status, in practice, regulators do refer to rejection notices in the exercise of their enforcement responsibilities. In Europe, ESMA considers rejection notices to be part of the IFRS literature that preparers should comply with.

Comments on the draft comment letter close on 15 January 2013.  Click for access to the draft comment letter on the tentative agenda decision (link to EFRAG website).