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EFRAG draft comment letter on ED/2012/6

  • EFRAG (European Financial Reporting Advisory Group) (dk green) Image

30 Jan 2013

The European Financial Reporting Advisory Group (EFRAG) has issued a draft comment letter on the IASB Exposure Draft ED/2012/6 'Sale or Contribution of Assets Between and Investor and its Associate or Joint Venture'.

The Exposure Draft, issued by the IASB on 13 December 2012, proposes to clarify when unrealised profits and losses on transactions between an investor and an associate should be fully recognised: requiring full recognition in relation to transactions involving businesses, but requiring partial elimination in the case of asset sales. The Exposure Draft proposes amendments to both IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures (2011).

EFRAG supports the conclusion that there is an inconsistency between IAS 28 and IFRS 10 and therefore supports amendments as a short-term pragmatic solution to address diversity in practice.

However, EFRAG is concerned that the proposed amendments in the ED would require an entity to determine whether the asset being sold or contributed meets the definition of a business under IFRS 3 Business Combinations. EFRAG warns that applying the definition of a business in IFRS 3 often requires considerable judgement, particularly in the case of transactions with related parties. EFRAG also believes that "the ED puts considerable stress on the definition of a business". Therefore, EFRAG suggests that the IASB should consider the definition of a business as part of the post implementation review of IFRS 3.

Comments on the letter are invited by 20 March 2013. Click for access to the draft comment letter on ED/2012/6 (link to EFRAG website).

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