Comments from ACCA to IFRS Interpretations Committee, International Accounting Standards Board
19 September 2012
ACCA is pleased to have the opportunity to comment on the above draft Interpretation (“DI”). During the preparation of our responses, we have consulted with the members of our Corporate Reporting Global Forum.
ACCA agrees with the proposed scope of the DI on NCI puts (being put options that oblige the parent to purchase, for cash or another financial asset, shares of its subsidiary held by a shareholder with a non-controlling interest). We also agree with the reasoning behind the accounting for measurement changes which is proposed in the Consensus. We have detailed below the reasons for our agreement in these areas.
We have also set out our support for a wider appraisal of the measurement of derivatives written on an entity’s own equity instruments, including NCI puts. However, we have also recommended that the IASB seeks views on whether, in the case of unlisted entities, the costs of the resulting changes would exceed their benefits in terms of the usefulness of the information produced.
As mentioned below, ACCA also supports the proposal for retrospective application of the Interpretation, with early implementation permitted.
RESPONSES TO SPECIFIC QUESTIONS
Do you agree with the proposed scope? If not, what do you propose and why?
The Scope section of the DI (paras. 4 – 5) encompasses, with one exception, the measurement of NCI puts in consolidated financial statements. The exception relates to NCI puts which are accounted for as contingent consideration, in accordance with the March 2004 version of IFRS 3 Business Combinations.
ACCA agrees with the proposed scope of the DI. We agree that NCI puts are an area where differences of views might arise about whether there has been a change in ownership interest not resulting in a loss of control (as set out in the Background section of the DI (para. 3) and the Basis for Conclusions, para. BC4).
We also agree that the scope of the DI should exclude NCI puts accounted for as contingent consideration, in accordance with the March 2004 version of IFRS 3. These are specifically covered by paragraphs 65A-65B of the current January 2008 version of IFRS 3.
Do you agree with the consensus proposed in the draft Interpretation? If not, why and what alternative do you propose?
The Consensus section of the DI (paras. 7 – 8) concerns the subsequent measurement of a NCI put. Changes would be recognised in profit or loss, rather than as equity transactions (transactions with owners in their capacity as owners).
ACCA agrees with the consensus proposed in the DI. As the Interpretations Committee does, we believe that measurement changes are in essence those of a financial liability, and agree that there is no change in the parent’s ownership interest. Consequently, the requirements of IAS 39 or IFRS 9 should apply, rather than applying IAS 27 and IFRS 10 (Basis for Conclusions, paras BC8 – BC9).
With one qualification, as set out in the next paragraph, we would encourage the IASB to consider whether the net basis at fair value is a more appropriate method of measuring NCI puts, as part of a wider appraisal of derivatives written on an entity’s own equity instruments (Basis for Conclusions, para BC11). We note that fair value measurement is already required for contingent consideration that is not classed as equity, in business combinations taking place once the 2008 version of IFRS 3 came into force (para. 58 (b) of IFRS 3 ).
However, whilst fair value measurement would provide more useful information, we have a concern about the amount of time and judgement which this might involve for unlisted entities, which might be noticeably more than for contingent consideration, where fair value measurement is already required. We recommend that the IASB should request views on this matter during its wider appraisal of derivatives written on an entity’s own equity instruments.
Do you agree with the proposed transition requirements? If not, what do you propose and why?
IFRIC proposes that changes resulting from the initial application of the DI are accounted for retrospectively (Appendix A, para. A2), and that early application of the Interpretation is permitted.
ACCA agrees that retrospective initial application of the DI is practical, on the grounds that the DI requires changes to where amounts are recognised, but does not necessitate re-computations (as mentioned by the Interpretations Committee in the Basis for Conclusions, para. BC12).
ACCA also supports the option for earlier application of the Interpretation than the mandatory implementation date, with disclosure of this fact (Appendix A, para. A1). We believe that early application will be feasible for many entities.