Comments from ACCA to the International Accounting Standards Board, April 2013.
ACCA welcomes the opportunity to comment on the Exposure Draft (ED) of Acquisition of an Interest in a Joint Operation - Proposed amendment to IFRS 11 (‘Joint Arrangements’). ACCA’s Global Forum for Corporate Reporting has considered the ED, and its views are reflected in the following general comments, and in the answers to the specific questions raised by the IASB.
ACCA agrees that as current accounting practice has been found to differ between entities, standard practice should be established for the acquisition of an interest in a joint operation, especially one which constitutes a business. We support the proposal in this ED that the principles which should be followed are those for business combinations, as principally set out in IFRS 3.
We believe that the diversity in practice, which has been identified as significant, should be addressed at an early stage. Consequently, in our response to Question 3 below, we have suggested an early implementation date for the proposed changes. For reasons of practicality and consistency with IFRS 3, we support the proposal for prospective application.
Question 1: relevant principles
The IASB proposes to amend IFRS 11 and IFRS 1 so that a joint operator accounting for the acquisition of an interest in a joint operation in which the activity of the joint operation constitutes a business applies the relevant principles on business combinations accounting in IFRS 3 and other Standards, and discloses the relevant information required by those Standards for business combinations.
Do you agree with the proposed amendment? Why or why not? If not, what alternative do you propose?
ACCA agrees that, for joint operations where a business is involved, the accounting practice should follow that for business combinations generally. This does appear to be the most logical practice to follow for such joint arrangements. A business combination, and the acquisition of an interest in a joint operation which constitutes a business, would then be presented consistently within the same financial statements.
Question 2: scope
The IASB intends to apply the proposed amendment to IFRS 11 and the proposed consequential amendment to IFRS 1 to the acquisition of an interest in a joint operation on its formation. However, it should not apply if no existing business is contributed to the joint operation on its formation.
Do you agree with the proposed amendment? Why or why not? If not, what alternative do you propose?
ACCA agrees that the amendments proposed by the ED, being based on business combination principles, should only apply where an existing business is involved. This would be either in the joint operation in which an interest is acquired, or where business is contributed during the formation of a new joint operation.
Conversely, if no business is contributed during the set-up process, we agree that business combination principles set out in the ED are not applicable.
Question 3: transition requirement
The IASB intends to apply the proposed amendment to IFRS 11 and the proposed consequential amendment to IFRS 1 prospectively to acquisitions of interests in joint operations in which the activity of the joint operation constitutes a business on or after the effective date.
Do you agree with the proposed transition requirement? Why or why not? If not, what alternative do you propose?
ACCA agrees with the proposal for prospective application, with first-time adopters able to elect not to apply the changes retrospectively. Whilst this represents an exception from the usual requirement for amendments to be applied retrospectively, it is in accordance with the transition requirements and exemptions for IFRS 3 generally. We agree that if retrospective application was required, similar practical difficulties would be likely to arise as for IFRS 3 generally.
We also support the proposal that entities should, as is generally the case (including with IFRS 3 itself), be given the option of earlier application than the implementation date.
We note that a specific implementation date is not proposed for the changes. The IASB considers that the ED will address a significant divergence which has arisen in practice. Consequently, ACCA would support an implementation date which is as soon as is practicable, for example, with effect from periods commencing on or after 1 January 2014.
The above implementation date should also be practical to apply. Now that entities are applying IFRS 3, they should not have difficulty in preparing for the requirements set out in the ED, and may already be applying them in practice.