The Interpretations Committee received a request seeking clarification on whether an asset with relatively simple associated processes meets the definition of a business in accordance with IFRS 3. More specifically, the question was whether the acquisition of a single investment property, with lease agreements with multiple tenants over varying periods and associated processes, such as cleaning, maintenance and administrative services such as rent collection, constitutes a business as defined in IFRS 3.
In analysing this issue, the staff did outreach to the International Forum of Accounting Standard Setters ('the IFASS') and discussed the issue with the staff of the US accounting standard-setter, the Financial Accounting Standards Board ('the FASB staff').
The Interpretations Committee observed, supported by the results from the outreach to IFASS, difficulty in determining whether the acquisition of a single investment property with relatively simple associated processes meets the definition of a business in Appendix A of IFRS 3, which has resulted in diversity in practice.
Furthermore, the Interpretations Committee observed that the difficulty in determining whether an acquisition meets the definition of a business is not limited to the acquisition of investment property. It noted that this broader issue goes beyond the scope of the Interpretations Committee's activities and should be addressed by the IASB as part of its PIR of IFRS 3.
However, the Interpretations Committee considered that it would be useful for the IASB's PIR of IFRS 3 if the Interpretations Committee were to contribute to that review its own experience and the results from its discussions on this issue. Consequently, the Interpretations Committee asked the staff to continue their discussions with the FASB staff and continue their outreach to interested parties from other industry sectors with the aim of providing the IASB with relevant information for its PIR of IFRS 3.
The staff asked preparers, industry sector groups and large accounting & auditing networks/firms what practical difficulties they have encountered or observed when applying the definition of a business in Appendix A of IFRS 3 and the related application guidance in paragraphs B7-B12 of IFRS 3. In the outreach to preparers and industry sector groups the staff also asked for observations on specific fact patterns. Afterwards, the staff discussed the outreach results with the FASB staff and the Post-Implementation Review Team of the Financial Accounting Foundation (the FAF PIR team). Furthermore, the staff identified from the outreach results issues that could be further explored as a part of the PIR of IFRS 3.
At its meeting in May 2013, the Interpretations Committee discussed:
- a summary of the outreach results from the staff’s further outreach activities to preparers, industry sector groups and the large accounting & auditing networks/firms;
- a summary of the discussion of these outreach results with FASB staff and the FAF PIR team; and
- a list of issues identified by the staff from these outreach results and discussions that could be further explored as part of the PIR of IFRS 3.
The Interpretations Committee decided that these summaries, the list of issues that could be further explored as part of the PIR of IFRS 3 and a summary of its discussion during this meeting will be contributed to the PIR of IFRS 3.
The discussion at the May 2013 meeting completes the work of the Interpretations Committee on this matter.