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The IASB discuss the interaction of recent amendments to IFRS 10 and IAS 28

 22 January 2015


The IASB discussed an unintended consequence of a narrow-scope amendment to IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures that was issued in September 2014. That amendment required that, in certain circumstances, part of the gain arising on loss of control of a subsidiary should not be recognised. Those circumstances arise when the entity retains an investment in the former subsidiary, and has either significant influence or joint control over that former subsidiary. The part of the gain that is not recognised is required be eliminated against the carrying amount of the retained investment in the former subsidiary.

The IASB was informed that the elimination of a gain required by the September 2014 amendment appeared to create a conflict with paragraph 32(b) of IAS 28 which requires that an entity should recognise as income any excess of the fair value of the net assets of an acquired associate (or joint venture) over the cost of that associate (or joint venture). Applying the requirements of paragraph 32(b) of IAS 28 in the limited circumstances described would result in a reversal of elimination of a gain required by the September 2014 amendment.

The IASB tentatively decided to clarify the requirements of IFRS 10 and IAS 28 by:

  1. amending IFRS 10 to explain that, in the limited circumstances described, the cost on initial recognition of the retained investment is the fair value of that investment; and any gains or losses eliminated are a subsequent adjustment; and
  2. amending IAS 28 for circumstances in which:
    1. an associate or joint venture arises from the residual interest retained following the loss of control of a subsidiary; and
    2. that associate or joint venture does not include a business;

to explain that, for the purposes of the acquisition accounting required in paragraph 32 of that Standard, the cost on initial recognition of that associate or joint venture is the fair value of the investment at the date that control is lost and is determined before any elimination of the gains or losses required by paragraph 99A of IFRS 10.

The IASB also tentatively decided to propose a postponement of the effective date of the September 2014 amendments to IFRS 10 and IAS 28 in the light of the interaction between this proposed clarification and the September 2014 amendments. The IASB intends the effective date of this proposal and the September 2014 amendments to be the same.

All fourteen IASB members agreed.

Next steps

The IASB expects to review the due process for these amendments at a future meeting. The IASB plans to bundle these proposed amendments with other proposals to amend IAS 28 that have already been balloted. It expects to publish the Exposure Draft in Q2 of 2015.

 

 

 

 

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