19 June 2013

EFRAG feedback statements on topics related to associate, joint venture and joint operation

EFRAG has published feedback statements following publication of its final comment letters on three exposure drafts. The feedback statements summarise the main comments received by EFRAG in response to its draft comment letters, and explain how these comments were considered by EFRAG TEG.

The exposure drafts are:

• ED/2012/3 'Equity Method: Share of Other Net Asset Changes (Proposed Amendments to IAS 28');
• ED/2012/6 'Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Proposed Amendments to IFRS 10 and IAS 28'); and
• ED/2012/07 'Acquisition of an Interest in a Joint Operation (Proposed amendment to IFRS 11').

ED/2012/3 Equity Method: Share of Other Net Asset Changes (Proposed Amendments to IAS 28)

This ED proposed guidance on how investors should recognise their share of the changes in the net assets of an equity-accounted for investee that are not recognised in profit or loss or other comprehensive income of the investee, and that are not distributions received (‘other net asset changes’). The amendments proposed that an investor should recognise directly in equity its ownership interest of other net asset changes. In addition, the proposed amendments would require reclassification to profit or loss (‘recycling’) of the cumulative amount of equity that the investor previously recognised when the investor discontinues the use of the equity method.

In its draft comment letter EFRAG agreed that diversity in practice existed on how investors recognised their share of other net asset changes, but did not reach a tentative position on the proposals. Instead, the draft comment letter set out three views held by EFRAG TEG members.

EFRAG’s final comment letter agreed that diversity in practice existed on how investors recognised their share of other net asset changes and welcomed the IASB’s efforts to address the issue. However, EFRAG believed that a short-term solution should not create inconsistencies with existing IFRS nor introduce a new category of ‘recyclable equity’ and therefore did not support the proposed amendments.

ED/2012/6 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Proposed Amendments to IFRS 10 and IAS 28)

This ED addressed the inconsistency between the requirements in IFRS 10 'Consolidated Financial Statements' and IAS 28 'Investments in Associates and Joint Ventures (2011)', in dealing with the loss of control of a subsidiary that is contributed to an associate or a joint venture.

The ED proposed amendments to both IFRS 10 and IAS 28 that would require a ‘full’ gain or loss to be recognised on the loss of control of a business and a ‘partial’ gain or loss to be recognised in accounting for the sale or contributions of assets or subsidiaries that do not constitute a business.

In its draft comment letter, EFRAG agreed that there was an inconsistency between IFRS 10 and IAS 28 and considered that the amendments had the merit of being a short-term pragmatic solution to address the issue.

In its final comment letter, EFRAG confirmed the tentative position in its draft comment letter and also reflected the concerns of constituents regarding the accounting for loss of control of a subsidiary.

ED/2012/07 Acquisition of an Interest in a Joint Operation (Proposed amendment to IFRS 11)

This ED proposed to introduce guidance in IFRS 11 'Joint Arrangements' on how a joint operator should account for the acquisition of an interest in a joint operation in which the activity of the joint operation constitutes a business, as defined in IFRS 3 'Business Combinations'. The ED proposed to amend IFRS 11 so that a joint operator should apply the relevant principles for business combinations accounting in IFRS 3 and other relevant IFRS.

In its draft comment letter EFRAG generally supported the application of the principles in IFRS 3 'Business Combinations' to account for the acquisition of an interest in a joint operation, when its activity constitutes a business. However, EFRAG raised a number of concerns with the proposed amendments.

In its final comment letter EFRAG did not support the proposed amendments. In EFRAG’s view, a number of concerns were expressed with regard to the application of the principles in IFRS 3 to acquisitions of interests in joint operations, which, if left unresolved, could result in additional diversity in practice.

Press release

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