In summary, EFRAG agrees with the Committee that the NCI put issue is a matter that warrants action from the IASB because there is conflict between accounting standards that has lead to significant divergence in practice.
In May 2010, the IFRS Interpretations Committee ('the Committee') received a request for guidance on how an entity should account for changes in the financial liability for a put option that has been written over shares held by a non-controlling interest ('NCI Put') in the consolidated financial statements of the parent entity.
In September 2010, the Committee tentatively decided not to add this issue to its agenda, but instead to recommend to the board that the additional concerns with the NCI put issue should be addressed as part of the Financial Instruments with Characteristics of Equity project. This recommendation was discussed at the IASB board meeting in September 2010.
EFRAG prior to 2010 did not have the resources to address rejection notices appropriately, including ensuring proper due process. From 2010, EFRAG benefits from additional resources brought by public funding; hence, EFRAG has decided to address rejection notices by exception only. That is, only if European constituents express concerns about significant and undesirable effects in practice and the EFRAG Technical Expert Group (TEG) shares that concern after proper technical assessment. EFRAG have therefore decided to issue a draft comment letter with a comment deadline of the 5th October 2010.
The Committee observed that IAS 32 Financial Instruments: Presentations and IAS 39 Financial Instruments: Recognition and Measurement should apply with the effect that changes in NCI Puts should be recognised in profit or loss.
The Committee invited constituents who disagree with the proposed reasons, or believe that the explanations may contribute to divergent practices, to communicate those concerns by 10 October 2010.
In summary, EFRAG agrees with the Committee that the NCI put issue is a matter that warrants action from the IASB because there is conflict between accounting standards that has lead to significant divergence in practice. EFRAG also agrees with the Committee’s decision not to take this item onto its agenda, however the wording of the rejection notice should be changed to explain that there is an inconsistency between IAS 39 and IAS 27 and that for that reason the issue should be taken onto the IASB’s agenda.
© EFRAG - European Financial Reporting Advisory Group
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