EFRAG disagrees with the changes to IAS 1 'Presentation of Financial Statements' to reflect the 'Conceptual Framework for Financial Reporting 2010'. In EFRAG´s view, these changes do not meet the criteria to be addressed as part of the Annual Improvements Project. If the IASB intends to propose that the revised Conceptual Framework be reflected in existing standards, it should undertake a separate project to that purpose.
The purpose of the 'Amendments to IAS 32 Financial Instruments: Presentation' is to clarify that income tax relating to distributions to holders of an equity instrument and income tax relating to transaction costs of an equity transaction should be accounted for in accordance with IAS 12. EFRAG agrees with the proposal but believes that the IASB should address the inconsistency between paragraphs 52B, 58 and 61A of IAS 12. EFRAG is not convinced that the accounting for income tax on dividends, in situations like those described in paragraphs 52A and 52B of IAS 12 'Income Tax', is consistent with the general principles underlying IAS 12.
In EFRAG‟s view, the general principle in IAS 12 is to classify income tax income (expense) based on the underlying transactions. EFRAG believes that the real issue lies with the inconsistency between the guidance in paragraph 52B and paragraph 58 and 61A of IAS 12. In paragraph 52B, dividend payments are deemed transactions that are related to profit and loss. While one might conclude under paragraphs 58 and 61A that dividends are an equity transactions with shareholders.
EFRAG believes that amending IAS 32, without addressing the inconsistency above, may not resolve the lack of clarity on how to account for income tax income (expense) on dividends. The IASB might wish to explain whether the recognition event that "triggers" the income tax consequence is (1) the income from which the dividends are paid, or (2) the declaration of dividends.
EFRAG acknowledges that first-time adopters from jurisdictions moving to IFRSs may face not exactly the same first-time adoption issues as entities that have adopted IFRSs in earlier years. However, EFRAG is concerned that the continued addition of new exemptions will lead to increasing complexity of IFRS 1 'First time adoption of International Financial Reporting Standards' and to potentially overlapping exemptions (e.g. the clarification of borrowing costs partially overlaps the “fair value as deemed cost” exemption for property, plant and equipment). Therefore, EFRAG recommends the Board to consider the longer term development of IFRS 1 both as other new standards are finalised and before proposing future exemptions.
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© EFRAG - European Financial Reporting Advisory Group
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