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Deloitte welcomes the IASB’s initiative to address the lack of guidance in IFRS 11 in this area and agree that application of the principles of IFRS 3 is an appropriate methodology when the joint operation constitutes a business. However, Deloitte notes that distinguishing between transactions on this basis (as would also be the case under the similar proposals of Exposure Draft ED 2012/6 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture) places additional emphasis on the definition of a business.
As such, Deloitte supports the work of the IFRS Interpretations Committee to produce additional guidance on the meaning and application of this concept as part of the IASB’s post-implementation review of IFRS 3.
However, Deloitte notes that the scope of the exposure draft is limited and, as such, does not provide guidance on a number of common transactions in which interests in joint operations are acquired. Deloitte believes that these common transactions should be addressed as a matter of urgency. In addition, the implications of the proposals for other transactions (particularly the contribution of an existing business to a joint operation) need to be made clearer.
Deloitte agrees with the inclusion of the acquisition of an interest in a joint operation on its formation (as well as the acquisition of an interest in an existing joint operation) within the scope of the proposals, because Deloitte agrees that the guidance in IFRS 3 is equally relevant to both transactions. However, Deloitte recommends that proposed paragraph B33B be amended to state more clearly what is encompassed by the term ‘acquisition of an interest in a joint operation on its formation’ (presumably, contribution of an existing business to a joint operation and contribution of cash or other assets when another party contributes an existing business).
However, that this would appear to result in consideration for an acquisition being measured at the full fair value of an existing business contributed to a joint operation (i.e., an exception to the partial gain or loss recognition requirements of paragraph B34), in individual assets and liabilities within the business being remeasured to their fair values on contribution to the joint operation and in the recognition of goodwill relating to the previously controlled business. If this is the intention of the Board, it should be stated clearly with an appropriate justification in the Basis for Conclusions. In addition, Deloitte believes that a numerical example of such a transaction would be a helpful companion to the example included in the ED (as a point of detail, Deloitte also suggests that that example should specify that the joint operation in which an interest is acquired constitutes a business).
Deloitte also notes that the exposure draft provides no guidance on the treatment of a number of common transactions: