IASB Meeting June 2019
IASB Meeting June 2019
At the June board meeting the following topics were discussed.
Property, Plant and Equipment. Proceeds before Intended Use (Amendment of IAS 16):
The board discussed the recommendations of the IASB-staff for finalising the amendment of IAS 16. These recommendations are based on the discussion in the board meeting in November 2018 regarding the feedback to the exposure draft and the modifications which were considered by the board.
The proposed amendments to IAS 16 would prohibit an entity from deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced before its intended use (start of depreciation).
The board decided that:
- The cost of items produced before an item of property, plant and equipment is available for use should be generally identified and measured by using the requirements of IAS 2 (inventory).
- No specific presentation or disclosure requirements will be developed for the sale of items that are part of an entity’s ordinary activities.
- To require an entity to disclose separately the sales proceeds and their related production costs which are not part of the ordinary activities. Furthermore, the line items of statement of profit and loss and other comprehensive income that include these sales proceeds and production costs for sale need to be specified.
Goodwill and impairment:
The board made a preliminary decision about the topics to include in the project’s forthcoming discussion paper.
Regarding the information to be disclosed the board intends to develop a proposal to:
- Improve the disclosure objectives of IFRS 3to support the users of financial statements in assessing the performance of an acquired business after the acquisition date.
- Require entities to disclose information to indicate whether the objectives of a business combination are being achieved.
- Require additional disclosures like amount or range of amounts of expected synergies, liabilities arising from financing activities and pension obligations assumed, acquiree’s operating profit or loss before acquisition-related transaction and integration costs as well as cash flows from operating activities after the acquisition date.
Additionally, the board decided to develop a proposal to require disclosure of the information the responsible manager (the chief operating decision maker as defined by IFRS 8 Operating Segments) uses to assess to which extent the objectives of a business combination are being achieved.
As a result, the focus will change much more to a post-transaction justification of an acquisition.
The board preliminary decided that it should not propose replacing paragraph IFRS 3.B64(q)(ii) that requires disclosure of the revenue and profit or loss of the combined entity for the current reporting period as though the acquisition date for all business combinations that occurred during the year had been as of the beginning of the annual reporting period. This information is important for the users of the financial statements in assessing the organic growth versus the growth of operations through acquisition for the following year.
The board preliminary decided not to reintroduce amortisation of goodwill. The existing impairment-model for the subsequent measurement of goodwill should be retained.
Furthermore, a proposal has been concluded to insert a subtotal of equity before goodwill in the statement of financial position. As a result, the users of financial statements can directly see the portion of equity which is purchased through acquisition.
Moreover, the board came to the conclusion to remove the requirement of an annual quantitative impairment test for goodwill (as well as for intangible assets with indefinite useful life and intangible assets not yet available for use) when no indicator of impairment (triggering event) exists.
With regard to the calculation of value in use the board intends to remove the requirement to use pre-tax inputs and pre-tax interest rates. As a result, this would help the preparers to do the impairment test only once and not twice. The problem is so far, that there are no market interest rates (weighted average cost of capital) before income taxes are available.
The board plans to issue a discussion paper at the end of 2019.
Business Combinations under common control
In the status-quo the IFRS do not provide specific rules how to account for business combinations under common (where both the acquirer and the acquiree are controlled by the same party). Consequently, there is a diversity in accounting practice. Some entities account for business combinations under common control applying a current value approach (applying FRS 3 by analogy) and others apply predecessor accounting using the carrying amounts of the acquiree. This has a negative impact on the comparability of financial statements and makes it difficult for users to compare the effects of those transactions.
The board is discussing in a research project whether it can develop requirements that would improve the comparability and transparency of accounting for business combinations under common control.
On the basis of the information (agenda papers) provided by the IASB-staff, the board discussed whether transactions under common control that do not affect non-controlling (minority) shareholders (NCI) of a receiving entity are different to those transactions that do affect such shareholders and are different to business combinations that are not under common control.
The board also discussed the view of the IASB staff, that a distinction based on whether NCI of the receiving entity acquire a residual interest in the transferred entities or business is a viable approach.
The IASB-staff prefers a current value approach for most transactions which affect NCI and a predecessor approach for transactions between wholly owned entities.
The discussion on the accounting for business combinations under common control is ongoing and will be continued in one of the next board meetings.