The IASB recently released a Project Report and Feedback Statement concluding its Post-implementation Review (PIR) of IFRS 10 Consolidated Financial Statements; IFRS 11 Joint Arrangements; and IFRS 12 Disclosure of Interests in Other Entities.
Here’s how the news release summed it up:
- Feedback from stakeholders and research undertaken as part of the PIR shows that the requirements set out in the Standards are working as intended and that application of the requirements did not give rise to unexpected costs.
- Based on the evidence gathered the IASB assessed that none of the matters arising from the PIR were of high or medium priority.
- Five topics were identified as low priority and these could be explored if they are judged to be of high priority in the next agenda consultation. The five topics are:
- subsidiaries that are investment entities;
- transactions that change the relationship between an investor and an investee;
- transactions that involve ‘corporate wrappers’;
- collaborative arrangements outside the scope of IFRS 11; and
- additional disclosures about interests in other entities.
- Stakeholders requiring further guidance are encouraged to submit questions to the IFRS Interpretations Committee, provided that these questions meet the submission criteria.
- The IASB conducted this PIR process from 2019 to 2022. It sought feedback from companies, investors, auditors, standard-setters, regulators and academics. More than 35 meetings were held to consult with stakeholders and other consultative bodies in the second phase of the PIR.
To expand on a couple of those bullet points – the “corporate wrapper” issue relates to whether “the accounting outcome for transactions that are structured through ‘corporate wrappers’ to achieve particular purposes—for example, tax, legal or regulatory purposes—should differ from the accounting outcome for similar transactions that are structured without ‘corporate wrappers.’” It sounds like the IASB saw some merit in raising that issue, but “was concerned it might not be able to successfully resolve this matter within the scope of IFRS 10, particularly as the matter extends beyond the scope of this Post-implementation Review. For example, the matter might also affect IFRS 15 Revenue from Contracts with Customers or IFRS 16 Leases. The structure of ‘corporate wrappers’ also depends on jurisdictional laws and/or regulations. Therefore, identifying matters to be addressed by the IASB could require substantial resources for both the IASB and its stakeholders.” Still, these resources might be expended in the future, if the next agenda consultation identifies it as a priority (which I assume isn’t enormously likely).
The ”collaborative arrangements” issue relates to activities most commonly found in the extractive, real estate, pharmaceutical, entertainment and telecommunications industries: “Most respondents said entities determine accounting policies by analogy to the requirements for joint operations in IFRS 11. Some respondents said some entities apply the equity method in accordance with IAS 28.” The document indicates that the IASB could research in the future whether a group of non-IFRS 11 collaborative arrangements exists with sufficiently common features that standard-setting might be needed and plausible. That’s also if the next agenda consultation identifies it as a priority (which I assume is even less likely).
The document sets out a few areas in which the IASB decided to take no further action. For one of these: “Some respondents provided fact patterns illustrating challenges in assessing elements of the definition of control. Some respondents asked for further guidance to help assess control. However, many respondents acknowledged that assessing control requires judgement.” In response to this feedback: “The IASB acknowledged the requests for further guidance. However, the IASB also acknowledged the need to balance the costs and benefits of developing and implementing new requirements.” This is one of those areas then in which any questions arising in the future might be referred to the IFRIC.
Respondents also noted challenges in applying elements of the definition of an investment entity, potentially leading to inconsistent application, including how the business purpose of an entity is compatible with the definition of an investment entity (I’ve had some challenges in that area myself). But as most respondents had no such problems, the IASB moved on.
Other items raised by some respondents included elimination of proportionate consolidation, application questions on the equity method, put options on non-controlling interests; non-investment entity parents and their investment entity subsidiaries, separate financial statements of a joint operation; and assessing control of a not-for-profit investee. The IASB concluded that these matters “lack many of the characteristics required to qualify as priorities, in particular: the matters are not pervasive; the matters have no substantial consequences; or the cost of developing and implementing new requirements would outweigh the benefit.” Or “some matters might be addressed by other projects.” Probably not very exciting projects though.
By the way, as addressed in a recent meeting of the due process oversight committee, the IASB has been working to “improve the communication about PIRs to help ensure there is a common understanding about them and to manage stakeholders’ expectations about the potential outcomes.” I hope everyone noticed!
The opinions expressed are solely those of the author