IASB July 2009

The Board discussed six topics for possible inclusion in the exposure draft of proposed Improvements to IFRSs expected to be published in August 2009. The IFRIC had considered five of these topics earlier this month.

IFRS 3 Business Combinations – measurement of non-controlling interest

Paragraph 19 of IFRS 3 states that, for each business combination, the acquirer shall measure any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets. The Board tentatively decided to clarify that this choice applies only to instruments that are currently entitled to a proportionate share of the acquiree’s net assets. Other equity instruments that are part of non-controlling interest should be measured at fair value or in accordance with applicable IFRSs.

IFRS 3 Business Combinations – un-replaced and voluntarily replaced share-based payment transactions

IFRS 3 (as issued in 2008) contains requirements for share-based payment transactions of the acquiree that the acquirer is obliged to replace or that expire as a consequence of the business combination. However, IFRSs do not provide requirements for other share-based payment transactions of the acquiree. The Board tentatively decided to clarify that paragraphs B57 – B62 of IFRS 3 apply to all share-based payment transactions that are part of a business combination including share-based payment transactions of the acquiree that the acquirer chooses not to replace and those that the acquirer chooses to replace with its own share-based payment transactions, even though they would not expire as a consequence of the business combination.

IFRS 5 Non-current Assets Held for Sale and Discontinued Operations – write-down of a disposal group

IFRS 5 requires the impairment loss recognised for a disposal group be allocated to reduce the carrying amount of the disposal group’s non-current assets that are within the measurement requirements of IFRS 5. When the write-down exceeds the carrying amount of non-current assets, a conflict exists between IFRS 5’s requirement to recognise the disposal group at fair value less costs to sell and its limitation on the assets to which that loss can be allocated.

The Board agreed with the IFRIC’s conclusion that the issue relates to the basic requirements of IFRS 5 and therefore it should not be included in the annual improvements project. However, the issue could be widespread in the current economic environment. Therefore, the Board decided tentatively to consider amending IFRS 5 as a matter of priority and to work with the FASB to ensure IFRS 5 remains aligned with US GAAP.

IFRS 5 – presentation of items of other comprehensive income

The Board decided tentatively to amend IFRS 5 so that other comprehensive income (OCI) items relating to discontinued operations are required to be presented separately from other OCI items, and may be presented as a single item net of tax. The Board asked the staff to consider whether additional amendments are needed to enhance the disclosures relating to accumulated OCI relating to discontinued operations. Any resulting proposals will be published with the proposals on write-downs of a disposal group or in the next cycle of improvements to IFRSs.

IAS 39 Financial Instruments: Recognition and Measurement - Debt to equity swap in a restructuring

The Board discussed how an entity should recognise its equity instruments when it issues them in settlement of debt in a restructuring (a ‘debt to equity swap’). The Board noted that the IFRIC had decided to add the issue to its agenda and to develop a draft interpretation for public comment as soon as possible. Consequently, the Board decided not to include the issue in the annual improvements project.

IAS 23 Borrowing Costs – meaning of ‘general borrowings’

IAS 23 requires an entity to determine a rate on its general borrowings for purposes of capitalising borrowing costs on qualifying assets. The issue was whether debt incurred specifically to acquire a non-qualifying asset could be excluded from general borrowings.

The Board noted that IAS 23 excludes only debt used to acquire qualifying assets from the determination of the capitalisation rate. The Board decided not to include this issue in the annual improvements project.