The Committee received a request to clarify the application of IFRS 3 Business Combinations by:
- joint operators for the acquisition of interests in joint operations as defined in IFRS 11; and
- venturers for the acquisition of interests in jointly controlled operations or assets as specified in IAS 31 Interests in Joint Ventures
in circumstances where the activity of the joint operation or the activity of the jointly controlled operations or assets constitutes a business, as defined in IFRS.
The Committee noted that IFRS 11 will supersede IAS 31 from 2013 and therefore the focus of its discussion was with respect to IFRS 11. The Committee observed that uncertainty exists in accounting for the acquisition of an interest in a joint operation in circumstances where the activity of the joint operation constitutes a business as defined in IFRS 3, because of a lack of explicit guidance. As a result of the lack of explicit guidance, the Committee was concerned that diversity in practice will arise on the application of IFRS 11.
The Committee noted that the most appropriate approach to account for such transactions is to apply the relevant principles in IFRS 3, including measuring identifiable assets and liabilities at fair value with few exceptions and recognising the residual as goodwill. The Committee directed the staff to analyse and recommend whether such guidance should be in the form of an IFRIC Interpretation, an amendment to IFRS 3 or an amendment to IFRS 11. The staff will bring this analysis and a consequent recommendation to a future meeting.