Interaction between IFRS 5 and loss of joint control/significant influence
The IASB tentatively decided that when an entity partially disposes of an interest in a joint venture or in an associate it shall reclassify as held for sale only the interest disposed of if such partial disposal fulfils the criteria for classification as held for sale set out in IFRS 5 Non-current Assets Held for Sale and Discontinued Operations . The retained interest should continue to be accounted for using the equity method until the disposal occurs.
The Board also tentatively decided to extend the requirement of accounting for an interest in a joint operation that is classified as held for sale in accordance with IFRS 5 if an entity is committed to a sale plan that fulfils the criteria for classification as held for sale set out in IFRS 5.
The Board additionally agreed to clarify that if an interest (or a portion of an interest) in a joint venture or in an associate or an interest in a joint operation no longer meet the criteria to be classified as held for sale, an entity shall amend the financial statements for the periods since classification as held for sale.
The Board tentatively decided:
- to replace the qualifier 'significant' by the qualifier 'individually material' in the disclosure requirement of a list and description of interests in joint arrangements and associates;
- that the summarised financial information for individually-material joint ventures and associates shall be presented on a hundred per cent basis and that an entity should disclose its net interest amount in those joint ventures and associates that are not individually material;
- that the summarised financial information provided by associates should include current assets, non-current assets, current liabilities, non-current liabilities, revenues and profit or loss;
- that an entity shall disclose commitments and contingent liabilities in relation to its joint ventures separately. There will be no requirement for an entity to disclose commitments and contingent liabilities in relation to its joint operations separately, because these will be included in the reporting entity's own disclosures; and
- not to specifically address which disclosure requirements venture capital organisations, or mutual funds, unit trusts and similar entities including investment-linked insurance funds need to fulfil in the case where these entities have an interest in a joint venture or an investment in an associate.
The Board tentatively decided that the transitional provisions for Jointly Controlled Entities (JCEs) from the equity method to the accounting for share of assets and liabilities will consist in the derecognition of the investment, and the recognition of the shares of assets and liabilities at their carrying values based on the entity's interests determined in accordance with the contractual arrangement. Any difference between the carrying amount of the investment and the carrying net amount of the individual assets and liabilities will be recognised in retained earnings.
The Board additionally tentatively decided that an entity shall provide a reconciliation between the investment derecognised and the breakdown of the shares of assets and liabilities recognised, together with any balance recognised in retained earnings.
The Board also discussed transitional provisions for first-time adopters. The Board tentatively decided that the main difference between the transitional provisions for first-time adopters and for those entities reporting under IFRS will be:
- a first-time adopter will need to convert its investment in a jointly controlled entity to an IFRS basis; and that
- in the case of transitioning from proportionate consolidation to the equity method, the resulting investment will have to be tested for impairment in accordance with IAS 36 Impairment of Assets regardless of whether there is any existing indication that the investment might be impaired.