Global Standards for the world economy

Friday 28 April 2017

Banner graphic

Meeting Summaries and Observer Notes

 IFRIC May 2007


The IFRIC had received a request for guidance on how an entity should account for demergers and other in-specie distributions in its financial statements. The submission focused on situations in which an entity distributes an ownership interest in a subsidiary to its shareholders and consequently loses control over that subsidiary.

At its meeting in November 2006 the IFRIC noted that accounting by an entity for the loss of control of its subsidiary was being considered as part of the redeliberations on Business Combinations phase II. The IFRIC therefore decided that it could not start any interpretative project until the decisions on loss of control in Business Combinations phase II had been finalised.

At its meeting in March 2007 the Board finalised its decisions on accounting for the loss of control of a subsidiary but decided not to address the measurement basis of distributions to owners in phase II of the Business Combinations project.

Therefore, at this meeting the IFRIC considered how the issue should be progressed. The IFRIC noted that the issue was widespread and that significant diversity in practice existed with the assets or businesses distributed being measured by some entities at their carrying amounts and by others at fair value. Those that used fair value recognised the difference between the carrying amount and fair value either in profit or loss or directly in equity.

The IFRIC concluded that the issue should be taken on to its agenda but believed it was crucial to ensure that the project´┐Żs scope was sufficiently narrow to be capable of interpretation. Some IFRIC members suggested that one possibility could be to focus on distributions of assets to equity participants (ie non-reciprocal transfers of assets to equity participants). In addition, they believed that the assets distributed should not be restricted to ownership interests in subsidiaries.

The IFRIC asked the staff to prepare a paper considering the possible scope of this interpretative project for the next IFRIC meeting.

Date: 5/3/2007