The IFRS Interpretations Committee tentatively decided not to add this matter to its standard-setting agenda at its meeting in September 2018. The Committee will reconsider the following tentative agenda decision, including the reasons for not adding the matter to the standard-setting agenda, at a future meeting. The Committee encourages interested parties to submit their responses using the link below.
Tentative agenda decision
The Committee received a request about how an entity applies the requirements in IAS 27 to a fact pattern involving an investment in a subsidiary.
In the fact pattern described in the request, the entity preparing separate financial statements:
- elects to account for its investments in subsidiaries at cost applying paragraph 10 of IAS 27.
- holds an initial investment in a subsidiary (investee). The investment is an investment in an equity instrument as defined in paragraph 11 of IAS 32 Financial Instruments: Presentation.
- subsequently disposes of part of its investment and loses control of the investee. After the disposal, the entity has neither joint control of, nor significant influence over, the investee.
The request asked whether:
- the investment retained (retained interest) is eligible for the presentation election in paragraph 4.1.4 of IFRS 9 Financial Instruments. That election permits the holder of particular investments in equity instruments to present subsequent changes in fair value in other comprehensive income (OCI) (Question A).
- the entity presents in profit or loss or OCI any difference between the cost of the retained interest and its fair value on the date of losing control of the investee (Question B).
Paragraph 9 of IAS 27 requires an entity to apply all applicable IFRS Standards in its separate financial statements, except when accounting for investments in subsidiaries, associates and joint ventures. After the partial disposal transaction, the investee is not a subsidiary, associate or joint venture of the entity. Accordingly, the entity applies IFRS 9 for the first time in accounting for its retained interest in the investee. The Committee observed that the presentation election in paragraph 4.1.4 of IFRS 9 applies at initial recognition of an investment in an equity instrument. An investment in an equity instrument within the scope of IFRS 9 is eligible for the election if it is neither held for trading (as defined in Appendix A of IFRS 9) nor contingent consideration recognised by an acquirer in a business combination to which IFRS 3 Business Combinations applies.
In the fact pattern described in the request, assuming the retained interest is not held for trading, the Committee concluded that (i) the retained interest is eligible for the presentation election in paragraph 4.1.4 of IFRS 9, and (ii) the entity would make this presentation election when it first applies IFRS 9 to the retained interest (ie at the date of losing control of the investee).
IAS 27 does not explicitly specify how, in its separate financial statements, an entity recognises any difference between the cost of the retained interest and its fair value on the date the entity loses control of a subsidiary. In such circumstances, the entity applies the requirements in paragraphs 10-11 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors in developing and applying an accounting policy. The entity’s management refers to, and considers the applicability of, requirements in other IFRS Standards dealing with similar and related issues. The Committee observed that paragraph 22(b) of IAS 28 Investments in Associates and Joint Ventures and paragraph 11B of IAS 27 deal with similar and related issues. Based on its analysis of those requirements, the Committee concluded that the entity recognises this difference in profit or loss. This is the case regardless of whether the entity presents subsequent changes in the fair value of the retained interest in profit or loss or OCI.
The Committee concluded that the principles and requirements in IFRS Standards provide an adequate basis for an entity to account for a partial disposal transaction in its separate financial statements.
Consequently, the Committee [decided] not to add the matter to its standard-setting agenda.
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