20 July 2012
On June 28, 2012, the IASB published amendments to the transition guidance in IFRS 10 Consolidated Financial Statements
, IFRS 11 Joint Arrangements
and IFRS 12 Disclosure of Interests in Other Entities
to clarify and provide additional transitional relief from full retrospective application. This article explains these amendments.
In May 2011, the IASB issued three new standards IFRS 10, IFRS 11 and IFRS 12, which must be applied for annual periods beginning on or after January 1, 2013. Earlier application of these standards is permitted by the IASB. Concerns were soon raised that IFRS 10’s transitional requirements were more burdensome than intended. Following proposals in ED/2011/7 in December 2011, the IASB amended the transition guidance in June 2012: these amendments must be applied from the same effective date as the new standards themselves.
IFRS 10 introduced a new definition of control to determine which entities should be consolidated. The intention was that, when first applying IFRS 10, this must be assessed at ‘the date of initial application’ of IFRS 10. The amendments clarify that this date is ‘the beginning of the annual reporting period in which IFRS 10 is applied for the first time’
. This would be January 1, 2013 for an entity that first adopts IFRS 10 in the annual period ended December 31, 2013. This means that the beginning of the comparative period is not ‘the date of initial application’.
Here the entity must assess at January 1, 2013 whether an investee must be consolidated according to the new definition of control in IFRS 10. This may result in consolidating the same investees as previously required by IAS 27 Consolidated and Separate Financial Statements
/SIC-12 Consolidation – Special Purpose Entities
. The amendments clarify that the entity is not required to make adjustments to the previous accounting for its involvement with entities, if the consolidation conclusion reached at the date of initial application is the same under IFRS 10 as under IAS 27 and SIC-12. The amendments to IFRS 10 also confirm that if an investor’s interest in an investee was disposed of in a comparative period (say, in the year ended December 31, 2012) and the entity would not have been consolidated at January 1, 2013 under either IAS 27/SIC-12 or IFRS 10, no retrospective adjustments are required to previous accounting for that investee in the consolidated financial statements for 2013 under IFRS 10.
If the consolidation conclusion at the date of initial application is different under IAS 27/SIC-12 and IFRS 10, the investor must adjust comparative periods retrospectively. However, this is subject to some relief. Assume that an interest in an entity acquired in 2010 was not previously consolidated under IAS 27/SIC-12 but meets IFRS 10’s definition of control and must now be consolidated. In this case, the assets, liabilities, and any non-controlling interest would be measured as if the business had been consolidated from the date in 2010 when the investor acquired its interest. This involves full retrospective restatement by restating comparatives as if IFRS 10 had always been applied: however, the Board acknowledges that there are circumstances in which this might be too onerous. Relief may be available. For example, if a regulator requires financial statements for two comparative periods, the amendments to IFRS 10 allow the entity to make retrospective adjustments only for the annual period immediately preceding the date of initial application of IFRS 10 (here the year ended December 31, 2012). Presentation of adjusted comparatives for earlier periods is permitted but not required.
Any difference between the IFRS 10 carrying amounts and the previous carrying amounts at the beginning of the immediately preceding period is recorded in equity (here January 1, 2012).
Further relief from retrospective restatement may be available where measuring the investee’s assets, liabilities and non-controlling interest on acquisition in 2010 or January 1, 2012 is impracticable (as defined in IAS 8). The investor must apply the requirements of IFRS 3 as of ‘the deemed acquisition date’
. This is the beginning of the earliest period for which application is practicable, which may be the current period (here January 1, 2013).
The IASB has also amended IFRS 11 and IFRS 12 to provide similar relief from the presentation or adjustment of comparative information for periods prior to the immediately preceding period.
IFRS 12 is further amended in order to provide additional transition relief by eliminating the requirement to present comparatives for the disclosures relating to unconsolidated structured entities for any period before the first annual period for which IFRS 12 is applied.
The amendments have to be applied for annual periods beginning on or after Jan 1, 2013. If an entity applies IFRS 10 for an earlier period, it must apply these amendments for that earlier period.
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