In brief: IASB finalizes amendments to transition guidance for new consolidation standards (No. 2012-20)

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This week, the International Accounting Standards Board (IASB) issued a final standard that amends the transition guidance for three standards. The three affected standards are: IFRS 10, Consolidated Financial Statements, IFRS 11, Joint Arrangements, and IFRS 12, Disclosure of Interests in Other Entities. The amendments primarily address the initial application of IFRS 10; however, they also require additional disclosures under IFRS 12. The amendments are responsive to requests from some preparers to clarify whether the date of initial application of IFRS 10 is the beginning of the annual reporting period in which IFRS 10 is applied for the first time or the beginning of the earliest period presented in the financial statements (i.e., the beginning of the comparative period). This In brief article provides an overview of the amended transition guidance.

What's new?

This week, the International Accounting Standards Board (IASB) issued a final standard that amends the transition guidance for three standards. The three affected standards are: IFRS 10, Consolidated Financial Statements, IFRS 11, Joint Arrangements, and IFRS 12, Disclosure of Interests in Other Entities. The amendments primarily address the initial application of IFRS 10; however, they also require additional disclosures under IFRS 12.

IFRS 10, which was issued in May 2011, replaces all of the consolidation guidance in IAS 27, Consolidated and Separate Financial Statements, and SIC-12, Consolidation - Special Purpose Entities,with the exception of the portion of IAS 27 that deals with separate financial statements.

What are the key provisions?

The amendments are responsive to requests from some preparers to clarify whether the date of initial application of IFRS 10 is the beginning of the annual reporting period in which IFRS 10 is applied for the first time or the beginning of the earliest period presented in the financial statements (i.e., the beginning of the comparative period).

The amendments clarify the following:

• The date of initial application is the beginning of the annual reporting period in which IFRS 10 is first applied. For example, this would be January 1, 2013 for a calendar year entity that adopts IFRS 10 in 2013.
• No retrospective adjustments to the previous accounting are required if the consolidation conclusion is unaffected by the adoption of IFRS 10 at the date of initial application.
  Therefore, no adjustments are required for investees that would be consolidated under both IFRS 10 and the previous guidance as of the date of initial application. Similarly, no adjustments are required for investees that would not be consolidated under either model. For example, comparatives would not need to be restated if an investor disposes of an interest during the comparative period and neither IFRS 10 nor the previous consolidation guidance would require consolidation as of the date of initial application.
• Retrospective adjustments to the previous accounting are required if the consolidation conclusion is affected by the adoption of IFRS 10 at the date of initial application.
  For example, if a previously acquired investee would be consolidated under IFRS 10 as of the date of initial application, the assets, liabilities, and non-controlling interest are measured as of the date the investor obtained control. Any difference between the IFRS 10 carrying amounts and previous carrying amounts at the beginning of the annual period immediately preceding the date the initial application is recorded in equity.
  On the other hand, if, for example, an investee is deemed to not be controlled under IFRS 10 as of the date of initial application, the investee is deconsolidated with the comparative period restated and the transaction measured as of the date the investor became involved with the entity or lost control over it.
• IFRS 12 disclosures related to subsidiaries, associates, and joint arrangements are required for the comparative periods. However, this requirement is limited to the period that immediately precedes the first annual period of IFRS 12 application. Comparative disclosures are not required for interests in unconsolidated structured entities.

Is convergence achieved?

The FASB issued a proposal in November 2011 to amend its consolidation guidance by incorporating the agent versus principal analysis contained in IFRS 10. The FASB's proposal allows the guidance to be applied retrospectively to the earliest period presented or as of the beginning of the year of adoption with a cumulative effect adjustment to retained earnings. There are also other existing differences between the IFRS 10 and U.S. GAAP consolidation models. The FASB is in the process of redeliberating its proposal.

Who's affected?

The amendments will affect all reporting entities that need to adopt the affected standards.

What's the effective date?

The amendments are effective for annual periods beginning on or after January 1, 2013, consistent with the effective dates for IFRS 10, 11, and 12. While earlier application is permitted, the amendments, together with the entire package of related standards, are required to be adopted at the same time.

What's next?

IFRS preparers should start considering the transition amendments, and how they can use the exemptions granted to minimize implementation costs. IFRS preparers should also start collating the comparative disclosure information required by the amendments.

Questions?

PwC clients who have questions about this In brief should contact their engagement partner. Engagement teams that have questions should contact the Financial Instruments team in the National Professional Services Group (1-973-236-7803).

Authored by:

Marie Kling
Partner
Phone: 1-973-236-4460
Email: marie.kling@us.pwc.com

Craig Cooke
Director
Phone: 1-973-236-4705
Email: craig.cooke@us.pwc.com

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