On the 28th June 2012 the International Accounting Standards Board (IASB) issued amendments to IFRS 10 Consolidated Financial Statements (IFRS 10), IFRS 11 Joint Arrangements (IFRS 11) and IFRS 12 Disclosure of Interests in Other Entities (IFRS 12). The amendments change the transition guidance to provide further relief from full retrospective application.
The amendments aim to clarify certain aspects when an entity transitions from IAS 27 Consolidated and Separate Financial Statements (IAS 27) and SIC 12 Consolidation – Special Purpose Entities (SIC 12) to the new standards IFRS 10, IFRS 11 and IFRS 12 which became effective 1 January 2013.
Consolidation Conclusion Reached Is Unchanged Under IFRS 10
The amendments to IFRS 10 clarify that an entity is not required to make adjustments to the previous accounting period for its involvement with entities if the conclusion to consolidate under IFRS 10 is the same when applying IAS 27 and SIC 12. As a result the IASB confirmed that relief from retrospective application of IFRS 10 would also apply to an investor’s interests in an investee that were disposed of during a comparative period, such that consolidation would not occur in accordance with either IAS 27/SIC 12 or IFRS 10 at the date of initial application.
Consolidation Conclusion Reached Is Changed Under IFRS 10
IFRS 10 as issued in 2011 requires an entity that has obtained control over another entity to adjust its comparative periods retrospectively if the conclusion under IAS 27/SIC 12 was different (i.e., not consolidated under IAS 27/SIC 12).
The IASB recognised that retrospective application of IFRS 10 would be onerous for entities where an investee was not previously consolidated, as consolidations may have an effect on multiple lines of the financial statements and to obtain information in relation to this can be difficult.
Therefore, the amendments provide that an entity need only make a retrospective adjustment for the annual period immediately preceding the date of initial application of IFRS 10. The amendments also give the option for entities to present adjusted comparative information for any earlier comparative periods. However entities are not required to present this information.
The IASB also clarified that, when applying the disclosure requirements of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (IAS 8) on the presentation of quantitative information when initially applying IFRS 10, an entity shall only be required to present the quantitative information for the immediately preceding period and does not need to include the effect on the current or earlier comparative periods.
Any difference between the previous carrying amounts and the amounts recognised on the retrospective application of IFRS 10 should be recognised as an adjustment to equity at the beginning of the preceding period or the earliest adjusted comparative period presented, as appropriate.
Which Version To Apply For IFRS 3 And IAS 27?
The amendments to IFRS 10 clarify which versions of IFRS 3 (2004 or 2008) and IAS 27 (2003 or 2008) are to be applied:
- If the date that control was obtained in accordance with IFRS 10 is later than the effective date for IFRS 3 as revised in 2008 (IFRS 3 – 2008), the revised version of IFRS 3 – 2008 is applicable
- If control (in accordance with IFRS 10) was obtained before the effective date of IFRS 3 – 2008, an investor can apply either IFRS 3 – 2008 or IFRS 3 – 2004
- If control (in accordance with IFRS 10) was obtained later than the effective date of IAS 27 – 2008, the investor is required to apply IFRS 10 for all periods that the investee is retrospectively consolidating in accordance with the transitional guidance in IFRS 10
- If control was obtained before the effective date of IAS 27 – 2008, an investor can either apply IFRS 10 for all periods, or apply IAS 27 – 2003 to periods prior to the effective date of IAS 27 – 2008, and IFRS 10 for subsequent periods.
Related Amendments To IFRS 11 And IFRS 12
The IASB has also amended IFRS 11 and IFRS 12 to provide transitional relief as follows:
- Limit the requirement to provide adjusted comparative information to the immediately preceding period only,
- For the first year that IFRS 12 is applied, the requirement to present comparative information for the disclosures related to unconsolidated structured entities is removed.
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