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08 June 2012

EFRAG: Draft comment letter on the IASB's ED/2012/1 Annual Improvements to IFRSs 2010-2012 Cycle


EFRAG published its draft comment letter to the IASB on its Exposure Draft Annual Improvements to IFRSs 2010-2012 Cycle ("the ED"). EFRAG agrees with most proposals in the ED but it is concerned about the amendments to IFRS 3 and IAS 12. Comments are invited on the letter by 22 August, 2012.

To summarise, EFRAG agrees with most proposals in the ED and with the objective they are trying to achieve but is concerned about the issues explained below.

IFRS 3 Business Combinations: Accounting for contingent consideration in a business combination

EFRAG agrees with the proposed amendments; however it believes that the IASB should also propose consequential amendments to IAS 39 'Financial Instruments: Recognition and Measurement', as entities that are not applying IFRS 9 early may encounter the same issues being addressed by these amendments. In addition, EFRAG believes that the IASB should also align IAS 39 to the requirement in IFRS 9 regarding the accounting for own credit risk on financial liabilities measured at fair value, as it believes that users of the financial statements of entities that do not apply IFRS 9 early would also benefit from this improvement in financial reporting.

IAS 12 Income Taxes: recognition of deferred tax assets for unrealised losses on available-for-sale debt securities

EFRAG appreciates the IASB’s responsiveness to an issue that has been raised by its constituents and that has given rise to divergence in practice. However, EFRAG is concerned about the approach the IASB has taken in drafting the amendments. Rather than addressing the relatively narrow issue of the recognition of deferred tax assets in relation to debt securities that are classified as available-for-sale, these proposed amendments potentially cover a much wider and more complex range of circumstances. As such, EFRAG questions whether the proposals still meet the criteria, in paragraph 65A of IASB Due Process Handbook, to be addressed as part of the Annual Improvement Project. Even if the IASB were to affirm that these amendments should be part of the annual improvements, EFRAG believes that additional outreach work is required to ensure that these amendments will not introduce new problems in areas where none exist to date. This is particularly the case because the interaction between IAS 12 and complex tax legislation in many jurisdictions has the potential to result in some anomalous outcomes.

Press release

Draft comment letter



© EFRAG - European Financial Reporting Advisory Group


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