Comments from ACCA to the International Accounting Standards Board, 19 March 2013.
ACCA agrees with the amendments and the transition provisions which are proposed.
As set out in our specific comments below, we also agree with the removal of the word ‘material’ at the start of para 130 of IAS 36, and we make additional suggestions on the application of terms concerning materiality in general.
The IASB proposes to remove the requirement in paragraph 134(c) to disclose the recoverable amount of each cash-generating unit (group of units) for which the carrying amount of goodwill or intangible assets with indefinite useful lives allocated to that unit (group of units) is significant when compared to the entity’s total carrying amount of goodwill or intangible assets with indefinite useful lives. In addition, the IASB proposes to amend paragraph 130 to require an entity to disclose the recoverable amount of an individual asset (including goodwill) or a cash-generating unit for which the entity has recognised or reversed an impairment loss during the reporting period.
Do you agree with the proposed amendments? If not, why and what alternative do you propose?
The addition to IAS 36 when IFRS 13 was developed has, as the IASB points out, resulted in broader disclosures than intended.
Consequently, IAS 36 will be corrected by adding a requirement to disclose the recoverable amount of an asset or cash-generating unit to para 130 (which deals with situations where impairment losses were recognised or reversed in the accounting period), and removing a similar requirement from para 134 (which deals with all cash-generating units containing goodwill or intangibles with indefinite useful lives).
ACCA agrees with the proposed amendments which, as explained by the IASB, more accurately reflect its intention in changing IAS 36 as a consequence of the issue of IFRS 13. The IASB’s change will avoid the unnecessary and unintended disclosures which previously resulted.
The IASB also proposes to include in paragraph 130 the requirement to disclose the following information about the fair value less costs of disposal of an individual asset (including goodwill) or a cash-generating unit for which the entity has recognised or reversed an impairment loss during the reporting period:
(a) the valuation technique(s) used to measure fair value less costs of disposal and, if there has been a change in the valuation technique, that change and the reason(s) for making it;
(b) the level of the fair value hierarchy within which the fair value measurement of the asset is categorised in its entirety (without taking into account whether the ‘costs of disposal’ are observable); and
(c) for fair value measurements that are categorised within Levels 2 and 3 of the fair value hierarchy, the key assumptions used in the measurement.
Do you agree with the proposed amendments? If not, why and what alternative do you propose?
The IASB is supplementing the disclosures about how fair value less costs of disposal has been arrived at, for consistency with US GAAP. We note that the IASB considers that the supplementary disclosures do not change the overall nature of what should be disclosed in accordance with IAS 36. The changes incorporate the fair value hierarchy used in IFRS 13, requiring additional disclosures for a fair value measurement categorised within Levels 2 and 3, where inputs (assumptions) are less readily observable.
ACCA agrees with the proposed supplements to the disclosure requirements set out in para 130 (f) of IAS 36, and does not believe that these add to disclosure ‘clutter’. The proposals reflect what an entity should be expected to disclose, and to the extent that the fair value hierarchy is part of this disclosure process, assists in making IAS 36 consistent with IFRS 13, the scope of which excludes fair value less costs of disposal.
The IASB proposes that the amendments should be applied retrospectively for annual periods beginning on or after 1 January 2014. The IASB also proposes to permit earlier application, but will not require an entity to apply those amendments in periods (including comparative periods) in which the entity does not also apply IFRS 13.
Do you agree with the proposed transition method and effective date? If not, why and what alternative do you propose?
ACCA agrees with the proposed implementation date of periods beginning on or after 1 January 2014 (with retrospective application, and earlier application being permitted). We believe that this date is feasible for entities, given that the main proposal in the ED involves a simplification.
We also agree that an entity should not apply the changes proposed in the ED until it also adopts IFRS 13. The ED concerns amendments to IAS 36 which are a consequence of the issue of IFRS 13, and the more detailed disclosure requirements proposed for para 130(f) of IAS 36 refer to the fair value hierarchy in IFRS 13.
Do you have any other comments on the proposals?
The word ‘material’ will be removed from the first line of para 130 of IAS 36. This reflects a principle that materiality is more appropriately dealt with in Standards which cover not specific areas, but the financial statements as a whole (being IAS 1 ‘Presentation of Financial Statements’, and IAS 8 ‘Accounting Policies, Changes in Accounting Estimates and Errors’).
ACCA agrees that this change should encourage consistent thinking on materiality across the financial statements. Furthermore, a concept of materiality which applies across the range of IFRSs is one which the IASB might also incorporate within its projects on disclosure, or the Conceptual Framework.
We appreciate that the intention of the change proposed in this ED is not to bring immaterial items within the scope of the disclosure requirements of IAS 36. However, as part of its amended focus, the IASB may also wish to accompany the provisions on materiality contained in the other, more general Standards, with a confirmation that IFRS do not apply to immaterial items.