Posted by & filed under Financial Reporting.

13 January 2015

 

Mr H. Hoogervorst
Chairman
International Accounting Standards Board
30 Cannon Street
London EC 4M 6XH
UNITED KINGDOM

Dear Mr Hoogervorst

ED/2014/4 Measuring quoted investments in subsidiaries
Joint ventures and associates at fair value

The Group of 100 (G100) is an organization of chief financial officers from Australia’s largest business enterprises with the purpose of advancing Australia’s financial
competitiveness.

Q1 The unit of account for investments in subsidiaries, joint ventures and associates
The IASB concluded that the unit of account for investments within the scope of IFRS 10, IAS 27 and IAS 28 is the investment as a whole rather than the individual financial
instruments included within that investment (see paras BC3-BC7).
Do you agree with this conclusion? If not, why and what alternative do you propose?
The G100 supports the proposal that for investments such as subsidiaries, associates and joint ventures, the investment as a whole is the appropriate unit of account rather than the individual financial instruments comprising the investment. The G100 considers that substantive requirements of accounting standards and interpretations should be explicit and included in the body of the statement.

Q2 Interaction between Level 1 inputs and the unit of account for investments in subsidiaries, joint ventures and associates.
The IASB proposes to amend IFRS 10, IAS 27 and IAS 28 to clarify that the fair value measurement of quoted investments in subsidiaries, joint ventures and associates should be the product of the quoted price (P) multiplied by the quantity of financial instruments held (Q), or P x Q, without adjustments (see paras BC8-BC14). Do you agree with the proposed amendments? If not, why and what alternative do you propose? Please explain your reasons, including commenting on the usefulness of the information provided to users of financial statements.
The G100 does not support the proposal that the fair value measurement of quoted investments in subsidiaries, associates and joint ventures is the unadjusted product of the quoted price and the number of securities because it does not take into account significant factors such as control premiums, the size and strategic value of the holding etc.
In these circumstances the relevance of the information to users is likely to be impaired and has the potential to be misleading. The fair value determined as proposed may be useful information but does not necessarily reflect the value of the instruments.

Q3 Measuring the fair value of a CGU that corresponds to a quoted entity.
The IASB proposes to align the fair value measurement of a quoted CGU to the fair value measurement of a quoted investment. It proposes to amend IAS 36 to clarify that the recoverable amount of a CGU that corresponds to quoted entity measured on the basis of fair value less costs of disposal should be the product of the quoted price (P) multiplied by the quantity of financial instruments (Q), or P x Q, without adjustments (see paras BC15-BC19). To determine fair value less costs of disposal, disposal costs are deducted from the fair value amount measured on this basis. Do you agree with the proposed amendments? If not, why and what alternative do you propose?
As per response to Question 2, the G100 considers that such an approach does not take account of a range of factors specific to the investments which are not included in the quoted price. It is incongruous to include costs of disposal and to exclude items such as a control premium.

Q4 Portfolios
The IASB proposes to include an illustrative example to IFRS 13 to illustrate the application of para 48 of that Standard to a group of financial assets and financial liabilities whose market risks are substantially the same and whose fair value measurement is categorised within Level 1 of the fair value hierarchy. The example illustrates that the fair value of an entity’s net exposure to market risks arising from such a group of financial assets and financial liabilities is to be measured in accordance with the corresponding Level 1 prices. Do you think that the proposed additional illustrative example for IFRS 13 illustrates the application of para 48 of IFRIS 13? If not, why and what alternative do you propose?
The G100 supports the inclusion of an example to illustrate the application of IFRS 13, paragraph 48.

Q5 Transition provisions
The IASB proposes that for the amendments to IFRS 10, IAS 27 and IAS 28, an entity should adjust its opening retained earnings, or other component of equity, as appropriate, to account for any difference between the previous carrying amount of the quoted investment(s) in subsidiaries, joint ventures or associates and the carrying amount of those quoted investment(s) at the beginning of the reporting period in which the amendments are applied. The IASB proposes that the amendments to IFRS 12 and
IAS 36 should be applied prospectively. The IASB also proposes disclosure requirements on transition (see paras BC32-BC33) and to permit early application (see para BC35). Do you agree with the transition methods proposed (see paras BC30-BC35)? If not, why and what alternative do you propose?
The G100 supports the proposed transitional arrangements.
 

Neville Mitchell
President

 

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