24 October 2016
Mr H Hoogervorst
International Accounting Standards Board
30 Cannon Street London EC 4M 6Xh
Dear Mr Hoogervorst
ED/2016/1 “Definition of a Business…………. “
The Group of 100 (G100) is the pre-eminent voice for CFOs in Australia with the purpose of creating better businesses for tomorrow. We are pleased to comment on the Exposure Draft.
Q1 The Board is proposing to amend IFRS 3 to clarify the guidance on the definition of a business (see paras B7-B12B and BC5-BC31). Do you agree with these proposed amendments to IFRS 3? In particular; do you agree with the Board’s conclusion that if substantially all the fair value of the gross assets acquired (ie the identifiable assets and non-identifiable assets) is concentrated in a single identifiable asset or group of similar identifiable assets, then the set of activities and assets is not a business. (See paras B11A-B11C)? Why or why not? If not, what alternative would you propose, if any, and why?
The G100 believes that it is important that a practical distinction between the acquisition of an asset and the acquisition of what constitutes a business for the purpose of applying IFRS 3. The clarification will assist preparers and is likely to simplify the work involved and costs incurred in applying IFRS 3. The G100 considers that the existence of the ‘screening test’ is a practical and useful mechanism for determining whether a business has been acquired.
Our view is that a business involves transforming inputs (factors of production) through applying a substantive process to produce an output (goods and/or services) with the purpose of supplying customers or as an input to a subsequent process and, as such, agree with the proposed changes to the definition of a business and distinguishing a business from the acquisition of an asset.
While the illustrative examples are useful guidance for preparers it is not clear how the term ‘similar’ in respect of similar identifiable assets is to be interpreted and whether it can embrace assets with different risk profiles and economic characteristics.
Q2 The Board and the FASB reached substantially converged tentative conclusions on how to clarify and amend the definition of a business. However, the wording of the Board’s proposals is not fully aligned with the FASB’s proposals. Do you have any comments regarding the differences in the proposals, including any differences in practice that could emerge as a result of the different wording?
The G100 believes that convergence of the IASB and FASB requirements and guidance is highly desirable and that both bodies should seek to remove inconsistencies in their approaches to resolving the issues.
Q3 To address diversity of practice regarding acquisitions of interests in businesses that are joint operations, the Board is proposing to add para 42A to IFRS 3 and amend para B33C of IFRS 11 to clarify that:
- on obtaining control, an entity should remeasure previously held interests in the assets and liabilities of the joint operation in the manner described in para 42 of IFRS 3; and
- on obtaining joint control, an entity should not remeasure previously held interests in the assets and liabilities of the joint operation.
Do you agree with these proposed amendments to IFRS 3 and IFRS 11? If not, what alternative would you propose, if any, and why?
The G100 supports the proposed amendments to IFRS 3 and IFRS 11.
Q4 The Board is proposing the amendments to IFRS 3 and IFRS 11 to clarify the guidance on the definition of a business and the accounting for previously held interests be applied prospectively with early application permitted. Do you agree with these proposed transition requirements? Why or why not?
The G100 supports the prospective application of the proposed amendments as a pragmatic cost-effective approach.
Group of 100 Inc