Exposure Draft and Comment Letters

The IASB published for public comment proposals to provide further exemptions from the requirements of IFRSs when they are adopted for the first time.

The proposals were set out in an Exposure Draft of proposed amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards.

The proposals respond to concerns about difficulties encountered by parent companies in measuring the cost of an investment in a subsidiary on adopting IFRSs.

At present, IFRSs require a parent to measure an investment in a subsidiary either at its cost or at fair value. In some circumstances a parent is unable to determine cost in accordance with IFRSs but is deterred from using fair value to account for the investment by the subsequent need to measure the investment at each reporting date.

The Exposure Draft proposed to allow a parent to use a deemed cost to measure its investment in subsidiaries when it first adopts IFRSs. This deemed cost can be determined by reference to the parent’s investment in the net assets of the subsidiary or the fair value of the parent’s investment.

The proposals also provide further relief by alleviating the need to restate the pre-acquisition accumulated profits of a subsidiary for the purposes of classifying dividends.

Introducing the Exposure Draft, Sir David Tweedie, IASB Chairman, said:

These proposals are the Board’s response to preparers’ concern about a requirement that they regard as an obstacle to adopting IFRSs. If confirmed, the proposed changes will reduce the burden on preparers on first-time adoption of IFRSs while still providing useful information users of financial statements.

The IASB invited comments by 27 April 2007.