International Accounting Standards Board
30 Cannon Street
London EC4M 6XH
United Kingdom
15 January 2009
Exposure Draft, Proposed Amendments to IFRS 5, Discontinued Operations
Dear Sirs
The Roche Group has a turnover of CHF 46 bn. a year (EUR 28 bn.) derived from our worldwide
healthcare business - pharmaceuticals and diagnostics - and employs nearly 80,000 people
worldwide. We have a market capitalisation (end 2007) of CHF 171 bn. (EUR 103 bn.) We have
been preparing our consolidated financial statements according to IFRS/IAS since 1990 and
therefore have a substantial interest in how these will develop, so we welcome this opportunity to
give feedback on the ED.
We consider that the proposals in the exposure draft by and large make sense and may represent in
some circumstances a simplification for preparers. They also broadly correspond to the approach
which we have taken over recent years. However, in some situations, details of non-segment
discontinuances may thus become submerged. Also we believe that the disclosure proposals, which
take in also non-segment discontinuances, could prove confusing. The basis for disclosure should
be the same as that for the financial statements themselves.
Please find below our responses to your questions.
Specific questions in invitation to comment
Question 1 – Definition of discontinued operations
IFRS 5 defines a discontinued operation as a component of an entity that either has been disposed
of or is classified as held for sale and
F. Hoffmann-La Roche AG
CH-4070 Basel
Switzerland
Corporate Finance Accounting &
Controlling
Bldg/Room 52/1205
Tel. +41 61 68 84234
Fax +41 61 68 84282
alan.dangerfield@roche.com
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(a)
represents a separate major line of business or geographical area of operations,
(b)
is part of a single co-ordinated plan to dispose of a separate major line of business or
geographical area of operations, or
(c)
is a subsidiary acquired exclusively with a view to resale.
This exposure draft proposes changing the definition so that a discontinued operation is a
component of an entity that
(a)
is an operating segment (as that term is defined in IFRS 8 Segment Reporting) and either has
been disposed of or is classified as held for sale or
(b)
is a business (as that term is defined in IFRS 3 Business Combinations (as revised in 2008))
that meets the criteria to be classified as held for sale on acquisition.
The exposure draft proposes that an entity should determine whether the component of an entity
meets the definition of an operating segment regardless of whether it is required to apply IFRS 8.
Question 1(a)—Do you agree with the proposed definition? Why or why not? If not, what definition
would you propose, and why?
1
We agree with the proposed definition. See our general remarks above.
2
However, we find the reference to “strategic shift” in the Basis of Conclusions rather more
confusing than helpful. There seems to us no particular logical equality between a “strategic
shift” and discontinuance of an operating segment. This is illustrated by the case of the entity
that has various product lines and operates in various countries, with segment information
(based on figures given to the chief operating decision maker) by product line, which decides
to close down its operations in a particular country. As that is not a reported segment, it would
under the ED not be treated as a discontinued operation—yet many people would regard it as
a strategic shift. We recognise that in our example it is likely that proposed new paragraph
41A would require disclosures about the closure of its operations in a particular country but
think that is somewhat beside the point; there has been a strategic shift in the business
activities and, although the IASB is proposing to change IFRS 5 to ensure that all strategic
shifts are reflected in the presentation on the face of the primary financial statements, the
amendments will not achieve that objective in all cases. We think that it would be more
helpful to put aside the references to strategic shifts.
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Also, practice may well develop to eliminate or at least minimise difficulties, so that we can
view the proposals in a relaxed manner. There will often be a requirement from chief
operating decision makers to segregate the information they receive on operations being
discontinued, so that a new segment will arise and thus be capable of separate presentation.
Also, where a significant distortion of the flows from “continuing operations” arises from the
more restrictive definition, the reporting entity will generally be keen to ensure that users have
a truer picture than the financial statements alone offer and will therefore provide
supplementary information in e.g. the management commentary.
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Question 1(b)—If an entity is not required to apply IFRS 8, is it feasible for the entity to determine
whether the component of an entity meets the definition of an operating segment? Why or why not?
If not, what definition would you propose for an entity that is not required to apply IFRS 8, and
why?
We see no difficulty.
Question 2 – Amounts presented for discontinued operations
Under IFRS 8, amounts disclosed for operating segments are the amounts reported to the chief
operating decision maker. Nevertheless, although the proposed definition of a discontinued
operation refers to operating segments, this exposure draft proposes that the amounts presented for
discontinued operations should be based on the amounts presented in the statement of
comprehensive income, even if segment information disclosed to comply with IFRS 8 includes
different amounts that are reported to the chief operating decision maker.
Question 2—Do you agree that the amounts presented for discontinued operations should be based
on the amounts presented in the statement of comprehensive income? Why or why not? If not, what
amounts should be presented and why?
At some point there will be a disjoint between the “IFRS” information and the segment information
if the entity has different internal bases from IFRS. We agree that, in order to present objective and
consistent data, the amounts mentioned above should be determined in accordance with those IFRSs
used to determine the amounts presented in the income statement and that any non-IFRS disclosures
should be confined to the segment information.
Question 3 – Disclosures for all components of an entity that have been disposed of or are
classified as held for sale
The exposure draft proposes disclosures for all components of an entity that have been disposed of
or are classified as held for sale, except for businesses that meet the criteria to be classified as held
for sale on acquisition.
Question 3(a)—Do you agree with the proposed disclosure requirements? Why, or why not? If not,
what changes would you propose, and why?
The approach proposed in paragraph 41A, that information about components of the reporting entity
that have been either disposed of or are classified as held for sale should be provided in the notes of
the financial statements, regardless of whether those components are a discontinued operation as
defined, appears to us to be quite unsatisfactory. As with “contingent liabilities” and other
ambivalent concepts, users would be confronted with diverging information on what seems to be
the same notion, as the discontinuances that represent an operating segment will be dealt with on
the face of the primary financial statements, but the notes will provide information about all
discontinuances. We would urge the Board to make its mind up on the definition and formulate the
note disclosures in line with that. Otherwise, only confusion can result.
Question 3(b)—Do you agree with the disclosure exemptions for businesses that meet the criteria to
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be classified as held for sale on acquisition? Why or why not? If not, what changes would you
propose, and why?
We agree with the proposal in paragraph 41B of the ED to exempt businesses classified on
acquisition as held for resale from the disclosures described in paragraph 41A of the ED. The
objective of IFRS 5 is to provide users with information about components that have been part of
the reporting entity’s continuing operations but either no longer are or are expected not to be
shortly. Businesses classified on acquisition as held for resale never were part of the entity’s
continuing operations.
Question 4 – Effective date and transition
Entities would be required to apply the proposed changes prospectively, from a date to be
determined by the IASB after exposure, with one exception: the amounts in the statement of
comprehensive income (or in the separate income statement) should be reclassified on the basis of
the revised definition of discontinued operations for all periods presented. Earlier application
would be permitted.
Question 4—Are the transitional provisions appropriate? Why or why not? If not, what would you
propose, and why?
In principle we prefer all new or amended accounting requirements to be applied retrospectively as
this significantly enhances comparability. However, we believe that the practical difficulties in this
case could be onerous and substantial. Some transactions formerly reported as discontinued would
have to be restated as part of continuing business, in the worst case for four quarters. Consequently
we would urge that an exception from the general principle of retrospective application should be
made in this case and only prospective application required.
Sincerely,
F. Hoffmann-La Roche AG
Dr. Erwin Schneider
Head of Corporate Finance
Accounting & Controlling
Alan Dangerfield
Corporate Finance Accounting & Controlling
External Relations
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