Holyoake House
Hanover Street
Manchester
M60 0AS
20 January 2009
Dear Sir
Exposure Draft Discontinued Operations: Proposed amendments to IFRS5
Attached is the response of the Co-operative Performance Committee (CPC) (formerly the
Performance Accounting Standards Committee (PASC)) of Co-operativesUK in relation to the
Exposure Draft.
CPC is a standing committee of Co-operativesUK, which brings together professionals from within
the co-operative movement to take responsibility for the movement’s performance indicators and
for promoting best practice on accounting standards.
Co-operativesUK is a co-operative owned and democratically controlled by its members. It was
launched in January 2003 following the merger of the Co-operative Union (established in 1869) and
the Industrial and Common Ownership Movement (ICOM). Co-operativesUK can therefore claim to
have been in the business of promoting and representing co-operative enterprise for over 139 years.
Co-operativesUK membership comprises individual co-operative enterprises ranging in size and
diversity from large consumer owned co-operatives to small worker owned co-operatives. The
number of co-operative organisations in membership exceeds 540 and have a combined turnover in
excess of £13 billion. They employ over 98,000 staff trading through 4,500 retail outlets.
Yours sincerely
Phil Holmes FCCA
Secretary - CPC
Discontinued operations proposed amendments to IFRS5
Invitation to comment
Question 1(a)
Do you agree with the proposed definition? Why or why not? If not, what definition would you propose, and
why?
The basis of conclusion of IFRS5 says at paragraph BC62:
“Paragraph 12 of the framework states that the objective of financial statements is to provide information
about the financial position, performance and changes in financial position of the entity that is useful to a
wide range of users in making economic decisions. Paragraph 15 of the framework goes on to state that the
economic decisions that are taken by users of financial statements require an evaluation of the ability of an
entity to generate cash and cash equivalents. Separately highlighting the results of discontinued operations
provides users with information that is relevant in assessing the ongoing ability of the entity to generate cash
flows.”
To paraphrase the above users are interested in discontinued activities, where they are significant or material,
because it gives information on profits and cash flows of discontinued activities, but more importantly
information on the ability of the continuing or ongoing activities of the business to generate profits and cash
flows.
We therefore believe that any changes to the definition of a segment to be shown as discontinued and related
disclosures should meet the test of whether it gives better information on the “ongoing ability of the entity to
generate cash flows” and whether to use the language of the Board the definition meets the requirement of
identifying and reporting on discontinued segments that meet the definition of a strategic shift.
We have some concerns as to whether the revised definition is an improvement on the previous definition in
IFRS for identifying and reporting on strategic shifts. We believe the current definition in IFRS has worked
well in practice and is well understood, although consistency could be improved by some additional
guidance or examples.
We also see some issues with using the definition of an operating segment as defined by IFRS8. We think it
possible that Chief Operating Decision Makers (CODMs) will review information about components that are
not of themselves strategic, for example, in the property industry reviewing the performance of each property
or in retail reviewing the performance of each unit. Under the revised definition each of these components
would fall to be treated as discontinued.
Similarly we can envisage situations where there is a strategic shift in the business but because the separate
components are managed below the CODM level these are not treated as discontinued and hence users may
be deprived of useful information. For example, a vertically integrated business with say wholesale and
retail businesses (healthcare), might regard the combined operations as one operating segment under IFRS8
(because of shared management or to avoid unnecessary issues about transfer prices). However a decision to
exit from either part of the business may still represent a strategic shift in operations that is relevant to the
users of financial statements. Similar scenarios could be envisaged with say the break-up of an online travel
business and a high street chain of travel agencies, or an entity running convenience stores and supermarkets
deciding to dispose of one group of stores.
We therefore do not believe the new criteria improve the information given to users beyond the current
definitions.
If the Board proceeds with the suggested approach, then we believe it would be appropriate for the Board to
include within the standard an observation that reviewing components operating information by the CODM
in order to make a decision about disposal of that component does not by itself cause that component to
become an operating segment for the purpose of this standard.
We agree with the Board’s inclusion of a business meeting the criteria to be classified as held for sale on
acquisition as a discontinued operation since there is no expectation that the activities will be part of an
entities ongoing operation.
Question 1(b)
If an entity is not required to apply IFRS8, 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 IFRS8, and why?
Given that the IFRS8 definition of a segment are those segments reported to the CODM and that therefore
information on those segments must be available through the normal reporting process we believe that it is
feasible for an entity to determine whether the component of an entity meets the definition of an operating
segment.
Our concern here is that in some entities the CODM may manage the business and receive information on an
aggregated basis, and that therefore in these cases, very significant or strategic disposals would not fall to be
treated as discontinued activities, so potentially not giving users of the accounts information that they
require.
Question 2
Do you agree that the amounts presented for discontinued operation 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?
We agree that the amounts presented for discontinued operation should be based on the amounts presented of
comprehensive income. Any other approach is likely to be confusing and could result in inconsistent
measurement within the statement of comprehensive income.
Question 3(a)
Do you agree with the proposed disclosure requirement? Why or why not? What changes would you
propose and why?
We accept the need to give further information about segments that have been identified as meeting the
criteria of discontinued activities, or held for sale.
We strongly oppose the extension of disclosure to all components of an entity which have been disposed of
or classified for sale. We believe that this requirement will be onerous for entities, and will have limited
benefit for the users of financial statements, and continues the process making accounts more complex and
cluttered rather than simple and clear.
It seems to us that if the criteria correctly identify, for treatment as discontinued, all components that are
material or strategic why is there a need to provide information about components that by definition must be
immaterial or not strategic. If the criteria are not identifying all material or strategic components then it is
the criteria that need changing not providing additional information about all components disposed of.
Question 3(b)
Do you agree with the disclosure exemptions for a business that meets the criteria to 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 Board’s proposed disclosure exemption for a business that meets the criteria to be
classified as held for sale on acquisition. As these activities are not part of the continuing business and have
never been reported as such financial statement users do not need information as to which aspects of the
statement of financial position and comprehensive income will cease to exist.
Question 4
Are the transitional provisions appropriate? Why or why not? If not what would you propose and why?
We agree with the transitional requirement and believe that retrospective reporting and prospective
disclosure balances the need to provide useful information to financial statement users without placing undue
burden on financial statement preparers.
We believe that applying the exposure draft to financial statements of years beginning after 12 December
2009 allows sufficient time for preparers to implement the revised statement.