Memo
To:
International Accounting Standards Board
From:
Accounting Standards Board – Canada, Staff
Date:
January 23, 2009
Re:
Discontinued Operations, Proposed amendments to IFRS 5
The following comprises the response of the staff of the Canadian Accounting Standards Board
(AcSB) to the IASB’s Exposure Draft on Discontinued Operations, Proposed amendments to
IFRS 5, dated September 2008.
We support the proposed definition, but have concerns with the disclosure requirements and
note the potential for a transition issue for first-time IFRS adopters. Our response to the proposal
is detailed below.
Question 1(a)
Do you agree with the proposed definition? Why or why not? If not, what definition would you
propose, and why?
Yes. In assessing the appropriateness of the definition of a discontinued operation, it is
important to clearly establish and articulate the objective to be achieved by the definition. The
Exposure Draft does not do this. However, we presume from the Basis for Conclusions that the
objective of presenting items separately as discontinued operations is to signal to the market the
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significant components of an entity that have been or will be disposed of and will therefore not
contribute earnings or cash flows in future periods. Disposals of such components represent a
major shift in the operations of the entity and highlighting this may provide important
information to users. We believe that the proposed definition of a discontinued operation,
determined on the basis of whether an entity has made a strategic shift in its operations, achieves
this objective.
We support the IASB’s approach in building on an existing concept (operating segment) that has
worked well in practice. Further, users and preparers of financial statements prepared in
accordance with IFRS, US GAAP and Canadian GAAP are already familiar with the term
“operating segment.” While familiarity should not be the sole determining factor in selecting a
criterion for presenting discontinued operations, we are not aware of problems that could arise
from using the criterion proposed. We agree that using operating segments as the criterion
would simplify the determination of what should be presented in discontinued operations and is
consistent with the presumed presentation objective.
Also, we agree that it would be appropriate to present a business (as defined in IFRS 3, Business
Combinations) that meets the criteria to be classified as held for sale on acquisition, in
discontinued operations, since the carrying amount of the business will be recovered primarily
through sale, rather than use.
Finally, financial statement comparability internationally will be enhanced with the use of a
consistent definition of a discontinued operation under IFRSs and US GAAP.
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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?
Yes. We believe the definition of an operating segment in IAS 8, Operating Segments, is clear
and can be applied in determining whether a component of an entity meets the definition of an
operating segment, even if an entity is not required to apply IFRS 8. We support the use of a
single set of criteria for presenting transactions, based on the substance of the transaction itself,
rather than the type of entity and whether it is required to apply IFRS 8.
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?
Yes. We support the proposal that amounts presented in discontinued operations be based on the
IFRSs used to determine the amounts presented in the statement of comprehensive income. This
is necessary if the amount shown in discontinued operations is to present the comprehensive
income from those operations on the same basis as comprehensive income for the rest of the
entity. This consistency is important for users to understand the impact of the discontinued
operations on the financial statements.
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AcSB staff response
Question 3(a)
Do you agree with the proposed disclosure requirements? Why or why not? If not, what
changes would you propose, and why?
No. We note that the disclosures in paragraph 41 are required to be made for “a non-current
asset (or disposal group)” classified as held for sale or sold and the disclosures in paragraph 41A
are required to be made for “a component of an entity” disposed of or held for sale. The unit of
account at which entities will be required to disclose the information is inconsistent and this is
likely to be confusing for users. No reasons for using different units of account for different
disclosures are provided in the Exposure Draft.
The requirement for additional disclosure about components of an entity that have been disposed
of, or are classified as held for sale, regardless of whether it is a discontinued operation requires
disclosures about more disposals than are classified as discontinued operations. Because the
presentation and disclosure objectives are not clearly articulated it is unclear why two objectives
are necessary and what benefits result.
We believe that the disclosure requirements should be consistent with the presentation
requirements unless separate presentation and disclosure objectives are defined. If an item to be
disposed of is significant enough to warrant disclosure it should also be significant enough to be
presented as a discontinued operation. Similarly, if an item to be disposed of is not significant
enough to be presented as a discontinued operation, disclosures about the item should not be
required. If the results from exposure suggest the unit of account should be lower than an
operating segment, the definition of a discontinued operation should be modified to capture those
smaller disposals, which would then also be covered by the disclosures required.
Requiring disclosure on a basis that is consistent with the manner in which items are presented
on the face of an entity’s financial statements will assist users in understanding how information
in one statement relates to information in other statements, as well as the notes to those
statements.
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Finally, the disclosure requirements in paragraphs 41 and 41A should be integrated into a single
cohesive set of disclosures. For example, paragraph 41(c) requires disclosure of impairment
losses as does paragraph 41A(a) and, as already noted, these two paragraphs are inconsistent in
the unit of account.
Question 3(b)
Do you agree with the disclosure exemptions for businesses that meet the criteria to be
classified as held for sale on acquisition? Why or why not? If not, what changes would you
propose, and why?
No. We believe users of financial statements typically interpret financial results by comparing
the financial information for the current period with that for immediately preceding periods. A
business may be classified as held for sale on acquisition over several quarters or fiscal periods.
In our view, a user would benefit from the ability to compare information among quarters or
fiscal periods.
Accordingly, we do not agree with providing an exemption from the disclosure
requirements for these businesses.
Question 4
Are the transitional provisions appropriate? Why or why not? If not, what would you propose,
and why?
Yes (in part). We support the transitional provisions for entities already reporting under IFRSs.
For financial information to be comparable, it must be presented on the same basis for all of the
periods presented. Restatement of the income statement should not be difficult, involving
potentially reclassifying some disposals from discontinued to continuing operations.
This is generally also true for information provided in note disclosures. However we agree with
the IASB’s view in paragraph BC 21 that “an entity may face difficulties in obtaining the
information to apply the proposed amendments retrospectively for the note disclosures”.
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We believe this same difficulty will apply to first-time adopters of IFRSs. Without an
amendment to IFRS1, First-time Adoption of IFRS, first-time adopters will be required to obtain
the information to provide the note disclosure for the year of transition (i.e. the year prior to
adoption of IFRSs). We do not see this as any different to the situation facing an entity adopting
the disclosure proposals in ED 11 i.e. the requirement to provide comparative data for
components sold or held for sale in the year prior to first making the disclosure. We therefore
suggest that an amendment be made to IFRS 1 to provide transitional relief.
We would be pleased to elaborate on these points in more detail if you require. If so, please
contact Peter Martin, Director Accounting Standards at +1 416 204-3276 (e-mail
peter.martin@cica.ca), Mark Walsh, Principal at +1 416 204-3453 (e-mail mark.walsh@cica.ca)
or Karlene Mulraine, Principal at +1 416 204-3466 (e-mail karlene.mulraine@cica.ca).
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