19/04/2017 - EFRAG's comment letter and feedback statement on IASB ED/2017/1 Annual Improvements to IFRS Standards 2015-2017 Cycle

​On 12 January 2017, the IASB issued the Exposure Draft ED/2017/1 Annual Improvements to IFRS Standards 2015-2017 Cycle ('the ED').

The ED proposed the following amendments: 

• IAS 12 Income Taxes: The IASB proposed to clarify that the requirements in paragraph 52B of IAS 12 apply not just in the circumstances described in paragraph 52A of IAS 12, but to all income tax consequences of dividends. 

• IAS 23 Borrowing Costs: The IASB proposed to amend paragraph 14 of IAS 23 to clarify that, when a qualifying asset is ready for its intended use or sale, an entity treats any outstanding borrowing made specifically to obtain that qualifying asset, as part of the funds that it has borrowed generally.

• IAS 28 Investments in Associates and Joint Ventures: The IASB proposed to clarify that an entity is required to apply IFRS 9 Financial Instruments, including its impairment requirements, to long-term interests in an associate or joint venture that, in substance, form part of the net investment in the associate or joint venture but to which the equity method is not applied. 

In its comment letter, EFRAG broadly agrees with most of the proposals in the ED, but is concerned that amending IAS 12 without providing guidance on how to determine whether the payments are distributions of profits may not lead to a significant improvement in consistent application compared to the current situation.

In relation to the proposed amendments to IAS 28, EFRAG supports the IASB's decision to address the issue before IFRS 9 becomes effective. EFRAG also considers the proposed amendments to be a practical solution, in that they codify an acceptable interpretation of existing guidance and do not involve extensive changes to that guidance. However, EFRAG also considers that the IASB should provide guidance on the application of the proposed amendments. Moreover, EFRAG considers that this should be regarded only as a temporary solution and that the treatment of long-term interests should be considered more broadly in the IASB's equity method research project.

Lastly, whilst EFRAG understands the benefits from aligning the effective date of the amendments to IAS 28 with the effective date of IFRS 9, we are concerned about the short time period between the expected date of issuing the amendments and the proposed effective date of 1 January 2018. We consider that this will create difficulties for all jurisdictions with a translation or endorsement process, including the European Union. Therefore, EFRAG considers that the IASB should propose an effective date of 1 January 2019, with earlier application permitted and provide transition provisions for entities that will not be able to apply the amendments at the same time as they apply IFRS 9.

The feedback statement describes the main comments received by EFRAG in response to the draft comment letter and how these comments were considered by EFRAG in finalising its comment letter to the IASB.

The final comment letter is available here and the feedback statement is available here.