Summary of responses to RfI in Korea

Transcription

1 Summary of responses to RfI in Korea May 2014 Korea Accounting Standards Board (KASB)

2 Contents 1. Your background and experience 2. Definition of a business 3. Fair value 4. Separate recognition of intangible assets from goodwill and the accounting for negative goodwill 5. Non-amortisation of goodwill and indefinite-life intangible assets 6. Non-controlling interests 7. Step acquisitions and loss of control 8. Disclosures 9. Other matters 10. Effects 1

3 1. Your background and experience (a) Your role 6 preparers (Hanwha (HW), A Bank, B Motors, Doosan Heavy Industries & Construction Integrated (DS), SGA, and BIT Computer (BIT)) 1 regulator (FSS) 1 standard-setter (KASB) (b) Your principal jurisdiction Seoul Korea (c) IFRS 3 (2004) or IFRS 3 (2008)? IFRS 3 (2008) (d 1) The year of adoption January 1st

4 1. Your background and experience (d 2) How many business combinations? total: 6 companies 0 BC: 1 company (DS) 1 BC: 3 companies (HW, SGA, BIT) 2 BCs: 2 companies (A Bank, B Motors) (d 3) The industries of the acquirees HW: Photovoltaic business A Bank: Financial business B Motors: Motor industry SGA: Service for development of system software BIT: Service for development of software (e) If you are a user of financial statements, N/A 3

5 2. Definition of a business (a) Are there benefits of having separate accounting treatments for business combinations and asset acquisitions? Yes: 7 respondents (HW, A Bank, DS, SGA, BIT, FSS, KASB) No: 1 respondent (B Motors) If so, what are these benefits? Useful information (HW) Reflecting economic substance (A Bank) Possible to recognise goodwill and separately recognised intangible assets from goodwill (DS, SGA) Possible to identify only the consideration transferred for the acquiree and the assets acquired and liabilities assumed in the exchange for the acquiree as the recognition objects. Business creates synergies different from the asset group (SGA) 4

6 2. Definition of a business (b) The main practical implementation issues? Issues for acquisition of partial segments Issues for acquisition of businesses which do not need any managements The IASB needs to consider additional guidance of identification of business 5

7 3. Fair value (a) To what extent is the information derived from the fair value measurements relevant and the information disclosed about fair value measurements sufficient? Relevant information? Yes: 6 - Active market (SGA), Acquiree under non-ifrs (BIT) No: 1 (B Motors) N/A: 1 (A Bank) Sufficient disclosure? Yes: 2 (HW, DS) No:1 - Understandability of the information (KASB) N/A: 5 6

8 3. Fair value (b) The most significant valuation challenges? PP&E (B Motors, BIT) Intangible assets recognized separately from goodwill (DS, BIT) Goodwill and goodwill for NCIs ( SGA) Assets or liabilities which are not traded in active markets (FSS) Valuation costs (BIT, FSS) Auditors and regulators' verifications (KASB) Difficult measurement approaches (KASB, FSS) 7

9 3. Fair value (c) Has fair value measurement been more challenging for particular elements: for example, specific assets, liabilities, consideration etc? Difficulties in fair value measurements (KASB) Reliabilities of information (SGA) Some issues in measuring intangible assets (for example, development costs, program rights, etc.) (BIT) Intangible assets and performance-based contingent considerations (FSS) 8

10 4. Separate recognition of intangible assets from goodwill and the accounting for negative goodwill (a) Do you find the separate recognition of intangible assets useful? Yes: 6 No: 1 (B Motors) N/S: 1 (A Bank) If so, why? Different information from the goodwill (HW, BIT) Cost-benefit (B Motors) Explaining the reasons for the consideration transferred (DS) Recommending additional guidance on fair value measurements for mergers below certain size (BIT) Impairment test of goodwill involves management s discretion(kasb) 9

11 4. Separate recognition of intangible assets from goodwill and the accounting for negative goodwill (b) The main implementation issues? Fair value measurements (HW) - Recommending more guidance (B Motors) - Valuation costs (B Motors, FSS, KASB) Reliability of the valuation of PPA (DS) Determining separability and identifiability of intangible assets (SGA, BIT) 10

12 4. Separate recognition of intangible assets from goodwill and the accounting for negative goodwill (c) How useful do you find the recognition of negative goodwill in profit or loss and the disclosures about the underlying reasons why the transaction resulted in a gain? Useful? Yes : 5 No : 1 (B Motors) N/A :2 (A Bank, BIT) If so, why? Distinguishing operating income and ordinary income (DS) Negative goodwill is a kind of profit from a bargain purchase (FSS) If the fair value of net assets acquired is appropriate, this standard is useful (KASB) 11

13 5. Non-amortisation of goodwill and indefinite-life intangible assets (a) How useful have you found the information obtained from annually assessing goodwill and intangible assets with indefinite useful lives for impairment, and why? Useful? Yes: 4 No: 3 (HW, SGA, KASB) N/A: 1 (B Motors) If so, why? Yes - Predicting the cash-generating ability of the CGU (DS) - If goodwill could be distinguished from intangible assets clearly, it's useful (BIT) - Preventing overstatement (FSS) No - The limitation of the assumptions and future uncertainties (HW, SGA) - Substitution effects of internally generated goodwill (KASB) 12

14 5. Non-amortisation of goodwill and indefinite-life intangible assets (b) Do you think that improvements are needed regarding the information provided by the impairment test? If so, what are they? Need improvements? Yes: 3 (BIT, FSS, KASB) No: 2 (HW, DS) N/A: 3 If so, why? BIT, FSS, KASB Impairment only approach expands volatility of earnings in sympathy with the economic cycle Burden of annual impairment tests (costs) Objectivity issues in measuring the recoverable amounts 13

15 5. Non-amortisation of goodwill and indefinite-life intangible assets (c) The main implementation issues? Fair value measurement costs and difficulties of self-valuation - Difficulties in identifying CGU - Estimating future cash flows - Auditors and regulators' verifications Empirical result (KASB) : 30 Korean companies whose carrying amounts of goodwill are over KRW 100 billion 14

16 6. Non-controlling interests (a) How useful is the information resulting from the presentation and measurement requirements for NCIs? Useful? Yes: 6 N/A: 2 (B Motors, BIT) (b) Please specify the measurement option? NCIs are measured on the basis of the proportionate share for the acquiree's identifiable net assets (A Bank, SGA) 15

17 7. Step acquisitions and loss of control (a) How useful do you find the information resulting from the step acquisition guidance in IFRS 3? Useful? Yes: 6 N/A: 2 (A Bank, BIT) (b) How useful do you find the information resulting from the accounting for a parent s retained investment upon the loss of control in a former subsidiary? Useful? Yes: 5 No: 1 (DS) When accounting for a parent's retained investment upon the loss of control by PPA, the parent could recognise enormous profit or losses N/A: 2 (A Bank, BIT) 16

18 8. Disclosures (a) Is other information needed to properly understand the effect of the acquisition on a group? If so, what information is needed and why would it be useful? N/A (b) Is there information required to be disclosed that is not useful and that should not be required? Please explain why. N/A (c) What are the main challenges to preparing, auditing or enforcing the disclosures required by IFRS 3 or by the related amendments, and why? N/A 17

19 9. Other matters Are there other matters that you think the IASB should be aware of as it considers the PiR of IFRS 3? (FSS) Business combinations under common control (B Motors) hoping that the IASB would consider more about practical problems than theoretical things 18

20 10. Effects (a) Which areas of IFRS 3 and related amendments represent benefits, and why; (FSS) The amendment to the step acquisition guidance in IFRS 3 is useful (HW, DS) Users of financial statements (b) Which areas of IFRS 3 and related amendments have resulted in considerable unexpected costs? Fair value measurement (costs, practical difficulties, etc): HW, B Motors, FSS, KASB Identification of intangible assets (B Motors) (c) Which areas of IFRS 3 and related amendments have had an effect on how acquisitions are carried out? N/A 19

21 Thank you