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Comments from ACCA
October 2003

The Association of Chartered Certified Accountants (ACCA) is pleased to have this opportunity to comment on the above exposure draft issued by IASB. It was considered at a recent meeting of ACCA�s Financial Reporting Committee and I am writing to give you their views.

Our overall view is that IASB should not issue a standard based on this exposure draft. Our reasons are that:

• any convergence with US standards achieved by ED4 would not justify the complications it would introduce into IFRS
  
  and

• the more frequent separate presentation of results as discontinued may not always be helpful.

IASB�s only reason for a new standard would appear, from paragraphs IN1 to 4, to be convergence with US standards. Our view is that US GAAP convergence by IASB should focus on differences in recognition and measurement rather than on terminology or areas of presentation and disclosure.

ED4 would introduce a new measurement system for assets held for disposal, but it appears that, in effect, this should give the same result as the impairment system already existing under IAS36. ED4 certainly introduces different measurement terminology (for example �fair value less costs to sell� as opposed to �net selling price�) which would add needless complication to IFRS.

Ain our view, a better solution would be to eliminate any real differences in measurement by adding an intention to dispose as a trigger for an impairment test in IAS36. We also note that ED4 is a rules-driven standard, though this is only evident from Appendix B rather than from reading the main text of the standard. IASB has stated a preference, which we support, for principles-based as opposed to rules-driven standards.

IASB accept that ED4 would increase the frequency with which results and net assets would be separately presented as discontinuing, as compared to IAS35. We are not convinced that this will always be helpful to users of accounts or worthwhile in terms of costs compared to benefits. Certain businesses (for example, those with chains of retail outlets or with assets held for operating leases) turn over their non-current assets on a regular basis and, for them, there may be a constant restatement of results which may be misleading. We consider that the separate presentation in the balance sheet and the income statement are merited only when the disposal involves a significant element of the business.

As noted above, we consider that IASB should not proceed with a standard based on ED4, but should instead make minor alterations to its existing standards IAS35 and 36 to eliminate significant recognition and measurement differences with US standards. Some of our responses to the specific questions below, however, assume that ED4 proceeds nevertheless and represent our views were that to happen.

IASB needs to make more of a case in principle for this classification, beyond the US GAAP convergence arguments advanced in the introduction. For example, ED4 would make a clearer distinction between non-current assets into those held at disposal values from those held at cost or other valuation bases. It would also make a clearer link between those asset values and the results of discontinued operations, to enable users to match those results to the assets that generated them. As noted above, however, these effects should be considered for incorporation into IFRS by amending the existing standards rather than by bringing in a new standard.

In terms of the scope of the standard, we are unclear why finance lease receivables are excluded from ED4, when they are covered by IAS36.

As noted above, we think that there should be slight modifications to the existing IFRS (for example holding an asset for sale would be a trigger for an impairment test). This would be a better way to achieve the measurement basis of ED4 rather than with a new standard.

We note there is considerable concern over ED4�s exclusion of assets held for disposal from the need to provide depreciation. We also observe that the improvements proposed to paragraph 46 of IAS16 concerning residual values, would, in effect, produce the same result. IASB should recognise these concerns by adding some guidance in IAS16 on the estimation of residual values to ensure they are sufficiently reliable (including prudent estimates in cases of uncertainty) to justify non-depreciation in the period.

We agree that if ED4 proceeds and there is to be separate presentation of assets held for disposal, then in principle this should go beyond the non-current assets to any current assets, goodwill and financial instruments that are part of any cash generating unit which is held-for-sale.

We agree that if ED4 proceeds to become a standard, then newly acquired assets held for disposal should be valued at fair value less costs to sell, on the grounds of convergence with US standards.

If ED4 proceeds to become a standard, then we agree with its proposals concerning revalued assets.

If ED4 proceeds to become a standard, then we agree with this amendment because it should ensure that all assets held for sale are treated the in the same way. The difference in terms of valuation would be the costs of disposal which, as noted for Q4 above, would be end up as being part of the goodwill on acquisition.

We support a gross presentation of assets and liabilities, rather than merely the net position. The extent of the risks attached to the separate figures might otherwise be obscured.

As noted above, we do not support ED4 becoming a standard partly because of the frequency of the separate presentation of results of discontinuing operations that would follow. Disclosure (as opposed to separate presentation) of the results of assets held for disposal does seem helpful on the other hand.

We agree that disclosures of the key components of discontinued operations (as defined by ED4) should be given on the face of the income statement, rather than being in the notes to the accounts.

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