28 April 2008

Mr R Garnett
Chairman IFRIC
International Accounting Standards Board
30 Cannon Street
London EC4M 6XH
UNITED KINGDOM
ifric@iasb.org

Dear Mr Garnett

D23 Distributions of Non-Cash Assets to Owners

The Group of 100 (G100) is an organization of chief financial officers from Australia’s largest business enterprises with a purpose of advancing Australia’s financial competitiveness. The G100 is pleased to provide comments on the Draft Interpretation.

The G100 notes that the title of the draft refers to distributions whereas the text refers to dividends. We consider it important to clarify what is specifically being addressed. For example, is the draft dealing with dividends as that term is usually used by companies and their shareholders and as indicated in IAS 18 ‘Revenue’ or is it dealing with all distributions to shareholders/owners including returns of capital and share buybacks. In Australia, the term ‘dividends’ has a specific meaning in Corporations Law and case law precedent and, as such, care is exercised in the use of the term.

It is also important that other features of Corporations Law are considered in addressing the topic including equality of treatment of all shareholders and oppression of minority interests.

Q1.

Specifying how an entity should measure a liability for a dividend payable (dividend payable)
Paragraph 9 of the draft Interpretation proposes that an entity should measure a liability to distribute non-cash assets to its owners in accordance with IAS 37 ‘Provisions, Contingent Liabilities and Contingent Assets’. The IFRIC concluded that all dividends payable, regardless of the types of assets to be distributed, should be addressed by a single standard.

Do you agree with the proposal? If not, do you agree that all dividends payable should be addressed by a single standard? Why? What alternative would you propose?

The G100 agrees that the principles in IAS 37 ‘Provisions, Contingent Liabilities and Contingent Assets, provide the most appropriate basis for accounting for these distributions where they arise from the recognition of a liability. It is not clear whether a liability arises in all cases where non-cash distributions are made.

The G100 would also support the development of a separate pronouncement dealing with all distributions to shareholders/owners.


 
Q2. Specifying how any difference between the carrying amount of the assets distributed and the carrying amount of the dividend payable should be accounted for when an entity settles the dividend payable.
Paragraph 12 of the draft Interpretation proposes that, when the dividend payable is settled, any difference between the carrying amount of the assets distributed and the carrying amount of the dividend payable should be recognized in profit or loss. Paragraphs BC28-BC43 of the Basis for Conclusions explain the reasons for this proposal. The Basis for Conclusions also includes an alternative view that the difference should be recognized directly in equity (see para BC44).

Which view do you support and why?

The G100 considers that the difference between the carrying amount of the assets distributed and the amount of the dividend payable should be recognized as a component of other comprehensive income because the gain/loss has arisen on a transaction with owners.

 
Q3. Whether an entity should apply the requirements in IFRS 5 to non-current assets held for distribution to owners.
Both the Board and the IFRIC concluded that the requirements in IFRS 5 ‘Non-Current Assets Held for Sale and Discontinued Operations’ should be applied to non-current assets held for distribution to owners as well as to non-current assets held for sale (see paragraphs BC45-BC48 of the Basis for Conclusions).

Do you agree that an entity should apply IFRS to non-current assets that are held for distribution to owners? If not, why and what alternative would you propose?

The Board noted that the IFRS5 requires an entity to classify a non-current asset as held for sale when the sale is highly probable and the entity is committed to a plan to sell (emphasis added). For assets held for distribution to owners, this raises the following three questions:

a. Should an entity apply IFRS 5 when it is committed to make a distribution or when it has an obligation to distribute the assets?
 
b. Do you think there is a difference between those dates?
 
c. If there is a difference between the dates and you think that an entity should apply IFRS 5 at the commitment date, what is the difference? What indicators should be included in IFRS 5 to help an entity to determine that date?

The G100 agrees that once the assets are designated/committed for distribution to owners/shareholders the requirements of IFRS 5 should apply.

Because of the operation of Corporations Law in Australia and the constitution of companies there is a significant difference between designation/commitment in respect of the declaration of a dividend by directors and when it becomes a legal obligation through ratification and recognition as a dividend liability under IAS 37.

As it is unlikely that this position is unique to Australia the potential conflict between the requirements of IFRS 5 and IAS 37 need to be resolved. This could be achieved through targeted disclosure or an amendment to IAS 37 to remove any uncertainty in respect of the treatment of these transactions.

Yours sincerely

Tony Reeves
National President