Re: Request for Information Post-implementation Review: IFRS 3 Business Combinations

Transcription

1 Madrid, 30 May, 2014 International Accounting Standards Board 30 Cannon Street London EC4M 6XH United Kingdom Dear Sir/Madam, Re: Request for Information Post-implementation Review: IFRS 3 Business Combinations Repsol is very pleased to provide comments on the Request for Information Postimplementation Review: IFRS 3 Business Combinations, issued by the IASB on 30 January Further information about the Repsol Group and its activities is available on our Website: If you would like to discuss any of the points described in this letter, please do not hesitate to contact us by to normativacontable@repsol.com. Thank you for your attention. Yours sincerely, Emilio Linares-Rivas Balius Accounting Policy and Compliance Manager 1

2 Question 1 Use of the equity method Please tell us: (a) About your role in relation to business combinations (i.e. preparer of financial statements, auditor, valuation specialist, user of financial statements and type of user, regulator, standard-setter, academic, accounting professional body etc.) [1] (b) Your principal jurisdiction. If you are a user of financial statements, which geographical regions do you follow or invest in? (c) Whether your involvement with business combinations accounting has been mainly with IFRS 3 (2004) or IFRS 3 (2008). (d) If you are a preparer of financial statements: (i) whether your jurisdiction or company is a recent adopter of IFRS and, if so, the year of adoption; and (ii) with how many business combinations accounted for under IFRS has your organisation been involved since 2004 and what were the industries of the acquirees in those combinations. (e) If you are a user of financial statements, please briefly describe the main business combinations accounted for under IFRS that you have analysed since 2004 (for example, geographical regions in which those transactions took place, what were the industries of the acquirees in those business combinations etc.) [1] Type of user includes: buy-side analyst, sell-side analyst, credit rating analyst, creditor/lender, other (please specify). (a) Accounting Policy. (b) It is an Oil&Gas company, quoted in an EU market and with headquarters in Spain. (c)&(d) The main acquisitions in which the Company has applied the business combinations Standards are the following: IFRS 3 (2004): 8 transactions within Downstream and Other activities. IFRS 3 (2008): 4 transactions within Upstream activities and 2 transactions within Downstream and Other activities. 2

3 Question 2 (a) Are there benefits of having separate accounting treatments for business combinations and asset acquisitions? If so, what are these benefits? (b) What are the main practical implementation, auditing or enforcement challenges you face when assessing a transaction to determine whether it is a business? For the practical implementation challenges that you have indicated, what are the main considerations that you take into account in your assessment? (a) We believe it is adequate having separate accounting treatment for business combinations and asset acquisitions. From a practical point of view, the main benefit is to show the conceptual distinction between an asset and a business as well as to avoid the complexity and costs associated to the application of the relevant principles and disclosure requirements in IFRS 3 Business Combinations to assets acquisitions. (b) From a practical point of view, the challenges are different depending on facts and circumstances and on nature of the activities. In our experience, we have not had to face significant challenges when assessing a transaction to determine whether it was a business in the acquisitions of an interest within downstream activities (refining, marketing, etc.) However, under certain circumstances it could be more complicated when assessing a transaction within the upstream activities (exploration, development and production of a mineral interest). In general terms, the main consideration that we have taken into account in the assessment is the phase of the upstream activities performed by the acquiree at the acquisition date. In this sense, if the underlying activities of the acquiree are within the scope of IFRS 6 Exploration for and Evaluation of Mineral Resources, it is probable to conclude that the transaction is the acquisition of an asset or a group of assets (for example, an entity with an exploratory right), in other cases (later phases of the activities outside the scope of IFRS 6 the acquisition would be accounted for as a business combination. Question 3 (a) To what extent is the information derived from the fair value measurements relevant and the information disclosed about fair value measurements sufficient? [1] If there are deficiencies, what are they? (b) What have been the most significant valuation challenges in measuring fair value within the context of business combination accounting? What have been the most significant challenges when auditing or enforcing those fair value measurements? (c) Has fair value measurement been more challenging for particular elements: for example, specific assets, liabilities, consideration etc.? [1] According to the Conceptual Framework information is relevant if it has predictive value, confirmatory value or both. 3

4 (a) We have not identified any deficiency in relation to fair value measurement disclosure requirements. (b)&(c) As we have noted in our response to Question 2, one of the main challenges may have been to determine the fair value of certain oil&gas assets, especially when they are in an early stage of activities, especially as regards of non-conventional oil&gas (i.e. shale gas, etc.) resources for which there was certain lack of information at the acquisition date. Question 4 (a) Do you find the separate recognition of intangible assets useful? If so, why? How does it contribute to your understanding and analysis of the acquired business? Do you think changes are needed and, if so, what are they and why? (b) What are the main implementation, auditing or enforcement challenges in the separate recognition of intangible assets from goodwill? What do you think are the main causes of those challenges? (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? (a) We believe that separate recognition of intangible assets is useful as provide users of financial statements relevant information about the assets acquired by means of the business combination which could have not been previously recognised by the acquiree in its financial statements. (b) According to our experience, we have not found practical challenges in the separate recognition of intangible assets from goodwill. (c) We believe that the recognition of negative goodwill in profit or loss is adequate and provides relevant information to users of financial statements. In addition, we consider that is adequate the requirement in IFRS 3 Business Combinations to review the application of the acquisition method in order to ensure that appropriate consideration has been given to all available information in identifying the assets, liabilities and the consideration to be measured and recognised and in determining their fair values. 4

5 Question 5 (a) How useful have you found the information obtained from annually assessing goodwill and intangible assets with indefinite useful lives for impairment, and why? (b) Do you think that improvements are needed regarding the information provided by the impairment test? If so, what are they? (c) What are the main implementation, auditing or enforcement challenges in testing goodwill or intangible assets with indefinite useful lives for impairment, and why? (a) Taking into account the special nature of goodwill, we consider the information obtained from annual impairment test is a more adequate and relevant information than the one provided by the systematic amortization of goodwill. (b) We believe that the information provided by the impairment test as well as the related disclosures requirements is comprehensive, even more taking into account the Amendments to IAS 36: Recoverable Amount Disclosures for Non-Financial Assets already adopted by the EU. (c) We have not identified significant implementation challenges in testing goodwill or intangible assets with indefinite useful lives for impairment. Question 6 (a) How useful is the information resulting from the presentation and measurement requirements for NCIs? Does the information resulting from those requirements reflect the claims on consolidated equity that are not attributable to the parent? If not, what improvements do you think are needed? (b) What are the main challenges in the accounting for NCIs, or auditing or enforcing such accounting? Please specify the measurement option under which those challenges arise. To help us assess your answer better, we would be grateful if you could please specify the measurement option under which you account for NCIs that are present ownership interests and whether this measurement choice is made on an acquisition-by-acquisition basis. Please consider that since the entry into force of IFRS 3 (2008) to date, we have measured any non-controlling interest in an acquiree as its proportionate share of the acquiree's identifiable net assets (i.e. only the goodwill related to the acquirer entity of the group has been recognised). (a) We consider that the current presentation and measurement requirements for NCIs are useful. (b) We have not identified any significant challenge in the accounting for NCIs. 5

6 Question 7 (a) How useful do you find the information resulting from the step acquisition guidance in IFRS 3? If any of the information is unhelpful, please explain why. (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? If any of the information is unhelpful, please explain why. (a) Please, consider that we have not accounted any step acquisition under IFRS 3 (2008). (b) We consider that there are certain areas for improvement in current Standards: - First of all, we welcome amendments made to IAS 28 in order to change the accounting for the loss of joint control retaining a significant influence interest in the former joint venture (i.e. do not revaluate at its fair value the retained interest). - In relation to the accounting for a parent s retained investment upon the loss of control in a former subsidiary, we welcome the IASB s intention to issue the amendments to IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures in order to solve (prospectively) the inconsistence between IFRS 10 and IAS 28 (previously between IAS 27 Separate and Consolidated Financial Statements and SIC_13 Jointly Controlled Entities Non-Monetary Contributions by Venturers ) as regards of the contribution of assets to an associate/ joint venture (please refer to ED/2012/6 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture - Proposed amendments to IFRS 10 and IAS_28, issued by the IASB on December 2012). - Regarding the ED/2012/7 Acquisition of an Interest in a Joint Operation (Proposed amendment to IFRS 11), issued by the IASB on 26 December 2012, we do not believe that the acquisition of an interest in a joint operation constitutes a business combination on its own, because only the underlying assets and activities of the joint operation considered as a whole might constitute a business as defined in IFRS 3 Business Combinations. Therefore we do consider that the proposed amendments are not consistent with the unit of account and the definition of business in IFRS 3, and in addition they are not consistent with the unit of account in IFRS In relation to the partial disposal concept and the request for guidance on the reclassification of the foreign currency translation reserve (FCTR) when a repayment of a foreign investment occurs (please refer to September IFRIC Update s topic: IAS 21 The Effects of Changes in Foreign Exchange Rates Repayments of investments and foreign currency translation reserve ) we believe that it would be very useful further guidance on this issue. 6

7 Question 8 (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? (b) Is there information required to be disclosed that is not useful and that should not be required? Please explain why. (c) What are the main challenges to preparing, auditing or enforcing the disclosures required by IFRS 3 or by the related amendments, and why? (a) We have not identified any area for further disclosure requirements. (b) & (c) We have not identified disclosure requirements that should not be required by IFRS 3 and we have not found significant challenges to preparing the disclosures required by IFRS 3. Question 9 Are there other matters that you think the IASB should be aware of as it considers the PiR of IFRS 3? The IASB is interested in: (a) Understanding how useful the information that is provided by the Standard and the related amendments is, and whether improvements are needed, and why; (b) Learning about practical implementation matters, whether from the perspective of S applying, auditing or enforcing the Standard and the related amendments; and (c) Any learning points for its standard-setting process. Please consider our answer to Question 7, in which we have noted certain areas for improvement. 7

8 Question 10 From your point of view, which areas of IFRS 3 and related amendments: (a) Represent benefits to users of financial statements, preparers, auditors and/or enforcers of financial information, and why; (b) Have resulted in considerable unexpected costs to users of financial statements, preparers, auditors and/or enforcers of financial information, and why; or (c) Have had an effect on how acquisitions are carried out (for example, an effect on contractual terms)? (a)&(b) We believe that the underlying principles and related disclosures in IFRS 3 (2008) have improved financial reporting. However, we believe that at the time of issuance of the Standard there raised too many areas with lack of guidance and even some cases of inconsistencies between Standards (please refer to our response to Question 7). For these reasons, it would be desirable to perform further analysis in the future on the interaction of a new Standard with other existing Standards before its issuance. (c) We have not identified such effects. 8