Public Versus Private – What Does IFRS Say?

Author:Mr John Hughes

IFRIC (International Financial and Reporting Interpretations Committee) recently examined how IFRS 5 Non-current Assets Held for Sale and Discontinued Operations should apply when a disposal plan is intended to be achieved by means of an initial public offering, but the prospectus to make that happen hasn't yet been approved by the securities regulator. Specifically, the group was asked "to clarify whether the disposal group would qualify as held for sale before the prospectus is approved by the securities regulator, assuming that all of the other criteria in IFRS 5 have been fulfilled."

Analyzing IFRS 5

IFRIC decided not to add the issue to its agenda, on the basis that the standard already contains sufficient guidance. Applying the IFRS 5 "held for sale" criteria in this situation, some of them relate to conditions that must already have occurred - for example, the appropriate level of management which must be committed to a plan to sell the asset or disposal group. Other aspects of the criteria depend on expectations of the future, subject to the overriding condition that the sale must be "highly probable"; for example, the sale should be expected to qualify for recognition as a completed sale within one year from the date of classification (except for certain defined exceptions). Of course, the realities of needing to complete an IPO within that one year period is certainly relevant to assessing that criterion. Ultimately, IFRIC's implicit point seems to be that all IPOs aren't created equal and that all securities regulatory authorities and processes around the world aren't created equal either, so it's impossible to set out a bright line saying that such an event would always be viewed one way or the other.

IFRS - No Concessions

This is an interesting illustration of a broader point. Namely, that being a private versus a public entity (using the terms loosely) or being in transition from one to the other doesn't inherently affect the application of IFRS as much as people sometimes think it should. IFRS doesn't have the differential reporting options that used to exist under old Canadian GAAP and doesn't extend many concessions to private entities regarding the volume of disclosures (although it does exempt them from segment reporting and from providing earnings per share information). For another example, under old Canadian GAPP, private companies, unless in a filing made in preparation for going public, were allowed to exclude...

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