The International Public Sector Accounting Standards Board (IPSASB) issued Exposure Draft 79 (ED 79) in April 2021, proposing improvements to financial reporting for non-current assets held for sale and discontinued operations in the public sector. This draft standard is largely based on IFRS 5, “Non-current Assets Held for Sale and Discontinued Operations,” issued by the International Accounting Standards Board (IASB). The objective of ED 79, similar to IFRS 5, is to enhance the “relevance, faithful representativeness and comparability” of financial information related to these assets and operations (ED 79, p. 3).

Key Themes and Most Important Ideas:

1. Objective and Scope of the Standard:

• Purpose: The primary objective of both IFRS 5 and ED 79 is to “specify the accounting for assets held for sale, and the presentation and disclosure of discontinued operations.” (IFRS 5, Technical Summary; ED 79, p. 5). This includes requiring assets held for sale to be measured at the lower of carrying amount and fair value less costs to sell, with depreciation ceasing, and presenting them separately in financial statements. Discontinued operations are also to be presented separately (IFRS 5, Technical Summary; ED 79, p. 5).
• Applicability: ED 79 applies to all recognized non-current assets and disposal groups of a public sector entity, aligning with IFRS 5’s classification and presentation requirements. However, certain assets are excluded from the measurement requirements if they are covered by other specific standards (e.g., deferred tax assets, assets from employee benefits, financial instruments, investment property accounted for at fair value, agricultural assets, and insurance contracts). (ED 79, pp. 5-6; IFRS 5, p. A248; PBE IFRS 5, p. 1).
• Public Sector Context: The IPSASB specifically considered whether the standard should differ from IFRS 5 for the public sector. While they decided the title would remain the same as IFRS 5, they noted that public sector asset disposals can take longer due to approval requirements, and many assets are disposed of for “no or nominal consideration,” which IFRS 5’s fair value focus might not adequately address (ED 79, Basis for Conclusions, BC4, BC8). Despite these concerns, ED 79 generally aligns with IFRS 5’s measurement requirements.

2. Classification of Non-Current Assets as Held for Sale:

• Core Principle: An asset (or disposal group) is classified as held for sale if its “carrying amount will be recovered principally through a sale transaction rather than through continuing use.” (ED 79, p. 8; IFRS 5, Technical Summary). This implies a shift in the entity’s intent from using the asset to selling it (irs5-non-current-assets-held-for-sale-and-discontinued-operations.pdf, p. 1).
• Strict Criteria for “Highly Probable” Sale: For classification as held for sale, the asset must be:
• “available for immediate sale in its present condition subject only to terms that are usual and customary for sales” (ED 79, p. 8; IFRS 5, Technical Summary).
• Its sale must be “highly probable,” meaning “significantly more likely than probable” (ED 79, p. 7). This involves a “commitment” from the appropriate management level to a “plan to sell,” an “active program to locate a buyer,” and active marketing at a “reasonable price” in relation to fair value. The sale is generally expected to be “completed within one year from the date of classification” (ED 79, p. 8; IFRS 5, Technical Summary).
• Actions taken must “indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn” (ED 79, p. 8).
• Extension of One-Year Period: The one-year completion period can be extended if the delay is “caused by events or circumstances beyond the entity’s control” and there’s “sufficient evidence that the entity remains committed to its plan to sell” (ED 79, p. 8; IFRS 5, p. A249). This is further detailed in Appendix A/B1 of the respective standards, outlining specific scenarios such as regulatory approval delays or unexpected conditions (ED 79, p. 17; IFRS 5 IG, p. B121).
• Assets to be Abandoned: Assets intended for abandonment (used to end of economic life or closed rather than sold) are not classified as held for sale because their carrying amount is recovered through continuing use (ED 79, p. 9; IFRS 5, p. A250; PBE IFRS 5, p. 1).

3. Measurement of Non-Current Assets Held for Sale:

• Initial and Subsequent Measurement: Immediately before classification as held for sale, assets are measured in accordance with applicable IPSAS (ED 79, p. 10). After classification, they are measured at the “lower of its carrying amount and fair value less costs to sell” (ED 79, p. 9; IFRS 5, p. A250; PBE IFRS 5, p. 1).
• Depreciation Cessation: A critical impact of this classification is that “depreciation on such assets to cease” (IFRS 5, Technical Summary; ED 79, p. 5). This is because the asset is no longer held for continuing use (irs5-non-current-assets-held-for-sale-and-discontinued-operations.pdf, p. 1).
• Impairment Losses and Reversals: An impairment loss is recognized if the fair value less costs to sell is lower than the carrying amount (ED 79, p. 10). Gains from subsequent increases in fair value less costs to sell can be recognized, but “not in excess of the cumulative impairment loss that has been recognised” (ED 79, p. 10; IFRS 5, p. A251). Goodwill impairment losses are generally not reversed (gtil_2008_non-current-assets-held-for-sale-and-discontinued-operations.pdf, p. 20).
• Disposal Groups: If a non-current asset is part of a disposal group, the measurement requirements apply to the group as a whole (ED 79, p. 5). The impairment loss for a disposal group reduces the carrying amount of non-current assets within the scope of the standard, typically first allocated to goodwill (ED 79, p. 10; IFRS 5 IG, p. B124).

4. Discontinued Operations:

• Definition: A “discontinued operation” is a component of an entity that has either been disposed of or is classified as held for sale, and (a) “represents a separate major operation or geographical area of operations,” (b) “is part of a single coordinated plan to dispose of a separate operation or geographical area of operations,” or (c) “is a controlled entity acquired exclusively with a view to resale.” (ED 79, p. 7; IFRS 5, Technical Summary; PBE IFRS 5, p. 1).
• Presentation in Financial Statements: The results of discontinued operations are presented as a “single amount in the statement of financial performance comprising the total of…the post-tax surplus or deficit of discontinued operations; and…the post-tax gain or loss recognized on the measurement to fair value less costs to sell or on the disposal of the assets or disposal group(s) constituting the discontinued operation” (ED 79, p. 12; IFRS 5, p. A254; PBE IFRS 5, p. 3). This single amount can be analyzed in the notes or a separate section of the financial performance statement (ED 79, p. 13).
• Comparatives: Disclosures for prior periods are “re-presented” to reflect all operations discontinued by the end of the latest reporting period (ED 79, p. 13; IFRS 5, p. A255).
• Cash Flows: Net cash flows from operating, investing, and financing activities of discontinued operations must also be disclosed, either in the notes or the financial statements (ED 79, p. 13; IFRS 5, p. A254).

5. Presentation and Disclosure Requirements:

• Separate Presentation: Assets classified as held for sale and liabilities of disposal groups are presented separately from other assets and liabilities in the statement of financial position. They “shall not be offset and presented as a single amount” (ED 79, p. 14; IFRS 5, p. A256).
• Additional Disclosures: Entities must disclose:
• A description of the asset/disposal group and facts/circumstances of the sale/expected disposal (ED 79, p. 14).
• The recognized gain or loss (ED 79, p. 14).
• For the public sector, when a non-current asset classified as held for sale is “measured at a materially lower carrying amount than fair value,” the fair value must be disclosed (ED 79, p. 14). This provides “information relevant for holding the entity accountable” (ED 79, Basis for Conclusions, BC12).
• Changes to a Plan: If criteria for “held for sale” are no longer met, the entity ceases the classification and remeasures the asset at the lower of its carrying amount (adjusted for depreciation/revaluations had it not been classified as held for sale) and its recoverable amount (ED 79, p. 11; IFRS 5, p. A252). This adjustment is included in the surplus or deficit from continuing operations (ED 79, p. 11). Retrospective amendment is required for certain entities (subsidiaries, joint operations, etc.) (ED 79, p. 12; IFRS 5, p. A253).

6. Alignment with IFRS 5 and Public Sector Adaptations:

• ED 79 is explicitly “based on IFRS 5” (ED 79, Basis for Conclusions, BC1). Key differences are primarily terminological (e.g., “operation” instead of “business,” “public sector combination” instead of “business combination”) and the added public sector-specific disclosure regarding fair value when the carrying amount is materially lower (ED 79, Comparison with IFRS 5, p. 63).
• The IPSASB replaced the IFRS 5 definition of a ‘cash-generating unit’ with the definition in IPSAS 26, “Impairment of Cash-Generating Assets” to maintain consistency within IPSAS (ED 79, Basis for Conclusions, BC8).
• The IPSASB revisited its earlier concerns that IFRS 5 might not be entirely appropriate for the public sector due to lengthy approval processes, disposal for nominal consideration, and discontinued operations often not being cash-generating units. However, they concluded that “in certain circumstances it would be appropriate for public sector entities to apply the requirements of IFRS 5,” leading to the extensive integration of IFRS 5 principles into IPSAS (ED 79, Appendix B, Basis for Conclusions for various IPSAS amendments).

This detailed briefing provides a comprehensive overview of ED 79, highlighting its core principles, classification and measurement requirements, and presentation and disclosure mandates, all while underscoring its strong alignment with IFRS 5, with specific considerations for the public sector.