Chronology
Timetable
Background
This project had started as part of the IASB's short-term convergence project designed to eliminate a variety of differences between International Financial Reporting Standards and US GAAP. However, the project has evolved into a stand-alone
(non-convergence) IASB project to reconsider IAS 20 Accounting for Government Grants and Disclosure of Government Assistance. In late 2005 the Board stated that the objective of the project is to amend IAS 20 by applying the accounting model for government grants contained in IAS 41 Agriculture to all government grants. The IAS 41 model establishes the following principles for recognising grants related to assets measured at fair value through profit and loss:
- Recognise the grant when it becomes receivable.
- Recognise income when conditions attached to the grant have been met.
Discussion at the July 2002 IASB Meeting
The Board believes that IAS 20 is out of date and inconsistent with the Framework. Currently, US GAAP applies the requirements of IAS 20, as there is no current standard under US GAAP applicable to for-profit entities. Australia has a standard that is preferred by the Board, but as a result of the requirements for Australian entities to adopt IAS 20 in 2005, will be required to take what the Board believes is a retrograde step. The Board discussed the following five possible action steps:
- Do nothing and leave IAS 20 in place.
- Withdraw IAS 20 pending the revenue project.
- Converge with the principles in FAS 116.
- Converge with Australian GAAP (UIG 11).
- Develop a new solution.
Discussion at the January 2003 IASB Meeting
During discussion at the Board's January 2003 meeting, it was clear that no Board members believed that IAS 20 should be left alone. However, the Board did not believe that developing, deliberating, and exposing a Standard on government grants should be a priority at this time. The Board also noted that certain decisions on revenue recognition must be made before certain of the decisions for government grants (for example, multiple element arrangements).
In January 2003, the Board asked its staff to prepare a paper that would be similar to UIG 11 for the Board's consideration. If such a project could be done quickly, then the Board will replace IAS 20 with that standard.
The Board noted that IAS 41.34-38 currently has guidance on the accounting for government grants that is consistent with the Board's leanings and generally consistent with UIG 11. Therefore, the Board believes that when IAS 20 is withdrawn (and if it is not replaced by another standard), the five paragraphs in IAS 41 on government grants would be sufficient guidance going forward. Therefore, all government grants would be recorded as revenue or deferred revenue when received.
Discussion at the February 2004 IASB Meeting
The staff presented two options, namely:
- Amend IAS 20 to reflect the requirements for government grants contained in IAS 41
- Withdraw IAS 20 in its entirety
The staff recommended the second option and that the Basis for Conclusions should state:
- The standard has been withdrawn because it is an impediment to accounting for a government grant in a manner that is consistent with the Framework;
- The withdrawal is a temporary measure, because the Board is addressing the accounting of government grants as part of its revenue recognition project;
- Entities should follow the requirements in paragraphs 10-12 of IAS 8 for developing an accounting policy in the absence of specific requirements.
The Board decided that IAS 20 should be retained. The guidance in the standard on accounting for government grants should be removed and replaced with the guidance from IAS 41. The Board decided the only amendment to the guidance in IAS 41 should be to withdraw the references to assets measured at fair value. The Board agreed in principle that no further amendments should be made until such time as the revenue recognition project is completed.
As a result of the foregoing, the basic principles of IAS 20 would be revised as follows:
- An unconditional grant would be recognised as income when the grant becomes receivable.
- A conditional grant would be recognised as income when the conditions attaching to the government grant are met.
Discussion at the July 2004 Board Meeting
The previous decisions to replace the provisions of IAS 20 with a standard based on guidance for recognising grants in IAS 41 were noted.
The staff noted that there was a potential inconsistency between the government grant liability measurement and revenue recognition requirements of IAS 41 and the proposed changes to IAS 37 and the Revenue Recognition project. The inconsistency relates to the delay in revenue recognition under IAS 41 requirements until a specified condition is satisfied at which time the full grant is recognised in revenue.
The staff noted that IAS 41 refers to conditional and unconditional grants but does not provide sufficient guidance on what is meant by conditional in this context. The staff recommended that a definition of 'condition' be added as follows:
A condition is a stipulation that entitles government to the return of the granted resources if a specified future event that is not presently regarded as remote either occurs or does not occur.
The Board agreed that a definition should be added but that it should refer to it having commercial substance (i.e. in order to exclude routine / normal trading transactions).
Recognition of government grant as an asset or reduction of liability
The staff recommended that an entity should recognise a government grant as an asset at the earlier of the entity:
- having an unconditional right to receive the government grant without conditions attached to its retention; and
- receiving the government grant.
A number of Board members noted that this was not their preferred solution but agreed that further development is outside the scope of the short-term convergence project. After discussion the Board agreed not to provide guidance on whether an asset and liability would be recognised when a repayment clause is attached to a condition or whether no asset should be recognised at all until the grant is fully non-repayable.
Testing an asset for impairment
The staff recommended that an asset acquired in connection with a government grant should be tested for impairment on initial recognition. The Board agreed subject to adding clarification that any liability recognised in relation to the grant be considered as part of the cash generating unit.
Loans at nil or low interest rates
The staff recommended removing the reference to these loans from the proposed government grants standard so that they would be accounted for under IAS 39. The Board agreed.
The Board agreed to require retrospective application except for the impracticability exemption and to request commentators to provide details of circumstances where this would not be possible.
January 2006: Project Expanded to Include Emission Rights
In June 2005, the Board withdrew IFRIC Interpretation 3 Emission Rights. At that time, it indicated that it intended to address emission rights in a separate exposure draft early in 2006. Subsequently, the Board has determined that since emission rights are a form of government grant, they should be addressed in the project to reconsider IAS 20.
Discussion at the February 2006 IASB Meeting
The IASB discussed the current status of the project to revise IAS 20 Accounting for Government Grants and Disclosure of Government Assistance. In addition, they discussed a request from the national standard-setter in New Zealand that IAS 20 be withdrawn.
Although some Board members thought that withdrawing IAS 20 would be a step in the right direction, the majority thought that the accounting vacuum that it would leave behind was not desirable. Nor was the accounting for grants in IAS 40 Agriculture thought to be necessarily superior.
The Board noted that certain issues related to recognising and measuring obligations under grants with conditions attached are similar to issues related to recognising and measuring provisions under IAS 37. Because the Board is currently reconsidering IAS 37 as part of the Business Combinations Phase II project, it decided to defer work on the IAS 20 project pending final decisions on revision of IAS 37, which are expected in mid-2007 (8 in favour; 6 opposed). This decision effectively means that work on accounting for emission trading schemes will also be deferred.
Discussion at the December 2007 IASB Meeting
In December 2007, the Board agreed to add to its agenda a project limited to addressing the following key issues related to Emission Rights Trading Schemes:
- Are the tradeable permits in emission trading schemes (allowances and credits) assets? If so:
- How should an entity account for any allowances that it receives from government for less than fair value?
- How should allowances and credits be accounted for?
- How should changes in assets and liabilities (arising from emission trading schemes) be reported in profit or loss?
The outcome of that project is not expected to result in a new IFRS. Rather, the Board plans to address the issues by:
- a revision of either IAS 38 Intangible Assets or IAS 39 Financial Instruments: Recognition and Measurement to accommodate the accounting for tradeable permits, and
- a revision of IAS 20 Accounting for Government Grants and Disclosure of Government Assistance so that the accounting for allowances (and similar assets) issued by governments free of charge is addressed.
The scope of that project addresses only emission trading rights, including any government grants associated with such emission trading rights, but does not address government grants more generally.
The Board does not now have a plan for comprehensive reconsideration of IAS 20.
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