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.