Convergence - Short-Term Project
Assets Held for Disposal
The Board decided to achieve convergence with US GAAP by creating a separate category of assets held for disposal when disposal is 'likely to occur'. The Board decided that disposal is likely to occur when six criteria (similar to FAS 144.30) are met. There was significant discussion over the difference in the definition of 'probable' under IFRS and US GAAP. The Board noted that for an asset to be classified as held for disposal, the probability of the eventual disposition of that asset must be very high, much higher than 51%. Some members suggested terms such as 'highly probable' and 'highly likely'. The intent of the Board is to achieve the same answer for recognition as under FAS 144.
While convergence on recognition will be achieved, there will still remain differences in measurement. FAS 144 requires assets or groups of assets held for disposal to be measured at the lower of carrying value and fair value less cost to sell. The current impairment test measures the asset at the recoverable amount, which is defined as the higher of value in use or net selling price.
The Board was concerned that the definition of 'net selling price' in IAS 36.5 is basically the same definition as fair value in other standards. The Board decided to amend this definition of net selling price to be fair value less cost to sell.
The Board noted that once the FASB completes its project on FAS 107, a new definition of fair value will most likely emerge. However, in the meantime, the definition of fair value, as used in all of the standards, should be amended to include the notions of 'current transaction' and 'other than by forced liquidation or sale' included in the US GAAP definition of fair value.
The Board may also change the title to 'Disposal of Noncurrent Assets'.
The Board believes that IAS 20 is out of date and inconsistent with the Framework.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.
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.