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Annual improvements 2011-2013 cycle

Date recorded:

At its November 2011 meeting, the Committee considered whether a revenue-based or time-based amortisation method or units-of-production better reflects the economic reality of the underlying contractual terms. The Committee noted that the principle in IAS 38 is that an amortisation method should reflect the pattern of consumption of the expected future economic benefits and not the pattern of generation of expected future economic benefits. The Committee requested that the staff draft the proposed annual improvement for discussion at a future meeting.

At the Committee’s March 2012 meeting, the Committee discussed the proposed amendments to IAS 16 Property, Plant and Equipment and IAS 38 and recommended to the IASB that the proposed amendments should be included within the next exposure draft of Improvements to IFRSs (2011-2013 cycle).

The IASB tentatively agreed with the proposal to include an annual improvement to IAS 16 and IAS 38 which will have the effect of clarifying the guidance in paragraphs 62 in IAS 16 and paragraph 98 in IAS 38 when selecting an appropriate depreciation and/or amortisation method. However, the Board asked the staff to revise the wording of the proposed amendment to more accurately capture the clarification that a method that reflects a pattern of generation of expected future economic benefits embodied in the asset rather than a pattern of consumption of the expected future economic benefits is not appropriate. The Board will review the revised amendment when the staff presents its pre ballot draft.