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IFRS 1 — Accounting for costs included in self-constructed assets on transition

Date recorded:

The IFRIC discussed the request to provide guidance whether retrospective adjustment was needed to assets recorded in accordance with previous GAAP to reflect the revised costs that are eligible for capitalisation in accordance with an entity's chosen IFRS accounting policy in a situation where an entity has previously capitalised costs, but changed its accounting policy for these costs upon adoption of IFRS 1 First-time Adoption of International Financial Reporting Standards.

At the start of the discussion most IFRIC members seemed to indicate that they would prefer retrospective adjustment, as IFRS 1 did not contain any specific exemption for these situations and it was a general change of accounting policy that was to be accounted for retrospectively in accordance with IAS 8 Accounting Policies, Changes in Estimates and Errors (rather than to be accounted for as change of accounting estimate).

Nonetheless, on application of the specific issue related to IAS 19 Employee Benefits – change from previous GAAP 'corridor' approach consistent with IAS 19 where some of the actuarial gains and losses are recognised in profit or loss to a method of recognition of all actuarial gains and losses in the period in which they occur in through OCI – most IFRIC members felt that capitalisation of costs in accordance with IAS 2 Inventories or IAS 11 Construction Contracts does not depend on whether they would be recorded in profit or loss or in OCI. Those IFRIC members believed that if conditions for capitalisation were met and reporting entity could identify the specific costs that relate to direct costs (for example, the part of the actuarial gains and losses that relates to direct labour) those could be included in costs of assets even though they would otherwise be recognised in OCI and not in profit or loss.

The IFRIC agreed that the staff should analyse the issue of capitalisation of costs recognised outside of profit or loss and provide further analysis for the March 2010 meeting. The IFRIC members agreed that they would also analyse the practical experience with such accounting and any diversity in practice that existed. The Chairman remained concerned that such accounting would lead to undue complexity (identifying portions of OCI entries) but that given the possible wider use of OCI that issue should be properly analysed.

The IFRIC agreed to rediscuss the issue based on the additional analysis at its March 2010 meeting.