IFRIC 6 — Liabilities Arising from Participating in a Specific Market – Waste Electrical and Electronic Equipment
- IAS 37 Provisions, Contingent Liabilities and Contingent Assets
- IFRIC D10 Issued 25 November 2004
- Comment Deadline 11 February 2005
- Click for Press Release (PDF 24k).
- IFRIC 6 Issued 1 September 2005. Click for Press Release (PDF 64k).
- Effective Date of IFRIC 6: Financial periods beginning on or after 1 December 2005
IAS Plus Newsletter
- September 2005 – Special Global Edition – IFRIC 6 on Waste Management Costs (PDF 51k)
Summary of IFRIC 6
IFRIC 6 clarifies when certain producers of electrical goods are required to recognise a liability under IAS 37 for the cost of waste management relating to the decommissioning of waste electrical and electronic equipment supplied to private households.
The European Union's Directive on Waste Electrical and Electronic Equipment (WE&EE) has raised questions about when the liability of certain electrical goods manufacturers for the decommissioning of such waste should be recognised. The Directive prescribes that the cost of waste management for equipment that has been sold to private households before 13 August 2005 should be borne by producers of that type of equipment that are in the market during the period specified in the applicable legislation of the individual member state (the measurement period). The manufacturers have to contribute to costs in proportion to their respective share of the market by type of equipment.
The issue that IFRIC 6 addresses is: if an entity has an obligation to contribute to waste management costs based on its share of the market in a measurement period, what is the event under paragraph 14(a) of IAS 37 that gives rise to a liability:
- the manufacture or sale of the historical household equipment?
- participation in the market during the measurement period?
- the incurrence of costs in the performance of waste management activities?
IFRIC 6 concludes that the event that triggers liability recognition is participation in the market during the measurement period. The measurement period is a period in which market shares are determined for the purposes of allocating waste management costs. IFRIC 6 states that it is this date, rather than the date of production of the equipment or incurrence of costs, that is the triggering event for liability recognition.
Country A determines that producers within its jurisdiction will be responsible for 'historical' household waste management costs in proportion to their respective share of the market for that type of equipment in each calendar year. The government notifies participants in the relevant markets in February each year of their market share for the immediately preceding calendar year. Waste management costs for the current year are allocated on this basis.
Company Z began operations in September 2005 and manufactures domestic washing machines. Even though it was not responsible for producing any 'historical' WE&EE, because it participates in the market currently it will contribute to the cost of recycling historical WE&EE in proportion to its market share during the measurement period.
Company T ceased to produce domestic refrigerators in 2004. Because T no longer produces domestic refrigerators (i.e., its market share is zero), it has no obligation to fund the collection and recycling of historical WE&EE it produced.
The IFRIC's conclusion on this issue is a pragmatic one. The WE&EE Directive attaches the liability for the disposal of historical waste to currently active producers and distributors on the basis of their current market share – irrespective of the extent of their participation in the market at the time the equipment was produced. To apply the Directive retrospectively was not thought practicable. Working with this result, the IFRIC determined that the only workable 'past event' (required by IAS 37 for recognising a liability) was current participation in the market, evidenced by sales in that market.
IFRIC 6 is effective for financial periods beginning on or after 1 December 2005. Earlier application is encouraged.
On 20 May 2013, the IASB published IFRIC 21 Levies, which is applicable to annual periods beginning on or after 1 January 2014. The Interpretation does not supersede IFRIC 6, which remains in force and is consistent with IFRIC 21. The IFRS Interpretations Committee believes IFRIC 6 provides useful information on accounting for liabilities within its scope.