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IAS 40 — Accounting for a structure that appears to lack the physical characteristics of a building

Date recorded:

The Committee received a request to clarify whether telecommunication towers in a jurisdiction should be accounted for as property, plant and equipment (PP&E), in accordance with IAS 16 Property, Plant and Equipment, or as investment property, in accordance with IAS 40 Investment Property. The request describes a circumstance in which an entity owns telecommunication towers and receives rent revenue in exchange for leasing spaces in the towers to telecommunication operators, to which they attach their own devices. In September 2012, the Committee agreed that the two has characteristics of an investment property but questioned if it qualified as a building. In January 2013, staff provided analysis on possible amendments to IAS 40 to include a structure that lacks the physical characteristics associated with a normal building. In light of this, the Committee considered the treatment in IAS 40 and the new proposed Leases Standard.

In the July 2013, meeting Staff recommended to move forward and propose an approach to amending IAS 40 so that, when the IASB discusses comments received on the Leases Exposure Draft, it can consider whether the Leases Standard should include a definition of ‘property’ that is consistent with any amended definition of investment property in IAS 40.

The IASB had previously refused to make changes to the definition of property as proposed in the Exposure draft on Leases. A Committee member expressed concern there may be tension in the definition of a “property” in the context of IAS 40 and the Leases ED. Leases was not seen as problematic by Staff, as they noted that they had discussed this when working on the Exposure draft for leases, especially when looking at the issue from a lessor’s perspective. However, Committee member stressed there is a misalignment between the definition of a property between the leases standard and IAS 40. This misalignment could cause confusion amongst preparers of financial statements.

Some members suggested addressing the location of the land to be considered when considering if the structure is a building or not, however in disagreement other members suggested that the business model should be focused rather than the type of structure it is or the location of the land. Members also suggested an expansion of IAS 40 regarding the fair value (which would apply in the case of an established market) and the scope of the scope of the business. When assessing the scope, whether the business is earning rental income and is independent from the rest of the business, should be considered. Committee members also expressed concern that the scope of IAS 40 was being expanded on an ad-hoc basis, which may be confusing to the preparers of financial statements.

The Committee concluded there was general support for the scope of the work. The notion of “fixed land” was not accepted. Staff must consider the work from a leases perspective. Staff should not try to define property in this context. There is difference in rationale between leases, which looks at consumption of a property, and IAS 40 where something is property. The Committee proposed to communicate to the IASB general support for broadening the scope however they are unsure of how to broaden, and hence the Chairman will ask the IASB if they have any particular views on how to proceed or should the Committee proceed as they see fit.

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