EFRAG discussion paper on variable consideration

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27 Sep, 2022

The European Financial Reporting Advisory Group (EFRAG) has published a discussion paper entitled 'Accounting for Variable Consideration - from a Purchaser's Perspective'.

Transactions or contractual arrangements involving variable consideration often occur in practice and can arise for a variety of reasons, for example, whenever there is a risk-sharing arrangement in an exchange transaction involving a buyer and seller.

EFRAG points out that there is currently divergence in practice on how a purchaser should account for the variable consideration related to some transactions. EFRAG also notes that the IFRS Interpretations Committee received numerous submissions on IAS 16 and IAS 38 on that topic, but in its discussions concluded that the matters raised were too broad to be addressed within the confines of existing IFRSs.

The IASB added the topic to its research pipeline after its 2015 agenda consultation. However, due to other priorities, the IASB did not include this project on its active research agenda. Moreover, following constituents’ feedback to the IASB’s 2021 agenda consultation, the project was excluded from the IASB’s 2022-2026 work plan.

Therefore, EFRAG went ahead and now published a discussion paper focussing on two issues faced by purchaser entities where there is divergence in practice. These issues are (a) when to recognise a liability for variable consideration; and (b) whether/when subsequent changes in the estimate of variable consideration should be reflected in the cost of the acquired asset. The discussion paper also presents alternatives for accounting requirements for the two issues and outlines the qualitative characteristics of useful information for each of these alternatives. In addition, the discussion paper assesses the general IFRS requirements for variable consideration.

Comments on the discussion paper are requested by 30 November 2023.

Update 25 July 2023 - ​To stimulate the debate and enable responses to the Discussion Paper , EFRAG has made it possible to provide comments through an electronic survey.

Please click for access to the following additional information on the EFRAG website:

Note: On 18 April 2024, EFRAG released a feedback statement summarising the responses received on the discussion paper.

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