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  • IAS 16 Property, Plant and Equipment
  • IAS 37 Provisions, Contingent Liabilities and Contingent Assets (1998)


  • IFRIC D2 issued 4 September 2003
  • Comment deadline 3 November 2003
  • Click for Press Release (PDF 24k).
  • The draft Interpretation was available publicly on the IASB's Website during the comment period.
  • IFRIC Interpretation 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities issued 27 May 2004. Click for Press Release (PDF 26k).

Deloitte Letter of Comment on IFRIC D2

Important: IFRIC D2 resulted in the final IFRIC Interpretation 1, issued in May 2004. The information on this page reflects the IFRIC's discussions during the development of the final interpretation, including tentative decisions that were changed along the way. We have retained this page for historical purposes only.

Summary of IFRIC D2

Under IAS 37, a provision must be recognised when an asset is acquired if the acquirer is obligated to incur costs for decommissioning, restoration, and similar future activities. The costs are included as part of the cost of the asset. The proposed Interpretation deals with accounting for subsequent changes in the estimated cash flows relating to the provision.

The main changes dealt with in the Interpretation are those that arise from (i) the revision of estimated outflows of resources embodying economic benefits and (ii) revisions to the current market-assessed discount rate. Under the proposed Interpretation, these two changes are accounted for in the same manner as the initial estimated cost. Hence, amounts relating to the depreciation of the asset that would have been recognised to date are reflected in current period income or expense and amounts relating to future depreciation are capitalised. This approach views the asset, from the time the liability for decommissioning is initially incurred until the end of the asset's useful life, as the unit of account to which decommissioning costs relate.

In the spirit of convergence with US GAAP, the IFRIC considered the approach in Statement of Financial Accounting Standards No. 143 Accounting for Asset Retirement Obligations, which requires that changes in estimated cash flows be capitalised as part of the cost of the asset and depreciated prospectively. Under that approach, the decommissioning obligation is not required to be revised to reflect the effect of a change in the current market-assessed discount rate. The IFRIC did not choose this approach because IAS 37, unlike SFAS 143, requires a decommissioning obligation to reflect the effect of a change in the current market-assessed discount rate. The IFRIC agreed that it was important that any Interpretation it developed should deal consistently with changes in estimated cash flows and changes in the discount rate.

For first-time adopters of IFRS, D2 proposes that retrospective application is appropriate. Further, the liability should be measured using the current discount rate and the asset should be remeasured as if this rate had applied on initial recognition and had subsequently depreciated. There would not be a requirement to restate for each discount rate change arising in prior years.

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