Improvements to IFRS

Date recorded:


The Board received over 150 letters of comment on the Exposure Draft. At today's meeting, the Board discussed the comments received on the proposed improvements to IAS 1, IAS 16, IAS 17, and IAS 40.


The Board decided tentatively not to modify its proposals that:

  • An entity will be in compliance with IFRS even if it believes that a 'true and fair override' is appropriate but local law requires compliance with all IFRS and therefore prohibits the override. Disclosure would be required.
  • The category of extraordinary items will be abolished. Labelling of items in the income statement as unusual, nonrecurring, or abnormal is not prohibited, but they may not be presented on a net-of-tax basis.
  • A post-balance sheet agreement to refinance a short-term obligation on a long-term basis (more than 12 months) does not justify classifying the short-term obligation as non-current (disclosure of the agreement will be required).
  • If a borrowing agreement has a covenant that makes a liability payable on demand if certain conditions related to the borrower's financial position are breached, and those conditions are breached at the balance sheet date, the liability is classified as current, even if corrected after balance sheet date. An exception to this principle is proposed if, prior to the balance sheet date, the lender has granted a grace period in which to correct the breach and, when the financial statements are authorised for issue, either (a) the borrower has corrected the breach or (b) the grace period has not yet expired.
  • Significant judgements made by management in applying accounting policies should be disclosed.
  • Key assumptions about the future and other sources of measurement uncertainty should be disclosed.

Classification of minority interest in equity was not disucssed. It will be considered by the Board at its December meeting, as will other IAS 1 improvements issues.

IAS 16

Exchanges of similar items of property, plant, and equipment should be measured at fair value, with net gain or loss recognised. The gross proceeds should not be reported as revenue. Likewise for exchanges of similar intangible assets.

The Board decided to modify its proposal that depreciation should continue when a depreciable asset becomes temporarily idle or is retired from active use and held for disposal. Under the modified approach, depreciation would continue unless the asset (a) is not being used, (b) is held for disposal, and (c) is available for immediate delivery to a buyer.

IAS 17 and IAS 40

The Board did not change its proposals regarding leases of land. Therefore:

  • A lease of land and building(s) should be separated into two elements - lease of land and lease of building(s).
  • A property interest held under an operating lease can be classified as investment property provided that the rest of the definition of investment property is met and the lessee uses the fair value model as set out in IAS 40.27-49.
A lessor will be required to capitalise and amortise over the lease term any incremental initial direct costs. The current IAS 17 option of immediate expensing will be eliminated.

Though commentators raised a number of other issues relating to IAS 17, the Board decided not to address any of them as part of the Improvements Project. It also decided not to consider, in the Improvements Project, whether to eliminate the choice in IAS 40 between the cost model and the fair value model.

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