Improvements Project

Date recorded:

The Board discussed the following issues on four standards:


Effects of post-balance sheet events on the classification of liabilities

The staff asked the Board to confirm or reverse a decision made during the November 2002 meeting as to whether an entity should classify as non-current at the balance sheet date an obligation that has become payable on demand because of a breach of a loan covenant when the lender has granted at the balance sheet date a period of grace to rectify the breach after the balance sheet date. In particular when the period of grace does not extend beyond twelve months after the balance sheet date and the entity has not cured the breach before the financial statements are authorised for issue.

The Board decided that an item should be classified as current if at balance sheet date, there does not exist an agreement to extend payment beyond 12 months. The Board clarified that post-balance sheet agreement would not be an adjusting event.

Guidance on an entity's ability to consummate a refinancing agreement

The IASB decided that no further guidance should be included on an entity's ability to consummate a refinancing.


Terminology change to replace 'retrospective restatement' with 'retrospective application' for changes in accounting policies

The Board agreed that the staff should work with the FASB staff to agree on consistent vocabulary for: 'retroactive vs retrospective', 'restatement vs application', and 'prospective'. The Board did not express preferences.

Additional guidance on the meaning of 'impracticable'

The Board agreed to give additional guidance on the meaning of 'impractical' and asked the staff to work with the FASB in order to use the same vocabulary. The Board does not want to create a new category, even if the FASB gave additional guidance on what is meant by 'limited retrospective'. The Board agreed to clarify that an entity should go retrospectively as far back as possible.

Additional requirement for a limited retrospective application when full retrospective application is impracticable

The Board confirmed that when the restatement cannot be reasonably allocated to prior periods, the amount of the change should go through the retained earnings of the current period.

Additional disclosures for changes in accounting policies

The Board agreed to add to disclosure requirements the following:

  • The nature and justifications of the changes.
  • The effect of the change on amounts in each period.
Guidance on the treatment of a change in accounting policy as a result of a change in other standard-setting bodies' pronouncements

The Board agreed to add guidance to the final standard.

IAS 17/IAS 40

The staff presented the interactions of IAS 17 and IAS 40 for the purpose of lease classification and asked the Board if additional guidance should be added on how to split the land and the building elements in a lease. Additionally, the Board considered the treatment of the liability side of a finance lease.

The Board tentatively decided that the lease liability should be accounted for under IAS 39. Additionally, the Board tentatively decided that contingent rent should be considered an embedded derivative that is not closely related to the host contract. This would presumably change the requirements in IAS 39.25(g) and paragraph A7(f) of the ED. The Board will address this issue at a future meeting.

IAS 16

Initial measurement - asset dismantlement, removal and restoration costs

The staff asked the Board whether, if an obligation is incurred for dismantlement, removal, and restoration costs as a consequence of producing inventory, those costs should be classified as conversion costs under IAS 2, Inventories, or as property, plant, and equipment costs under IAS 16. The Board agreed that example 3 of Appendix C to IAS 37 is on point and further guidance is not needed.

Initial measurement - asset exchange transactions

The Board agreed that if making a non-monetary contribution to a jointly controlled entity, a venturer should consider 'commercial substance' in determining whether to recognise the portion of its gain or loss attributable to the equity interests of the other venturers in the asset.

Recognition - subsequent expenditure

The Board agreed that the general recognition principle should apply to subsequent expenditures. The current derecognition principle shall apply to assets that are replaced.

Recognition - costs of inspection component replacements

The Board decided costs of inspection should be capitalised if they meet the recognition principle in IAS 16.

Subsequent measurement - depreciation period

The staff asked the Board whether an entity should begin depreciating an asset when the asset is available for use or when it is put into use. The Board decided an asset should be subject to depreciation when it is available for use.


The Board decided that an entity should not apply hindsight to its initial measurement of a previous asset exchange transaction in determining whether it lacked commercial substance.

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