- Sweep Issues

(i) Straight-line amortisation

This discussion related to whether straight-line amortisation is an appropriate mechanism of recognising any difference between a transaction price (used as fair value in accordance with paragraph AG 76) and a valuation made at the time of the transaction.

A commentator on the fatal flaw draft had noted that companies have attempted to use the following statement in the November IASB Update, and in the Basis for Conclusions in the near final draft published on the subscriber website, as a justification for using straight-line amortisation when in his view, that would not be appropriate:

[The Board] "...concluded that although straight-line amortisation may be an appropriate method in some cases, it will not be appropriate in others".

The commentator had requested that any reference to straight-line amortisation be removed.

The Staff put forward its view that it was not convinced that removing the explanation in the Basis would rectify this problem. In the absence of any guidance, the argument that straight-line is acceptable in a given circumstance can still be made, and this is a matter for professional judgement.

One Board member asked if anyone could think of an example where straight-line amortisation would be appropriate.

In the absence of any examples, another Board member suggested that a more appropriate method should be used if possible, but if not, the straight-line method could be used.

The Board agreed with the Staff that the guidance should be retained as it is and that it is not practicable for more detailed guidance to be given at this time. However, it was agreed with Staff that it would be advisable to add a sentence to the guidance to the effect that it is outside the scope of the IASB's current project to state when it would be appropriate to use straight-line amortisation.