Short-term Convergence - Borrowing Costs

Date recorded:

(afternoon only)

At their meeting in November 2005, the Board decided to address immediate expensing versus capitalising borrowing costs as a short term convergence project. For the January meeting, the staff prepared a paper setting out how the transitional provisions for only allowing capitalising should be addressed for existing IFRS users as well as for first time adopters.

The Board first considered the proposal as set out for existing IFRS users.

Some Board members questioned whether it should be mandatory to capitalise costs for projects started before the amendment was effected, but after the information necessary to apply the amendment was obtained. Some board members would like that to be an option, rather than a requirement, as they considered consistency in application to be more important.

The requirement for retrospective application as set out in the paper was defended by the staff. A choice for constituents could potentially delay implementation of these capitalisation requirements with several years on a lot of projects, as these are often long term (building processes lasting several years).

The Board decided to issue an exposure draft proposing that:

  • Existing IFRS users should apply the proposed amendments (required capitalisation) prospectively to borrowing costs relating to qualifying assets for which the commencement date for capitalisation is after the effective date - with an option to apply the capitalisation amendments starting at any date elected before the effective date.
  • First-time adopters should have the same transition options as existing IFRS users (this will require amendment of IFRS 1).

The Board discussed whether the comment period on this exposure draft should be shorter than normal but decided the exposure period should be 120 days.

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