Short-term Convergence: Borrowing costs

Date recorded:

The Board discussed comments received on its Exposure Draft (ED) of proposed amendments to IAS 23 Borrowing Costs. The ED proposes to eliminate the option to expense immediately borrowing costs directly attributable to a qualifying asset.

A significant number of respondents expressed strong disagreement with the proposal in the ED to eliminate the option to expense as incurred. In light of comments received, the Board discussed whether it should proceed with the publication of a final amendment to IAS 23 or terminate the project.

The Board was split on how to proceed based on the comments received. Some Board members were persuaded by the quality of the comments from respondents and noted that they would support terminating the project. The proposal would eliminate the option to expense but there would still be significant differences as the requirements for capitalisation under US GAAP and IFRS are different. Other Board members wanted to go forward with the project, noting that even if this was not convergence in detail it was still convergence in principle, and a better alternative than the current standard. Members also noted that the intention of this project was to improve the standard, not to come to the 'right answer'.

As this is one of the projects on the MOU, some Board members were concerned that it could jeopardise the MOU if the IASB dropped this project without at least discussing it with the FASB first. By 'jeopardise', Board members meant that the IASB could be seen not to take the MOU seriously by dropping projects when it met resistance from its constituents. Other Board members disagreed that this should stop them from dropping the project, if it was clear that continuing would result in a solution that is not helpful for constituents.

Due to the comments and the split view by Board members it decided that the staff should do further analysis on comments from respondents before the Board decides how to proceed.

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