IFRS implementation issues

Date recorded:

IFRS Implementation Issues - Agenda paper 12

The purpose of this session was to discuss the following:

  • IFRIC Update
  • IAS 37—Costs considered in assessing whether a contract is onerous – Interpretations Committee decisions: AP 12A
  • IAS 8—Accounting policy changes – sweep issue – transition: AP 12B
  • IFRS 1—Subsidiary as a first-time adopter – possible narrow-scope standard-setting: AP 12C
  • Property, Plant and Equipment: Proceeds before Intended Use – Summary of feedback on the proposed amendments to IAS 16: AP 12D

November IFRIC Update


One Board member disagreed with the technical conclusion reached in the tentative agenda decision (TAD) on IFRS 15 Right to payment for performance completed to date (AP 2B to the November IC meeting). She believes that in the fact pattern submitted, there are no circumstances in which the entity could be deprived of its right to obtain full payment for costs incurred to date plus reasonable margin. Furthermore, in her view, IFRS 15.35(c) and the related guidance do not require that the right to payment must be from the customer to the original contract. She believes that the technical conclusion reached by the IC could result in entities recognising revenue differently in similar circumstances. The Staff will include her comments in a future paper where they summarise the feedback received on the TAD.

There were also concerns that the agenda decisions and TADs are getting longer and are starting to answer specific fact patterns. These Board members were concerned about the risks that this poses to the IC because missing facts could have a significant impact on the technical conclusion. It also encourages entities to try fit their fact patterns into the ones in the agenda decisions and stop applying judgement. The Chair of the IC acknowledged these concerns but continued to believe that the new style is helpful especially for the application of new Standards. The IC will listen to the feedback received to decide on the way forward.

IAS 37: Costs considered in assessing whether a contract is onerous – Interpretations Committee decisions – Agenda Paper 12A


The purpose of this paper was to inform the Board of the IFRS Interpretations Committee’s (IC) decision to add a project to its agenda to clarify the meaning of ‘unavoidable costs’ in the IAS 37 definition of an onerous contract. See AP 5 to the IC’s November 2017 meeting for details.

The Board has a project on IAS 37 in its research pipeline; however, it has not yet decided on the nature or extent of any standard-setting activities that it may undertake and the project may not become active for some time.

Next steps

The IC will consider the technical issues at a future meeting, after which it will decide whether the clarification should take the form of an interpretation or recommend a narrow-scope amendment to IAS 37 for the Board to consider.


There was no discussion on this paper.

IAS 8: Accounting policy changes – sweep issue – transition – Agenda Paper 12B


The Staff are currently drafting the proposed amendment to IAS 8 to lower the threshold for relief from retrospective application of a change in accounting policy arising from agenda decisions from ‘impracticable’ to a cost/benefits assessment.

In this paper, the Staff address the transition aspect of the proposed amendment.

Staff recommendation

Given the nature of the proposed amendment, the Staff recommended that the Board require prospective application of the proposed amendment.


The Board approved the Staff recommendation without discussion.

IFRS 1: Subsidiary as a first-time adopter – possible narrow-scope standard-setting – Agenda Paper 12C


At its November 2017 meeting, the IC recommended that the Board propose an amendment to IFRS 1 to provide a subsidiary that applies paragraph IFRS 1.D16(a) with additional relief for cumulative translation differences (CTD). See AP 6 to the November 2017 IC meeting for details.

At that meeting, the IC asked the Staff to consider whether the Board should require or permit a subsidiary to apply the proposed relief for CTD if it has chosen to apply the existing exemption in paragraph D16(a) to assets and liabilities.

Staff analysis

On balance, the Staff believe that the Board should make the proposed relief for CTD a requirement for a subsidiary that applies IFRS 1.D16(a) because providing an option is unlikely to be necessary. The Staff think it unlikely that a subsidiary applying paragraph D16(a) would voluntarily choose to have a difference in CTD between its financial statements and its parent’s consolidated financial statements.

Staff recommendation

The Staff recommended that the Board:

  • propose an amendment to IFRS 1 to require a subsidiary that applies IFRS 1.D16(a) to measure CTD using the amounts reported by the parent based on the parent’s date of transition to IFRS (subject to adjustments); and
  • include the proposed amendment in its next Annual Improvement Cycle.


The Board approved the Staff recommendation without significant discussion. The Staff will discuss transition in a future paper.

Property, Plant and Equipment: Proceeds before Intended Use – Summary of feedback on the proposed amendments to IAS 16 – Agenda Paper 12D


The Board issued the Exposure Draft Property, Plant and Equipment –– Proceeds before Intended Use (ED) in June 2017. The comment period ended in October 2017. This paper summarises the feedback received.

Many respondents disagreed with the proposed amendments on grounds that they consider them to be ineffective and costly to apply. They believe that the proposed amendments create more questions than they address and will require significant judgement in application which would in turn widen diversity in practice and create opportunities for earnings management.

Many respondents also questioned whether the benefits of the proposed amendments would outweigh the costs of application. Those who believed that the issue is limited to only a few industries did not see sufficient benefit to justify the cost of standard setting; while those who believed that the proposed amendments have a wider reach were concerned that the cost of implementation would outweigh the benefits especially in cases where the proceeds received during testing are insignificant.

In essence, those who believed that the Board should do standard-setting in this area were of the view that a more comprehensive solution is required to address the problem than the approach proposed by the Board.

Summary of feedback received

Cost allocation

Many respondents said that it would be very challenging to allocate costs incurred before an item of property, plant and equipment (PPE) is available for use between inventories and PPE. An entity may not have the systems or the information necessary to do such allocations before the PPE is available for use, e.g. no information about what is the normal capacity of the PPE in order to allocate costs to outputs produced. Furthermore, many respondents argued that costs to produce inventories to test that the PPE can operate as intended are part of the directly attributable costs to make the PPE available for use. To draw a distinction between them would be inconsistent with the existing requirements of IAS 16. If such a distinction were possible, it would require significant judgement.

The requirement to distinguish between costs of testing and other costs to prepare an item of PPE for use would also present significant practical challenges. Many respondents were concerned that without further guidance from the Board, the proposed amendment would lead to further diversity in practice.

Exclusion of depreciation

The ED reiterates that the cost of inventories sold before an item of PPE is available for use excludes depreciation. Many respondents were concerned that this would create an artificially high margin in earlier years when the PPE is not yet available for use. This would create a false expectation of future margins, thus undermining the relevance and usefulness of financial information as well as comparability over time, resulting in entities resorting to alternative performance measures to ‘correct’ the situation.

A few respondents also saw no conceptual basis for excluding depreciation from the sale of inventories before the related PPE is available for use. They disagreed with the Board’s comment that such depreciation would likely be negligible because this is not necessarily true for PPE that takes a long time to construct. They also argued that material proceeds from the sale of test inventories might indicate more than negligible consumption of the related PPE.

Available for use

Many respondents disagreed with the Board’s decision not to provide further guidance of when an item of PPE is available for use. They believed that this question is fundamental to the issue at hand because that date dictates when capitalisation of costs stops and depreciation starts. Some respondents also believed that the recognition of proceeds in excess of the cost of testing might indicate that the PPE is already available for use and that a continued lack of guidance in this regard could create opportunities for earnings management.

Assessment of ‘ordinary’ activities

Many respondents disagreed with the Board’s comment that inventories produced by an asset before it is available for use are an output from the entity’s ordinary activities, thus bringing the sale of such items within the scope of IFRS 15. These respondents believed that outputs from testing are of a different nature from those produced after the PPE is available for use. Furthermore, making an item of PPE available for use does not occur regularly and should therefore not be considered as part of the entity’s ordinary activities.

Next steps

The Staff will conduct further outreach to get a deeper understanding of the issues raised by the respondents. The Staff will present their analysis of the feedback received and corresponding recommendations at a future IC meeting.


Several Board members gave some suggestions on how to approach the cost allocation problem. Given that the proposed amendment would align with the relevant US GAAP requirement, one member suggested that the Staff look at the application of the US GAAP guidance to see whether anything can be learnt therefrom. Another Board member suggested that the Staff perform an effects analysis given that the proposals would likely have a much wider impact than just resolving the original submitter’s specific case.

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