IFRIC D24 — First redeliberations

Date recorded:

The IFRIC discussed comments received on the draft Interpretation D24 Customer Contributions published in April 2008. The staff noted that of the 58 comment letters received a majority supported IFRIC's proposal to develop an Interpretation. However, almost all comment letters expressed concern regarding certain aspects of D24.

The discussion focussed on the key concern raised by constituents being whether the entity receiving the customer contributions always has an obligation to provide ongoing access to a supply of goods or service.

Some respondents pointed out that when, for example, a utility company is required by law or regulation to provide access to a supply of goods or services to all customers at the same price, the access provider does not have any further obligation once the connection has been made.

The IFRIC discussion was based on the following example relating to customer contributions for connection to a price-regulated network:

A real estate company is developing a residential real estate in a remote area that is not connected to the electricity network. In order to have access to the electricity network, the real estate company is required to construct an electricity substation that is then contributed to the utility company operating the electricity network. The contributed electricity substation becomes an asset of the utility company that it must maintain or replace at its cost. The utility company uses the contributed asset to connect each house of the residential real estate development to its electricity network. The developer then sells the connected houses to customers at a price that includes a share of the costs of the electricity substation. By law or regulation, the utility company has an obligation to provide ongoing access to the electricity network to all connected customers at the same price, regardless of whether they have contributed an asset. Customers can choose to purchase their electricity from suppliers other than the utility company, but the utility company always provides the distribution. In that event, the electricity supplier charges the customers quarterly for the consumption of electricity and collects an ongoing access fee on behalf of the utility company.

The staff was of the view that in contrast to paragraph 16 of D24 in such scenario revenue should be recognised once the connection services have been performed since providing initial access would be the only service provided in exchange for the contributed asset. The staff pointed out that generally speaking they could not see why there is an ongoing obligation arising from the customer contribution when the entity that receives the contribution from a customer has no obligation to this customer that is different from its obligation to other customers who did not contribute.

Some IFRIC members agreed to the staff with regard to this particular (simple) fact pattern but noted that there may be other scenarios where an ongoing obligation may exist.

Other IFRIC members stated that the answer should be given from an IAS 18 Revenue standpoint, that is, whether the service in return for the customer contribution has been provided or not. In doing so the guidance in paragraph 13 of IAS 18 regarding separately identifiable components should be applied. In addition, one IFRIC member noted that the obligation arising from the customer contribution should be considered separately from obligations to other customers.

The IFRIC had a thorough debate on when an ongoing obligation to provide access exists but could not agree on a principle. There seemed to be a consensus that the answer depends on facts and circumstances and that judgement may be required. However, the chairman pointed out that simply referencing to facts, circumstances, and judgement would not be appropriate in an Interpretation but that specific guidance should be given.

The chairman noted that at the September 2008 meeting a decision whether the IFRIC would be able to reach a consensus on this matter on a timely basis should be made.

The IFRIC decided to proceed with the project for the time being and directed the staff to further elaborate this issue by:

  • Developing further examples to enable establishing a principle under which circumstances a performance obligation exists. The staff was asked to also address the concerns of constituents raised in respect of analogous application in this context.
  • Develop indicators regarding the existence or non-existence of performance obligations.

The IFRIC will discuss the staff's analysis on performance obligations and an analysis of the other issues raised by constituents at the September 2008 meeting.

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