IFRIC D24 'Customer Contributions'

Date recorded:

The staff presented the IFRIC with a revised draft of D24 Customer Contributions that was aimed to reflect input collected at the July IFRIC meeting.

The staff began with recognition and measurement of the contributed asset. It was noted that the redraft aims to simplify deciding whether the contributed asset should be recognised by the receiving entity and that it should determine whether it controls the asset and if it is a lease in accordance with IAS 17 Leases or IFRIC 4 Determining Whether an Arrangement Contains a Lease.

The IFRIC had a lengthy debate on this topic. Some members noted that this is not the main issue to be addressed by the Interpretation and that it is the credit, that is revenue, of the journal entry that was not clear. The Chairman highlighted that before a credit is a debit (that is the asset to be recognised).

Other members wanted more indicators on asset recognition and said that sole reference to IFRIC 4 is not sufficient. The IFRIC Coordinator responded that sole reference to IFRIC 4 was not intended. The staff needed an indication whether to cut back the guidance or expand it. It was also noted by IFRIC members that the final Interpretation should not introduce new guidance on control and that people might get confused over the references to the leasing guidance in IFRS. One IFRIC member noted that some transactions might indeed be linked transactions.

The Chairman then summarised the discussion and asked the staff to include more guidance in the Interpretation, but try to keep it simple.

The staff then turned to the question how the credit should be accounted for, especially, whether the IFRIC agreed to the guidance on identifying separate components of the transaction (that is, are connecting the customer to the network and on-going access to a supply separate components).

The IFRIC, again, had a lengthy discussion on this topic with no clear direction. Much of the discussion centred around whether and what amount to recognise immediately and what amount should be deferred. One member thought of the examples as being too simplistic. Others wondered whether this guidance could be applied by analogy. The Chairman stated that if the principles identified are good, this would be appropriate.

Another member highlighted that in case the obligation is legal, it is a non-issue. Others were concerned about the practical implications and difficulties of splitting up the revenue stream and recognising some revenue up front and some over time. It was also noted that the guidance might lead to up front revenue recognition where it is not desirable.

The Chairman asked the IFRIC whether to provide guidance on these issues subject to drafting changes. The IFRIC seemed to agree.

The staff then asked for further questions on the drafting of the interpretation. One IFRIC member asked the staff to be clear in the Basis for Conclusions on what issues IFRIC wanted to address. Also, it was noted that depending on the final guidance provided on adoption some transitional relief should be provided.

The IFRIC Coordinator also proposed to add an example of asset contribution in a non-regulated activity.

The Chairman asked the staff to prepare a revised draft including a Basis for Conclusions and bring back any issues. Although the agenda papers included a question on disclosures this was not discussed at this meeting.

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