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Due process documents — IAS 37 and IFRIC 6 — Waste Electrical and Electronic Equipment

Date recorded:

In May 2012, the Committee published a draft interpretation on the accounting for levies charged by public authorities on entities that participate in a specific market. Respondents proceeded to ask the Committee to address the accounting for levies that are due if a minimum revenue threshold is achieved. Those levies were not included within the scope of the draft interpretation because the Committee could not reach a consensus on the accounting for those levies.

The staff presented comments from respondents which noted that some levies are based on minimum thresholds other than revenues (such as the amount of assets, liabilities, levels of expense or other non-financial data such as emissions quantities). They sought clarification as to whether these levies are included within the scope of the draft interpretation, because unlike levies based on a revenue threshold, they are not explicitly excluded from the scope of the draft interpretation and as such represents a major shortcoming, because it significantly reduces the usefulness of the interpretation.

The staff noted that many of the respondents agreed that the clarifications provided in the consensus regarding the accounting for the liability to pay a levy are consistent with the requirements in IAS 37 in that the liability is recognised at a point in time if the obligating event occurs at a point in time and the debit side of the liability is an expense, unless the entity paying the levy receives a specific asset in direct exchange for the payment of the levy. The staff proceeded to recommend, inter alia, that the final interpretation should address the accounting for levies with minimum thresholds, including those that are within the scope of IAS 37 and that “levy” should be defined in the final interpretation.

The Committee were asked to rediscuss in a future meeting the accounting for levies with minimum thresholds and whether it thinks that a final interpretation should be issued, even if does not address the accounting for levies with minimum thresholds.

The Committee discussed their sympathies with the contents of staff paper and agreed that it made sense to exclude exchange transactions, however noted the difficulty in analysing which to deal with first, the asset or the liability since often an exchange transaction has an element of negotiation and this wasn’t the issue the Committee were initially trying to address - they were trying to address when the government imposes a suite of conditions on an entity.

The Committee further noted the difficulty in defining an exchange transaction and that despite their view that the staff paper draws an “artificial line”, the risk of not including any guidance is greater and hence it was important to provide that.

The Committee agreed with the need to define “levy” however felt it important to reiterate how to scope out transactions with the government and how constituents had sought guidance over the definition of government since to what extent a public authority could be considered a government is already defined in IAS 20 and IAS 24.

On whether the final interpretation should include guidance or cross reference other IFRS’s on the debit side of the transaction, the Committee considered to what extent it needed to consider the debit side and following discussions, agreed not to address the debit side since if an asset was recognised, this was not due to other criteria elsewhere in IFRS.

The Committee felt it had sufficient information and no further impact analysis was necessary and that no specific additional disclosure would be required. In the interests of time, the Chair summarised the Committees responses and suggested that it would best be dealt with by recourse to the IASB in their broader project on the conceptual framework.

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