The project manager introduced Agenda paper 3: IAS 16 Property, Plant and Equipment — Draft Interpretation — Accounting for proceeds and cost of testing PPE. He said that in previous meeting the Committee tentatively decided to develop an Interpretation on the meaning of testing, focusing on the meaning of ‘functioning properly’ in paragraph 17(e) of IAS 16 Property, Plant and Equipment. The Committee tentatively concluded that functioning properly is an assessment of the technical and physical performance of the PPE asset. The assessment of functioning properly does not include an assessment of financial performance, such as the level of operating margin or the quantity of the output as intended by management. He said that the staff analysed whether the proposed amendments would be applicable to the extractive industries as it would imply changes in their existing accounting practices. He said that the staff also analysed the similarities with IFRIC 20 and considered that it would not be necessary to change the scope of IFRIC 20. He also mentioned that the staff considered whether the scope paragraph of IFRIC 20 should be expanded to accommodate application to both deep mines and to the development phase of a mine, but the staff considered that this was not necessary, because paragraph 11(a) of IAS 8 required management to refer the requirements in IFRSs dealing with similar and related issues when there was not specific guidance for a particular transaction or circumstance.

He then opened the discussion to the Committee.

There was general concern expressed by the Committee members about changing existing practices in the extractive industries. Some members indicated that IFRIC 20 was scoped particularly to include only surface mining and more discussion would be needed in order to change the interpretation.

Some Committee members indicated that the issue was broader than extractive industries and that IAS 16 was not clear enough for this particular issue and that the scope should be expanded because the relevant issue was cost attribution.

On the other hand, other Committee members expressed concern that the staff paper was not answering the specific question raised by the constituent and would prefer that the Committee would first try to answer the question rather than expanding the project.

The Implementations Director said that the focus should be in clarifying IAS 16 paragraph 17(e) although it was difficult to clarify the topic without expanding it. He said that in order to analyse the cost attribution issue, it would require to expand the project.

Some Committee members pointed out that there was diversity in practice and there were several issues surrounding this topic.

One Board member suggested dividing the project in two tiers; the first step would be to answer the specific question and the second step to broaden the project.

The Chairman suggested the following alternatives:

1. Conclude that focusing only on IAS 16 paragraph 17(e) would not be feasible (i.e., drop from the agenda); the proposal was approved by only 5 Committee members.
2. Request the staff to analyse the topic again on a broader basis, including an analysis of what should be included in cost; and cost attribution; the proposal was approved by only 5 Committee members.
3. To take one more pass through the analysis on defining testing and discuss it at the next meeting. The proposal was approved by the majority of the Committee members. The Chairman then clarified that if this option would not work, the committee would discuss option A again.

The chairman then asked for direction to be given to the staff. Some members suggested to:

• focus also on paragraph 20 and 21 of IAS 16, including how functioning properly relates to operating as intended by management;
• avoid focusing too much on volume;
• explore further the cost attribution issue and the impact on the depreciation of the asset; and
• clarify the need of judgement. 

The Chairman also asked whether the remaining issues of the paper should be discussed. There was general agreement not to discuss the remaining topics.