Background

The IFRS IC received a submission about how an entity accounts for homes and loans to buy homes provided to its employees. There are two fact patterns submitted:

Fact Pattern 1: Employee home ownership plans

An entity provides its employee with a house that the entity constructed and owns. In return, the employee has a proportion of his or her base salary deducted every month until the agreed price of the house has been fully repaid.

If the employee leaves employment within the first five years after receiving the house, the employee forfeits the house and recovers the salary deductions to date. If the employee leaves employment after that five-year period, the employee may choose either:

• To forfeit the house and recover the salary deductions to date
• to keep the house and immediately repay the outstanding balance

Legal title transfers to the employee only when they have paid the agreed price for the house in full.

The request asked how the entity should account for this arrangement—in particular, when it should recognise transfer of the house to the employee, and the accounting before and after the transfer.

Fact Pattern 2: Employee home loans

An entity provides its employee with a loan to buy a house, which the employee selects and purchases, and the entity does not own. The entity provides the loan at a below-market rate of interest, typically interest-free. The employee repays the loan through salary deductions. If the employee leaves employment for any reason at any point, the outstanding balance of the loan becomes repayable.

The submitter asks whether the accounting for this arrangement would differ from that in Fact Pattern 1.

Staff analysis

The staff sent information request to members of IFASS, securities regulators and large accounting firms. All respondents said either that they have not seen employee home ownership plans like those described in the submission or the amounts involved are not material if they have seen such plans for both fact patterns.

Only a few respondents commented on how entities would account for employee home ownership plans. For Fact Pattern 1, they responded that an entity would generally derecognise the house when it enters a sales contract with an employee. The entity would then recognise a loan receivable in accordance with IFRS 9 and account for the below-market element of the loan as an employment benefit in the scope of IAS 19. There is another view that the control transfers when legal title passes to the employee and the entity derecognises the property once the employee has fully repaid the agreed price of the house. For Fact Pattern 2, the respondents who responded said that the loan is accounted for as a financial asset at amortised cost within the scope of IFRS 9 and the difference between the fair value and the nominal amount of the loan is recognised as a prepaid employee benefit and amortised over the shorter of (i) the expected employment term and (ii) the loan term.

Given that the findings indicated that neither of the fact patterns described in the submission is widespread, and that even when the fact patterns do arise, the amounts involved are not material, that staff recommend not adding a standard-setting project to the work plan.

Staff recommendation

The staff recommended not to add a standard-setting project to the work plan but to publish a tentative agenda decision that explains the reasons for not adding a standard-setting project.

IFRS IC discussion

Only few IFRS IC members provided comments on this item. They agreed that such fact patterns may not be widespread and the amount involved may not be material but it could be powerful with regard to how an entity applies the accounting treatment. Such scenarios might be more common in the future. One IFRS IC member commented that the actual scenario might be more complicated than what is described in the fact patterns and the accounting treatment may be even more complicated. However, based on the fact pattern submitted and the current situation, they agreed with the conclusion made by the staff to publishing the tentative agenda decision.

IFRS IC decision

All IFRS IC members agreed with the conclusion of not adding this to the standard-setting work plan and agreed with the text of the tentative agenda decision.