We comment on IFRIC D24 on customer contributions

  • Deloitte Comment Letter Image

27 Apr 2008

Deloitte has submitted a Letter of Comments on IFRIC Draft Interpretation D24 'Customer Contributions'.

IFRIC D24 proposes that if an entity receives assets that it uses to provide access to an ongoing supply of goods or services to a customer, the entity should recognise the contributed assets and revenue from providing access to the supply of goods or services over the period access is provided. Our letter does not support IFRIC's proposed consensus. We recommend that IFRIC not issue an Interpretation at this time but, instead, address the issue narrowly in an Agenda Decision. We suggest a proposed wording for the Agenda Decision. An excerpt from our letter:

We have reservations about the IFRIC's approach to this issue. The Interpretation does not clearly establish the principles on which it is based and, accordingly, the appropriate application of the proposed Interpretation is not always clear. In the absence of such clear principles, there is a danger that the Interpretation may be applied as a set of arbitrary rules, and may lead to practices which conflict with the principles of IAS 18.

For this reason, as explained in more detail below, we believe that it is best for the IFRIC not to proceed with the Interpretation but to address this issue for the time being in an Agenda Decision.

It appears to us that the IFRIC initially intended to address, in situations in which an entity receives a specific item of property, plant and equipment that must be used to provide access to a supply of goods or services, whether the recipient should recognise such an asset at fair value and how to account for the resulting credit. The IFRIC later extended this to circumstances where an entity receives cash to fund the acquisition or construction of that specific asset.

However, we believe that the Interpretation as currently drafted has a much wider scope without providing robust principles for all situations that may fall in that scope.

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