The Commission did this study under its agreement with the European Parliament that 'effect studies' should be prepared for new accounting standards and interpretations up for endorsement in the European Union. The study is a combination of a survey of opinions expressed to the IASB, EFRAG, and the Commission and a staff analysis of the costs and benefits of applying the capitalisation model that is mandated by the revised IAS 23.
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With respect to preparer opinions the report states:
- A majority of respondents prefer the capitalisation method and/or support the endorsement of the standard.
- Even among capital intensive companies that would be affected most by the revised IAS 23, the EC's consultation and other reports reveal that these companies generally prefer to apply the capitalisation method.
Benefits of the capitalisation model include:
- Increased comparability because one of the current options is eliminated
- Including borrowing costs in the cost of the assets is a better conceptual approach than expensing
Costs of adopting IAS 23 Revised:
- For those European companies currently expensing borrowing costs, the revised IAS 23 will impose an added cost and complexity.
- However, this affects a relatively small percentage of companies because most do not have any qualifying assets. 'The capitalisation of borrowing costs is of relevance only for those companies that are asset capital-intensive.' And 'the main part of these costs will be related to the first implementation of the revised standard and therefore not recurring.'
Commission conclusion and recommendation:
- The revised IAS 23 should be endorsed in the European Union as the benefits of its endorsement will outweigh the costs.
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Click to view Effect Study Report: Endorsement of IAS 23 Borrowing Costs (PDF 151k)
