Comment letter analysis

IFRS 38 Intangible Assets—Configuration or Customisation Costs in a Cloud Computing Arrangement: In December 2020, the Committee discussed the accounting for a customer's costs of configuring or customising the supplier's application in a ‘Software as a Service’ (SaaS) arrangement. The staff concluded that no intangible asset is recognised in the fact pattern described and the customer should refer to requirements in IFRS 15 for the identification of services and timing of recognition. However, a number of respondents disagreed with, or expressed concerns about, different aspects of the technical analysis and some respondents suggested adding a standard-setting project to the work plan.

The staff analysed these concerns, but concluded that the agenda decision should be finalised with some edits to address the concerns raised.

New issues

IFRS 16 Leases—Non-refundable VAT on lease payments: The Committee received a submission about the accounting by a lessee for non-refundable value-added tax (VAT) charged on lease payments. In the fact pattern described, the lessee operates in a jurisdiction which requires sellers to collect VAT and remit the amounts to the government and generally allows purchasers to recover VAT charged on payments for goods and services. However, due to the nature of operations, the lessee can recover only a portion of the VAT charged, including that charged on lease payments. The submitter asked whether the lessee includes non-refundable VAT as part of the lease payments.

The staff recommend not to add the matter to the Committee’s standard-setting agenda as the amount involved is not material and outreach provided no evidence of diversity in practice.

IAS 32 Financial Instruments: Presentation—Accounting for warrants that are initially classified as liabilities: The Committee received a submission describing a fact pattern in which an entity issues a warrant that gives the holder the right to buy the entity’s own equity instruments at a price that will be fixed at a future date. The warrant is classified as a financial liability at initial recognition. The submitter asked whether the issuer reclassifies the warrant as equity when the exercise price is subsequently fixed.

The staff are already aware of diversity in practice regarding this issue and know that the issue is prevalent. Reclassification between financial liabilities and equity instruments was identified as one of the practice issues the Board will consider in its FICE project.

The staff recommend not adding a standard-setting project to the Committee’s agenda, because the matter, in isolation, is too narrow. Instead, they recommend publishing a tentative agenda decision to explain this. The staff believe that the broader issues of reclassifying financial instruments are better addressed as part of the Board’s FICE project.

Work in progress: The staff are analysing requests related to the accounting for provision of financing to credit institutions under European Central Bank’s third Targeted Longer-Term Refinancing Operations programme.

The full agenda for the meeting and our com­pre­hen­sive pre-meet­ing summaries can be found here.