IASB publishes amendments to IAS 16 and IAS 38
The International Accounting Standards Board (IASB) has published amendments to IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets.
IAS 16 and IAS 38 both establish the principle for the basis of depreciation and amortization as being the expected pattern of consumption of the future economic benefits of an asset. Guidance is introduced into both standards to explain that expected future reductions in selling prices could be indicative of a higher rate of consumption of the future economic benefits embodied in an asset.
The IASB has clarified that the use of revenue-based methods to calculate the depreciation of an asset is not appropriate because revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption of the economic benefits embodied in the asset. The IASB also clarified that revenue is generally presumed to be an inappropriate basis for measuring the consumption of the economic benefits embodied in an intangible asset. This presumption, however, can be rebutted in certain limited circumstances.
IASB clarifies accounting for acquisitions of interests in joint operations
The IASB has issued ‘Accounting for Acquisitions of Interests in Joint Operations (Amendments to IFRS 11)’. The amendments clarify the accounting for acquisitions of an interest in a joint operation when the operation constitutes a business.
A joint operator is required to recognise its interest in a joint operation in accordance with IFRS 11 Joint Arrangements by recognising its share of the related assets, liabilities, revenues and expenses. However, neither IFRS 11 nor its predecessor standard lAS 31 Interests in Joint Ventures provided guidance on the accounting by a joint operator for the acquisition of an interest in a joint operation in which the activities of the joint operation constitute a business. Significant diversity in the accounting for such acquisitions has arisen in practice, with some entities applying business combinations accounting principles, whereas others allocate the total cost of the acquisition on the basis of relative fair values of the assets and liabilities of the joint operation.
The amendments to IFRS 11 require that the relevant principles on business combinations accounting in IFRS 3 and other standards should be applied in accounting for the acquisition of an interest in a joint operation in which the activity constitutes a business.
The amendments to IFRS 11 apply prospectively, i.e. from the beginning of the first period in which the amendments are applied. Consequently, acquisitions of an interest in a joint operation in comparative periods should not be restated. The amendments are effective for annual periods beginning on or after 1 January 2016, with earlier application being permitted.
IASB publishes Discussion Paper on accounting for macro hedging
The IASB has published for public comment a Discussion Paper Accounting for Dynamic Risk Management: a Portfolio Revaluation Approach to Macro Hedging exploring an approach to better reflect entities’ dynamic risk management activities in their financial statements, otherwise known as macro hedging. It is available for comment until 17 October 2014.
As part of its comprehensive response to the global financial crisis, the IASB is replacing IAS 39 with an entirely new financial instruments accounting Standard, known as IFRS 9 Financial Instruments. That project is in the final stages of completion. However, the IASB decided to treat as a separate project the macro hedging component of these reforms in order to elicit views from a broader range of constituents.