IASB Issues Draft to Gather Comments from Public on Proposed Amendments to IAS 16 and IAS 38

Thursday, December 6, 2012 Print Email

The IASB has published an ED (Exposure Draft) to acquire comments from public on the proposals for amending International Accounting Standards 16-Property, Plant and Equipment as well as International Accounting Standards 38-Intangible Assets.

Both the IAS 38 and IAS 16 lay down the principles for the amortization and depreciation basis as the consumption pattern of the future economic advantages of an asset, which is acceptable. The main aim of the amendments that have been proposed is to make sure that the preparers don’t utilize the methods based on revenue for calculating amortization or depreciation charges of the items of plant, equipment, property and intangible assets. The primary reason behind this is that the method that is based on revenue is a reflection of a particular pattern of the economic advantages being produced from the asset, instead of the expected consumption pattern of the futuristic economic advantages incorporated in the asset.

The matter came to the forefront at the time of submissions to the IFRS Interpretations Committee. Following this, the committee gave recommendations to the International Accounting Standards Board to amend IAS 38 and IAS 16.

Background of IAS 16 and IAS 38

In 2011, The Committee paid attention to the request made by the constituents with regard to clarifying the definition of the phrase “consumption of the expected future economic benefits embodied in the asset” at the time of assessing the correct method of amortization for intangible assets as per International Accounting Standard 38 Intangible Assets. This particular request was very much related to amortizing of service concession related arrangements under the IFRIC 12 Service Concession Arrangement’s scope.

It was around this time that the committee concluded that despite the fact that selecting a method for amortisation involved the utilization of judgement, the method based on revenue wasn’t the correct demonstration of consumption. It was because of this very reason that the committee recommended IASB to amend both the standards. Following this, in the month of October in 2012 the IASB resolved to expose the projected alterations, since the Due Process Oversight Committee had noted that the method based on revenue might not match the criteria for annual improvements.

The last date for sharing comments and feedback on the draft is 2nd April 2013.

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