16. September 2015

ASCG comments on the IFRS IC’s tentative agenda decision on IAS 2/16/38

The Accounting Standards Committee of Germany (IFRS Technical Committee) has submitted in a letter to IFRS IC its view on the tentative agenda decision (TAD) regarding IAS 2/16/38.

In its July 2015 meeting, the IFRS IC has deliberated the issue of prepayments for long-term supply contracts and whether and how prepayments constitute a financing component that requires recognition of interest income or expense. The IFRS IC tentatively decided that the issue should not be taken onto its agenda, as the affected IAS 2, IAS 16, and IAS 38 are sufficiently clear. In particular, the assessment of whether a financing component exists depends on individual facts and circumstances; this assessment requires judgement.

Our IFRS Technical Committee is not convinced that the IFRS IC’s TAD is providing any clarity. Further, the requirements are not consistently being dealt with throughout IFRSs. In particular, the issue of prepayments, in contrast to deferred payments, is not explicitly dealt with in the affected IFRSs.

The final decision by the IFRS IC on this issue is still pending.