In December 2012, the IASB published for comment the Exposure Draft ED/2012/5 Clarification of Acceptable Methods of Depreciation and Amortisation—Proposed amendments to IAS 16 and IAS 38. The comment period ended on 2 April 2013.
At the July 2013 meeting, the Interpretations Committee was presented with a summary and an analysis of the 98 comment letters received on the Exposure Draft. The members of the Interpretations Committee expressed mixed views on the proposed amendments. However, they agreed that the focus of the amendments should remain on the principle that the method used for depreciation or amortisation should reflect the expected pattern of consumption of the future economic benefits embodied in the asset.
At the September 2013 meeting the Interpretations Committee discussed the staff recommendations to finalise the amendment to IAS 16 and IAS 38.
The Interpretations Committee recommended that the IASB should amend IAS 16 and IAS 38 to make the following clear:
- the principle for depreciating assets and for amortising intangible assets. Paragraph 60 of IAS 16 and paragraph 97 of IAS 38 establish the consumption of the future economic benefits inherent in the asset as the principle for depreciation and amortisation;
- that a method based on the generation of future economic benefits that does not reflect the consumption of the future economic benefits is inconsistent with the principle for depreciating assets and for amortising intangible assets; and
- that the selection of an amortisation method in IAS 38 could be based on the determination of the limiting factor for the intangible asset; for example, a contract could be limited by a number of years (ie time) or a number of units produced or an amount of revenue earned.
The Interpretations Committee also discussed the componentisation of intangible assets on the basis of distinct expected future revenue streams but decided against recommending the inclusion of such guidance because of the potential complexity and potential unintended consequences.
A majority of the members of the Interpretations Committee thought that the IASB should proceed to finalise the proposed amendment on the basis explained above, however some of the members expressed some concerns about the proposed amendments. The staff will communicate these concerns to the IASB and will present the Interpretations Committee's recommendations to the IASB at a future meeting.
Read the September IFRIC Update.