The IFRS Interpretations Committee (Committee) discussed the following matter and tentatively decided not to add it to its standard-setting agenda. The Committee will reconsider this tentative decision, including the reasons for not adding the matter to its standard-setting agenda, at a future meeting. The Committee invites comments on its tentative agenda decision. All comments will be on the public record and posted on our website unless a responder requests confidentiality and we grant that request. We do not normally grant such requests unless they are supported by good reason, for example, commercial confidence.
Tentative agenda decision
The Committee received a request about training costs incurred to fulfil a contract with a customer. In the fact pattern described in the request:
- an entity enters into a contract with a customer that is within the scope of IFRS 15. The contract is for the supply of outsourced services.
- to be able to provide the services to the customer, the entity incurs costs to train its employees (as described in paragraph 15 of IAS 38 Intangible Assets) so that they understand the customer’s equipment and processes. Applying IFRS 15, the entity does not identify the training activities as a performance obligation.
- the contract permits the entity to charge to the customer the costs of training (i) the entity’s employees at the beginning of the contract, and (ii) new employees that the entity hires as a result of any expansion of the customer’s operations.
The request asked whether the entity recognises the training costs as an asset or an expense when incurred.
Which IFRS Standard applies to the training costs?
Paragraph 95 of IFRS 15 requires an entity to recognise an asset from the costs incurred to fulfil a contract with a customer not within the scope of another IFRS Standard, only if those costs meet all three criteria specified in paragraph 95. Consequently, before assessing the criteria in paragraph 95, the entity first considers whether the training costs incurred to fulfil the contract are within the scope of another IFRS Standard.
Paragraph 5 of IAS 38 states that ‘this Standard applies to, among other things, expenditure on advertising, training, start-up, research and development activities’. Accordingly, the Committee concluded that, in the fact pattern described in the request, the entity applies IAS 38 in accounting for the training costs incurred to fulfil the contract with the customer.
Application of IAS 38
Paragraph 69(b) of IAS 38 lists ‘expenditure on training activities’ as an example of expenditure that an entity recognises as an expense when incurred. Paragraph 15 of IAS 38 explains that ‘an entity usually has insufficient control over the expected future economic benefits arising from a team of skilled staff and from training for these items to meet the definition of an intangible asset’.
In addition, in explaining the requirements in IFRS 15 regarding costs to fulfil a contract, paragraph BC307 of IFRS 15 states that ‘if the other Standards preclude the recognition of any asset arising from a particular cost, an asset cannot then be recognised under IFRS 15’.
Accordingly, the Committee concluded that, in the fact pattern described in the request, the entity recognises as an expense when incurred the training costs to fulfil the contract with the customer.
The Committee concluded that the principles and requirements in IFRS 15 and IAS 38 provide an adequate basis for an entity to determine its accounting for training costs incurred to fulfil a contract with a customer. Consequently, the Committee [decided] not to add this matter to its standard-setting agenda.
The deadline for commenting on the proposals is 25 November 2019. The Committee will consider all comments received in writing by that date; agenda papers analysing comments received will include analysis only of comments received by that date.