The International Accounting Standards Board (IASB) has released an exposure draft on proposed amendments to three International Standards for Financial Reporting (IFRS) - IAS 12, IAS 23 and IAS 28, as part of its annual review process
The proposals focus on amendments to IAS 12 Income Taxes, IAS 23 Borrowing Costs and IAS 28 Investments in Associates and Joint Ventures.
The IASB’s annual improvements process provides a mechanism for dealing quickly with a collection of minor amendments to IFRS standards in a single burst rather than issuing a raft of minor amendments on an ad hoc basis.
IAS 12 Income Taxes
The amendments to IAS 12 clarify that an entity should account for all income tax consequences of payments on financial instruments classified as equity, such as dividends and distributable profit, in the same way, regardless of how the tax arises. This rule change does not affect any other type of financial instruments.
The IASB exposure draft states: ‘This proposed amendment should not be interpreted to mean that an entity recognises in profit or loss the income tax consequences of all payments on financial instruments classified as equity.’
It is likely that the IAS 12 change will be a retrospective measure and an entity will be able to apply those amendments retrospectively in accordance with IAS 8 for annual periods beginning on or after a date yet to be decided pending the outcome of this consultation. It has confirmed that regardless of the effective date, earlier application will be permitted. If an entity applies the amendments for an earlier period, it will also have to disclose that fact in the annual report and accounts.
IAS 23 Borrowing Costs
The IAS 23 amendment focuses on borrowing costs eligible for capitalisation. The amendment clarifies which borrowing costs are eligible for capitalisation as part of the cost of an asset in particular circumstances.
The decision to review the existing standard follows representations to the IASB about potential misinterpretation of the current wording as some stakeholders felt ‘those words to mean that funds borrowed generally would exclude funds outstanding that were originally borrowed specifically to obtain a qualifying asset that is now ready for its intended use or sale’.
The IASB proposes to amend that paragraph to clarify that ‘when a qualifying asset is ready for its intended use or sale, an entity treats any outstanding borrowing made specifically to obtain that qualifying asset as part of the funds that it has borrowed generally’.
An effective date for the IAS 12 amendment has not been confirmed.
IAS 28 Investments in Associates and Joint Ventures
The proposed amendments to IAS 28 clarify that an entity will have to apply IFRS 9 Financial Instruments to long-term interests in an associate or joint venture to which it does not apply the equity method.
This will only come into force after the 2019 effective date for IFRS 9. Any impact on insurance contracts would have to be considered in light of the upcoming release of the new IFRS 4 Insurance Contracts standard.
The IASB is proposing an effective date of 1 January 2018 for the proposed amendments to IAS 28. The reasons for the timing is because the proposed amendments clarify the applicability of IFRS 9 to long-term interests.
Closing date and links
The closing date for feedback is 12 April 2017.
The IASB Exposure Draft - Annual Improvements to IFRS Standards 2015–2017 Cycle, is available here
Responses can be submitted via go.ifrs.org/comment or by email