The International Financial Reporting Interpretations Committee (IFRIC) has released draft IFRIC Draft Interpretation D2 Changes in Decommissioning, Restoration and Similar Liabilities.
The proposed Interpretation contains guidance on accounting for certain changes in decommissioning, restoration and similar liabilities that are recognised both as part of the cost of an item of property, plant and equipment in accordance with IAS 16 Property, Plant and Equipment and as a liability in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets.
More specifically, the proposal addresses accounting for changes in (i) the estimated outflow of resources embodying economic benefits (eg cash flows); (ii) the current market-assessed discount rate; and (iii) an increase that reflects the passage of time (also referred to as the unwinding of the discount).
The proposal is open for public comment until 3 November 2003.
Introducing the draft Interpretation, Kevin Stevenson, IFRIC Chairman, said:
“The IFRIC was informed that differing views and potentially divergent practices exist in accounting for changes in decommissioning, restoration and similar liabilities, and it therefore agreed to a request to develop guidance.
The proposed Interpretation would require companies to capitalise only the portion of a change in an estimated decommissioning liability that relates to the future use of the related asset: the remaining amount would be recognised in current period profit or loss.”
Pointing to the IFRIC’s confirmation that, under existing requirements, decommissioning, restoration and similar liabilities should be measured using a current market-assessed discount rate, Mr Stevenson said “This may come as a shock for some.”
Welcoming the draft Interpretation, Sir David Tweedie, IASB Chairman said:
“I recognise that finding a suitable approach to accounting for changes in decommissioning, restoration and similar liabilities is challenging and potentially controversial. I therefore commend the IFRIC members for the time and effort they have spent in developing this proposal. I urge constituents most affected by the proposals to take an active part in the IFRIC consultation process by responding to the exposure draft.”
The draft Interpretation can be viewed on the IASB’s Website.