IASB issues draft interpretations to clarify scope of leasing standard and on decommissioning funds

The International Financial Reporting Interpretations Committee (IFRIC) has today released two Draft Interpretations—D3 Determining whether an Arrangement contains a Lease and D4 Decommissioning, Restoration and Environmental Rehabilitation Funds.

The proposed Interpretation D3 contains guidance on determining whether arrangements that do not take the legal form of a lease (eg some take-or-pay contracts) should, nonetheless, be accounted for in accordance with IAS 17 Leases. The proposed Interpretation D4 addresses the accounting to be adopted by entities that contribute to funds used to help meet decommissioning costs or environmental rehabilitation costs.

Both proposals are open for public comment until 19 March 2004.

Introducing the draft Interpretations, Kevin Stevenson, IFRIC Chairman, said:

“The IFRIC has developed these draft Interpretations to deal with questions that have arisen in practice of how to apply International Accounting Standards in certain cases. D3 clarifies that the leasing Standard has wider applicability than simply those agreements specifically described as leases. For example, it proposes that elements of some supply contracts or outsourcing arrangements should be accounted for as leases. One important consequence of this will be significantly increased disclosures about these types of transactions, because the disclosures for leases, even operating leases, are reasonably demanding. At present there is little required disclosure for these transactions when they are not viewed as leases.”

Mr Stevenson noted that the IFRIC’s proposals in D3 will reinforce the IASB’s commitment to convergence, as the proposals are similar to guidance issued last year by its US counterpart, the Emerging Issues Task Force. On D4 he commented:

“Funds established to help finance decommissioning costs are becoming increasingly common. The IFRIC was aware that questions about the appropriate accounting were arising in this area. The proposals in D4 are intended to ensure that decommissioning obligations are transparently reported on the balance sheet and are not hidden behind related decommissioning funds. The disclosure requirements in D4 also make it clear if reimbursement from the funds will not occur for many years.”

Subscribers to the IASB’s Comprehensive Subscription Service can view the draft Interpretations from the secure online services area of the IASB’s Website ( From 16 January the complete text of the draft Interpretation will be freely available from the Website.

About the proposals

D3 Determining whether an Arrangement contains a Lease

  1. In recent years arrangements have developed that do not take the legal form of a lease but which convey rights to use items (eg an item of property plant and equipment) for agreed periods of time in return for a payment or series of payments. Examples of such arrangements include:

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