Significant IssuesSignificant Issues

BASIS FOR CONCLUSIONS

Note: This Basis for Conclusions accompanies, but is not part of, AASB 123.

Background

BC1 This Basis for Conclusions summarises the Australian Accounting Standards Board’s considerations in reaching the conclusions in this Standard. Individual Board members gave greater weight to some factors than to others.

BC2 Before the mandatory application date of revised AASB 123 Borrowing Costs in 2009, the Board conducted a review of the requirement in AASB 123 for not-for-profit entities to capitalise borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. As a result of that review, in April 2009 the Board issued AASB 2009-1 Amendments to Australian Accounting Standards – Borrowing Costs of Not-for-Profit Public Sector Entities. AASB 2009-1 amended AASB 123 to allow not-for-profit public sector entities to expense borrowing costs as incurred, regardless of how the borrowings are applied.

BC3 The Board intended for the relief granted under AASB 2009-1 to be of an interim nature pending the outcome of:

(a) the work of the New Zealand Financial Reporting Standards Board (FRSB)[2] on the relationship between depreciated replacement cost and borrowing costs, in which the AASB agreed to participate;

(b) the AASB and FRSB work on developing a Process for Modifying, or Introducing Additional Requirements to, IFRSs for PBE/NFP; and

(c) the International Public Sector Accounting Standards Board’s (IPSASB’s) Borrowing Costs project.

BC4 In March 2011, the AASB decided to reactivate its project on the application of AASB 123 by not-for-profit public sector entities, and evaluate the election for not-for-profit public sector entities to expense immediately all borrowing costs against its Process for Modifying IFRSs for PBE/NFP (‘Process’).

BC5 In September 2014, the Board discussed the modification for not-for-profit public sector entities to expense borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset against its Process. The Board noted that the International Valuation Standards Council issued Technical Information Paper 2 The Cost Approach for Tangible Assets in April 2012, which includes discussion of inputs included in a model based on the cost approach, and that the IPSASB’s Borrowing Cost project was on hold pending completion of the IPSASB’s Conceptual Framework project.

BC6 The Board noted that it would not be appropriate for the accounting for borrowing costs of not-for-profit public sector entities to differ from that of for-profit entities merely because the Board may favour a different treatment conceptually. The Board confirmed that departure from the requirements of IAS 23 Borrowing Costs should only be permitted where not-for-profit specific reasons for departure exist.