IASB: exposure draft on government loans (proposed change to IFRS 1)

Comments from ACCA to the International Accounting Standards Board, January 2012.


IASB is proposing, in respect of government loans, an amendment to a requirement in IFRS1. On transition to IFRS, an entity is required, under IFRS1, to apply the standards retrospectively. IAS20 requires entities to measure government loans with a below-market rate of interest at fair value on initial recognition. 

The proposed amendment will permit entities, transitioning now to IFRS, to apply prospectively the above requirement of IAS20. Consequently, an entity would not need to establish fair value information for government loans received before the date of the transition. However, if an entity has obtained the necessary information at the time of taking out the loan, it may opt for retrospective application of the IAS20 requirement.

The proposed amendment mirrors the relief provided earlier to the existing adopters of IFRS. When the above requirement in respect of government loans was introduced through an amendment to IAS 20 in 2008, existing preparers under IFRS were permitted to apply the change prospectively.

ACCA supports the IASB's proposal. We also believe that the IASB should consider applying a relief to other changes which have been made to IFRS, and for which prospective application was permitted at the time of the change.

Responses to IASB's questions

Q1: The Board proposes to amend IFRS1 so that first-time adopters would be required to apply paragraph 10A of IAS20 prospectively to loans entered into on or after the date of transition to IFRSs, unless the information needed to apply these requirements to a government loan as a result of a past transaction was obtained at the time of initially accounting for that loan. Do you agree? Why or why not?

ACCA supports the proposed amendment. We believe that first-time adopters of IFRS should benefit from an equivalent relief to that given to entities which were already applying IFRS at the time paragraph 10A of IAS20 Accounting for Government Grants came into force in 2008.

Q2: Do you have any other comments on the proposals?
ACCA believes that the IASB should consider applying this relief to other changes made to IFRS, and for which prospective application was permitted at the time. For example, the requirement to measure at fair value an entity's investment property under construction was applied prospectively, in accordance with paragraph 85B of IAS 40.