29 May 2013

EFRAG: Feedback statement on the clarification of acceptable methods of depreciation and amortisation

The feedback statement summarises the main comments received by EFRAG on its draft comment letter and explains how those comments were considered by the EFRAG Technical Expert Group (EFRAG TEG) during its technical discussions.

Generally, respondents supported EFRAG’s draft comment letter. However, the majority of respondents believed that EFRAG’s comment letter should more clearly state that the text in the standards should explicitly allow for revenue-based allocation in situations where this better reflect the pattern of consumption of the economic benefits embodied in the asset.

In addition, it was noted that that the drafting in the ED could contradict the general current requirement in revising depreciation (amortisation) process when there is a change in the expected pattern of consumption of the economic benefits embodied in the asset.

Finally, one constituent – while supporting EFRAG’s letter – believed that the IASB should consider alternative approaches, such a complete prohibition of depreciation and amortisation that is less prudent than a given bench mark (e.g. when revenue-based methods result in earlier rather than later amortisation in respect to other methods), or creating a rebuttable presumption that the method used should be at least as prudent as straight-line, with disclosure of the reasons and effect in cases where that presumption is rebutted.

In its final comment letter, EFRAG supported the IASB’s efforts to clarify the current requirements regarding the use of revenue-based methods of depreciation and amortisation, in agreement with all constituents. However, the letter was amended to clarify that EFRAG believed that the IASB should remove any language from the ED that discourages entities from applying revenue-based methods when they represent an appropriate proxy for reflecting the depreciation of the asset through its use. EFRAG agreed with constituents that the point needed to be made stronger than it had been in the draft comment letter. In addition, a paragraph was added to comment the contradiction between the proposed amendments and current guidance in revising the depreciation process.

Finally, EFRAG decided not to include any comment on the request to urge the IASB to consider alternative depreciation (amortisation) approaches to the existing ones as it believed that this would require an in depth project to address this issue, whereas these amendments are intended as a narrow scope improvement.

Press release

Feedback statement

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