ASC Approves Amendment to SIC 12, Interpretations on Decommissioning and Similar Liabilities and Members’ Shares in Cooperative Entities
The Accounting Standards Council (ASC) approved the adoption of International Financial Reporting Interpretations Committee (IFRIC) Amendment to SIC 12 and Interpretations 1 and 2. The amendment and Interpretations are effective for annual periods beginning on or after January 1, 2005. These have been forwarded to the Professional Regulation Commission and Board of
Accountancy.
Amendment to Interpretation SIC–12: Scope SIC 12, Consolidation—Special Purpose Entities
The Amendment includes equity compensation plans within the scope of SIC-12 (previously excluded from SIC-12 scope). Hence, an entity that controls an employee benefit trust (or similar entity) set up for the purposes of a share-based payment arrangement will be required to consolidate that trust. The Amendment also excludes from the scope of SIC-12 other long-term
employee benefit plans, which are required to be accounted for in a manner similar to the accounting for post-employment benefit plans under Philippine Accounting Standard (PAS) 19, Employee Benefits, (at present only post-employment benefit plans are excluded from the scope of Interpretation SIC-12).
Interpretation IFRIC 1: Changes in Existing Decommissioning, Restoration and Similar Liabilities
The Interpretation addresses the accounting for changes in existing decommissioning, restoration and similar liabilities that fall within the scope of PAS 16, Property, Plant and Equipment, and are recognized as a provision under PAS 37, Provisions, Contingent Liabilities and Contingent Assets. For example, the operator of a nuclear power plant recognizes a provision for
decommissioning costs that it expects to incur in the future, and includes an equivalent amount in the cost of the power plant. PAS 37 requires the amount recognized as a provision to be the best estimate of the expenditure required to settle the obligation at the balance sheet date and is measured at its present value. The Interpretation deals with the following changes in an existing liability for such costs:
- Changes in the estimated outflows of resources embodying economic benefits (e.g., the estimated costs of decommissioning a nuclear power plant may vary significantly both in timing and amount); and changes to the current market-based discount rate – For PPE based on cost, changes are required to be capitalized as part of the cost of the item and depreciated prospectively over the remaining life of the item to which they relate. For PPE based on fair value, a change in the liability alters the revaluation surplus or deficit on the item (not the valuation of the item for accounting purposes). The effect of the change is treated consistently with other revaluation surpluses or deficits. Any cumulative deficit is taken to profit or loss, but any cumulative surplus is credited to equity.
- Increase in the liability that reflects the passage of time (the unwinding of the discount) – Thisis recognized in profit or loss as a finance cost as it occurs.
Interpretation IFRIC 2, Members’ Shares in Co-operative Entities and Similar Instruments
The Interpretation states that members’ shares would be classified as equity in the absence of the members’ right to request redemption if either of the following conditions is met: (a) the entity has an unconditional right to refuse redemption of the members’ shares; or (b) redemption is unconditionally prohibited by local law, regulation or the entity’s governing charter. However, provisions in local law or regulations or the entity’s governing charter that prohibit redemption only
if conditions (e.g., liquidity constraints) are met (or are not met) do not result in members’ shares being equity.