International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards
Page 463
asset to a non-customer will generally be consistent with a contract to sell a non-
financial asset to a customer, except for financial statement presentation and disclosure.
Sale or transfers of businesses or subsidiaries that do not contain solely non-financial
assets and in-substance non-financial assets to non-customers are accounted for using
the deconsolidation guidance in ASC 810 – Consolidation.
As discussed above, IAS 16, IAS 38 and IAS 40 require entities to use certain of the
requirements of IFRS 15 when recognising and measuring gains or losses arising from
the sale or disposal of non-financial assets when it is not in the ordinary course of
business. The sale or disposal of a subsidiary (i.e. loss of control) is accounted for under
IFRS 10. Unlike US GAAP, IFRS does not contain specific requirements regarding the
sale of in-substance non-financial assets that are not a business.
12.3.1
Sale of assets held for rental
In general, IAS 16 prohibits the classification of gains arising from the derecognition of
PP&E as revenue. [IAS 16.68A]. However, for entities that are in the business of renting
and subsequently selling the same asset, the IASB has agreed that the presentation of
2326 Chapter 28
revenue, rather than a net gain or loss on the sale of the assets, would better reflect the
ordinary activities of such entities. [IAS 16.BC35C].
Therefore, where an entity, in the course of its ordinary activities, routinely sells items
of PP&E that it has held for rental to others, it is required to transfer the assets to
inventories at their carrying amount when they cease to be rented and become held for
sale. The proceeds from the sale of such assets are recognised as revenue in accordance
with IFRS 15 on a gross basis. IFRS 5 does not apply when assets that are held for sale
in the ordinary course of business are transferred to inventories. [IAS 16.68A].
IAS 7 requires presentation within operating activities of cash payments to manufacture
or acquire such assets and cash receipts from rents and sales of such assets. [IAS 7.14]. The
requirements of IAS 7 are discussed further in Chapter 36.
12.4 Regulatory assets and liabilities
In many countries, the provision of utilities (e.g. water, natural gas or electricity) to
consumers is regulated by a government agency (regulators). The objective of this rate
regulation is to ensure ‘quality, quantity and availability of supply’, as well as ‘stability,
predictability and affordability of pricing’ for ‘goods or services that governments consider
essential for a reasonable quality of life for their citizens and for which there are significant
barriers to effective competition for supply’. Regulations differ between countries, but
regulators may operate a cost-plus system under which a utility is allowed to make a fixed
return on investment. Consequently, there is rate-adjustment mechanism to adjust the
future price that a utility is allowed to charge its customers for variances between
estimated and actual inputs to the rate calculation. Hence, this adjustment creates timing
differences as the future price may be influenced by past cost levels and investment levels.
Under some national GAAPs (including US GAAP) accounting practices have been
developed that allow an entity to account for the effects of regulation by recognising a
‘regulatory liability’ or ‘regulatory asset’ that reflects the decrease in future prices
required by the regulator to compensate for an excessive return on investment, and vice
versa where an increase would be permitted.
In September 2012, the Board decided to restart its rate-regulated activities project and
issued a discussion paper in September 2014 aiming to develop an accounting model so
that investors can compare the effects of rate regulation on the financial position,
performance and cash flows of any entity with significant rate-regulated revenue.154 As
an interim measure, the IASB issued an IFRS 14 – Regulatory Deferral Accounts – to
help entities who currently recognise rate-regulated assets and liabilities under their
national GAAP adopt IFRS. That standard permits a first-time adopter of IFRS to
continue to use its previous accounting policies for rate-regulated assets and liabilities,
with specific disclosure requirements (see Chapter 5).
The Board is currently undertaking a standard-setting project to develop a new
accounting model to provide users of financial statements with useful information about
an entity’s rights and obligations arising from a defined rate regulation and are not
captured by existing IFRS requirements.
The possible accounting model being discussed by the IASB provides explanations for
the term ‘defined rate regulation’ and proposes a ‘supplementary approach’. Under this
Revenue
2327
approach, an entity would continue to apply existing IFRS standards, including IFRS 15,
without modification (i.e. customer contracts perspective). The model would then be
applied to provide information about the effects of the timing differences between when
a transaction or event takes place and when some of the effects of that transaction or
event are reflected in the rate (i.e. regulatory agreement perspective). The rights and
obligations reflecting these timing differences that are incremental to those reported
using existing IFRS standards (e.g. IFRS 15) would then be recognised in the statement
of financial position as asset or liability.155
Before the Board decides whether to publish its proposal for a new accounting model,
in either a second Discussion Paper or an Exposure Draft, at the time of writing, it was
expected to continue its discussion through the second half of 2018 and issue a
Discussion Paper or Exposure draft in the second half of 2019. Until any new standard
is issued and becomes effective, regulatory assets and liabilities are not eligible for
recognition under IFRS, unless the entity is a first-time adopter that can apply IFRS 14.
For further details see Chapter 17 at 11.1.
References
1 Speech by Wesley R. Bricker, 5 May 2016.
Licensing (April 2016); ASU
2016-12,
Refer to SEC website at https://
Revenue from Contracts with Customer
www.sec.gov/news/speech/speech-bricker-05-
(Topic 606): Narrow-Scope Improvements and
05-16.html (accessed 10 September 2018).
Practical Expedients (May 2016);
2 As originally issued, the standards under IFRS
ASU 2016-20, Technical Corrections and
and US GAAP were identical except for these
Improvements to Topic 606, Revenue From
areas: (1) the Boards used the term ‘probable’ to
Contracts With Customers (December 2016);
describe the level of confidence needed when
and ASU 2017-05, Other Income – Gains and
assessing collectability to identify contracts with
Losses from the Derecognition of Nonfinancial
customers, which will result in a higher threshold
Assets (Subtopic 610-20): Clarifying the Scope
under US GAAP than under IFRS; (2) the FASB
of Asset Derecognition Guidance and
required more interim disclosures than the IASB;
Ac
counting for Partial Sales of Nonfinancial
(3) the IASB allowed early adoption and the
Assets (February 2017).
FASB did not; (4) the IASB allowed reversals of
5 The FASB’s standard defines a public entity as
impairment losses and the FASB did not; and (5)
one of the following: A public business entity (as
the FASB provided relief for non-public entities
defined); A not-for-profit entity that has issued, or
relating to specific disclosure requirements and
is a conduit bond obligor for, securities that are
the effective date.
traded, listed or quoted on an exchange or an over-
3
Effective Date of IFRS 15, September 2015.
the-counter market; An employee benefit plan that
4 The FASB’s amendments to its standard were
files or furnishes financial statements with the US
effected through the following: ASU 2015-14,
SEC. An entity may meet the definition of a public
Revenue from Contracts with Customers
business entity solely because its financial
(Topic 606): Deferral of the Effective Date;
statements or financial information is included in
ASU 2016-08, Revenue from Contracts with
another entity’s filing with the SEC. The SEC staff
Customers (Topic 606): Principal versus Agent
said it would not object if these entities adopt the
Considerations (Reporting Revenue Gross
new revenue standard using the effective date for
versus Net); ASU 2016-10, Revenue from
non-public entities rather than the effective date
Contracts with Customers (Topic
606):
for public entities.
Identifying Performance Obligations and
2328 Chapter 28
6
As defined in US GAAP in 24 TRG Agenda paper 48, Customer options for
ASC 606-10-65-1(c)(2).
additional goods and services, dated
7
ESMA Report Enforcement and Regulatory
9 November 2015.
Activities of Accounting Enforcers in 2017,
25 TRG Agenda paper 10, Contract enforceability
para. 63.
and termination clauses, dated 31 October 2014.
8
Section
1500 of the SEC’s Division of 26 Paragraph 47a of TRG Agenda paper 48,
Corporation Finance’s Financial Reporting
Customer options for additional goods and
Manual,
Interim Period Reporting
services, dated 9 November 2015.
Considerations (All Filings): Interim Period 27 TRG Agenda paper 33, Partial Satisfaction of
Financial Statement Disclosures upon
Performance Obligations Prior to Identifying
Adoption of a New Accounting Standard.
the Contract, dated 30 March 2015.
9
US
GAAP,
Statement of Financial Accounting
28 TRG Agenda paper 25, January 2015 Meeting
Concepts No. 6, para. 78
– Summary of Issues Discussed and Next Steps,
10 TRG Agenda paper 17, Application of IFRS 15
dated 30 March 2015.
to permitted Islamic Finance Transactions, 29
TRG Agenda paper 46, Pre-Production
dated 26 January 2015.
Activities, dated 9 November 2015.
11 TRG Agenda paper 25, January 2015 Meeting
30 TRG Agenda paper 16, Stand-Ready Performance
– Summary of Issues Discussed and Next Steps,
Obligations, dated 26 January 2015.
dated 30 March 2015.
31 TRG Agenda paper 16, Stand-Ready Performance
12 FASB TRG Agenda paper 52, Scoping
Obligations, dated 26 January 2015.
Considerations for Financial Institutions, dated
32 TRG Agenda paper 48, Customer options for
18 April 2016.
additional goods and services, dated
13 TRG Agenda paper 36, Scope: Credit Cards,
9 November 2015.
dated 13 July 2015.
33 TRG Agenda paper 25, January 2015 Meeting
14 TRG Agenda paper 36, Scope: Credit Cards,
– Summary of Issues Discussed and Next Steps,
dated 13 July 2015.
dated 30 March 2015.
15 ASU 2018-08, Accounting Standards Update
34 TRG Agenda paper 48, Customer options for
2018-08—Not-For-Profit Entities (Topic 958):
additional goods and services, dated
Clarifying The Scope And Accounting
9 November 2015.
Guidance For Contributions Received And 35 IFRIC Update, March 2018.
Contributions Made.
36 IFRIC Agenda paper 2D, March 2018.
16 TRG Agenda paper 26, Whether Contributions
37 IFRIC Update, March 2018.
are Included or Excluded from the Scope, dated
38 TRG Agenda paper 39, Application of the
30 March 2015 and TRG Agenda paper 34,
Series Provision and Allocation of Variable
March 2015 Meeting – Summary of Issues
Consideration, dated 13 July 2015.
Discussed and Next Steps, dated 13 July 2015.
39 TRG Agenda paper 39, Application of the
17 IFRIC Update, March 2016
Series Provision and Allocation of Variable
18 IFRIC Update, March 2016
Consideration, dated 13 July 2015.
19 For US GAAP, the term ‘probable’ is defined
40 TRG Agenda paper 27, Series of Distinct
in the master glossary of the US Accounting
Goods or Services, dated 30 March 2015.
Standards Codification as ‘the future event or
41 TRG Agenda paper 27, Series of Distinct
events are likely to occur’.
Goods or Services, dated 30 March 2015.
20 TRG Agenda paper 25, January 2015 Meeting
42 TRG Agenda paper 34, March 2015 Meeting –
– Summary of Issues Discussed and Next Steps,
Summary of Issues Discussed and Next Steps,
dated 30 March 2015.
dated 13 July 2015.
21 TRG Agenda paper 13, Collectibility, dated
43 TRG Agenda paper 27, Series of Distinct
26 January 2015.
Goods or Services, dated 30 March 2015.
22 TRG Agenda paper 13, Collectibility, dated 44 TRG Agenda paper 27, Series of Distinct
26 January 2015 and TRG Agenda paper 25,
Goods or Services, dated 30 March 2015 and
January 2015 Meeting – Summary of Issues
TRG Agenda paper 34, March 2015 Meeting –
Discussed and Next Steps, dated 30 March 2015.
Summary of Issues Discussed and Next Steps,
23 TRG Agenda paper 10, Contract enforceability
dated 13 July 2015.
and termination clauses, dated 31 October 2014
45 TRG Agenda paper 39, Application of the
and TRG Agenda paper 11, October 2014
Series Provision and Allocation of Variable
Meeting – Summary of Issues Discussed and
Consideration, dated 13 July 2015.
Next Steps, dated 26 January 2015.
Revenue
2329
46 TRG Agenda paper 39, Application of the 63 TRG Agenda paper 34, March 2015 Meeting –
Series Provision and Allocation of Variable
Summary of Issues Discussed and Next Steps,
Consideration, dated 13 July 2015.
dated 13 J
uly 2015.
47 TRG Agenda paper 39, Application of the 64 TRG Agenda paper 34, March 2015 Meeting –
Series Provision and Allocation of Variable
Summary of Issues Discussed and Next Steps,
Consideration, dated 13 July 2015.
dated 13 July 2015.
48 TRG Agenda paper 39, Application of the 65 TRG Agenda paper 32, Accounting for a
Series Provision and Allocation of Variable
Customer’s Exercise of a Material Right, dated
Consideration, dated 13 July 2015.
30 March 2015.
49 FASB ASU 2016-08, Revenue from Contracts with
66 TRG Agenda paper 5, July 2014 Meeting –
Customers (Topic 606): Principal versus Agent
Summary of Issues Discussed and Next Steps,
Considerations (March 2016), para. BC38.
originally dated 31 October 2014, reissued
50 TRG Agenda paper 2, Gross versus Net
18 March 2015.
Revenue: Amounts Billed to Customers, dated
67 TRG Agenda paper 39, Application of the
18 July 2014.
Series Provision and Allocation of Variable
51 FASB staff Private Company Council Memo,
Consideration, dated 13 July 2015.
Reimbursement of Out-of-Pocket Expenses,
68 TRG Agenda paper 38, Portfolio Practical
dated 26 June 2018.
Expedient and Application of Variable
52 TRG Agenda paper 6, Customer options for
Consideration Constraint, dated 13 July 2015.
additional goods and services and nonrefundable
69 As defined in US GAAP in the master glossary
upfront fees, dated 31 October 2014 and TRG
of the Accounting Standards Codification.
Agenda paper 11, October 2014 Meeting – 70 TRG Agenda paper 38, Portfolio Practical
Summary of Issues Discussed and Next Steps,
Expedient and Application of Variable
dated 26 January 2015.
Consideration Constraint, dated 13 July 2015.
53 TRG Agenda paper 6, Customer options for 71 As discussed in ASC 605-25 and SEC Staff
additional goods and services and nonrefundable
Accounting Bulletin Topic 13: Revenue
upfront fees, dated 31 October 2014 and TRG
Recognition.
Agenda paper 11, October 2014 Meeting – 72 TRG Agenda paper 14, Variable Consideration,
Summary of Issues Discussed and Next Steps,
dated 26 January 2015 and TRG Agenda paper
dated 26 January 2015.
25, January 2015 Meeting – Summary of Issues
54 TRG Agenda paper 48, Customer options for