• Are we nearly there yet?

Are we nearly there yet?

20 February 2019

Cast your minds back 18 months to June 2017. This is when the IASB issued its Exposure Draft (“ED”) on Revenue Earned Before an Asset is Ready for its Intended Use. The IASB then waited until November 2018 to comment further, despite the period for initial comments closing in October.

In November 2018, the IASB decided to proceed with the initial proposed amendments to IAS 16 for the accounting for revenue earned before an asset is ready for its intended use. The Board took into account a number of issues raised by stakeholders who had commented on the original ED. The issues considered by the Board and the Board’s position on each were:

Issue The Board's position
There is no predictive value to the users of the financial statements in recognising revenue earned in the testing phase in the profit and loss account.

The Board concluded proceeds from test production do meet the definition of income and that reducing the cost of an asset by such proceeds may be equally misleading.

The Board acknowledged that disclosure requirements could be enhanced to ensure users can identify such proceeds and related costs.

When preparing financial statements it will be difficult to identify the costs that specifically relate to production before the PPE is ready for intended use. This may therefore result in increasing judgement being applied and some diversity in preparers’ approaches.

The Board challenged this issue but concluded that it would consider whether further modifications to the amendment were needed in order to clarify for preparers how such costs should be identified.

A request for clarification from the Board as to when an item of PPE should be considered available for use in order to reduce the possible diversity given the potential judgement involved.

The Board noted that this clarification request was outside the initial scope of this current project.


It is clear that the topic is still on the IASB’s agenda and that there are further modifications yet to come. We believe these are likely to be additional disclosure guidance and practical application guidance.

However, what we don’t know is what the effective date of these amendments may be. It is also not clear whether or not the amendments will apply on a prospective basis from the beginning of the earliest period presented.

All the Board has noted is that the application and the proposed additional modifications will be discussed at a future meeting.

We look forward to the publication of the Board’s meeting notes so we can conclude once and for all on the actual impact for the Natural Resources sector. Watch this space.