The Chronology of IAS 23 Borrowing Costs and why it was revised

IAS 23 Borrowing Costs was issued by the International Accounting Standards Committee in December 1993. It replaced IAS 23 Capitalisation of Borrowing Costs (issued March 1984).

In April 2001 the International Accounting Standards Board resolved that all Standards and Interpretation issued under previous Constitutions continued to be applicable unless and until they were amended or withdrawn.

IAS 23 was amended by IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (issued December 2003).

In March 2007 the IASB issued a revised IAS 23.

The following Interpretations refer to IAS 23 :

· IFRIC 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities (issued May 2004 and subsequently amended)

· IFRIC 12 Service Concession Arrangements (issued November 2006 and subsequently amended)

The revisions to IAS 23 result from the International Accounting Standards Board’s Short-term Convergence project.

The project is being conducted jointly with the United States standard-setter, the Financial Accounting Standards Board (FASB).

The objective of the project is to reduce differences between IFRSs and US generally accepted accounting principles (GAAP) that are capable of resolution in a relatively short time and can be addressed outside major projects.

The revisions to IAS 23 are principally concerned with the elimination of one of the two treatments that exist for borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset.

The application of only one method will enhance comparability.

For the reasons set out below, the Board decided to eliminate the option of immediate recognition of such borrowing costs as an expense. It believes this will result in an improvement in financial reporting as well as achieving convergence in principle with US GAAP.

The Board considered whether to seek convergence on the detailed requirements for the capitalization of borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset.

However, the Board noted statements by the US Securities and Exchange Commission (SEC) and the European Commission that the IASB and FASB should focus their short-term convergence effort on eliminating major differences of principle between IFRSs and US GAAP.

For their purposes, convergence on the detailed aspects of accounting treatments is not necessary.

The Board further noted that both IAS 23 and SFAS 34 Capitalization of Interest Cost were developed some years ago. Consequently, neither set of specific provisions may be regarded as being of a clearly higher quality than the other.

Therefore, the Board concluded that if should not spend time and resources considering aspects of IAS 23 beyond the choice between capitalization and immediate recognition as an expense.

(This article was excerpted from IAS 23 Borrowing Costs)