Date: 2025-08-20 Page is: DBtxt003.php txt00025523
ACCOUNTING
EFRAG DISCUSSION PAPER ... September 2022
Accounting for Variable Consideration from the Purchaser's Perspective
EFRAG DISCUSSION PAPER ... September 2022
Accounting for Variable Consideration from the Purchaser's Perspective
Original article:
Peter Burgess COMMENTARY
Peter Burgess
EFRAG invites comments on all matters in this Discussion Paper, particularly in relation to the questions set out below.
Comments are more helpful if they:
• address the question as stated;
• indicate the specific paragraph reference to which the comments relate; and/or
• describe any alternative approaches that should be considered.
All comments should be received by 31 May 2023
QUESTION 1 - WHEN TO RECOGNISE A LIABILITY FOR VARIABLE CONSIDERATION
Chapter 2 explores two alternatives for requirements on when to recognise a financial liability for variable consideration that depends on the purchaser’s future actions under IAS 32/IFRS 9:
a) Alternative 1: Recognising a liability when the purchaser obtains control of the asset acquired unless the purchaser would have a practical ability to avoid taking the action that would trigger the variable consideration. (The Discussion Paper includes suggested criteria on when a purchaser entity would not have the practical ability to avoid taking the action(s) that would trigger the variable consideration (see Question 2 below)).
b) Alternative 2: Recognising a liability when the purchaser performs the actions that trigger the variable consideration.
The Chapter also includes assessments of qualitative characteristics of useful information for each of the two alternatives. Do you agree with these assessments?
Do you think that other alternatives for requirements for liabilities for variable consideration than those listed should be considered? If so, please specify these other alternatives.
When do you think a purchaser should recognise a financial liability covered by IFRS 9 for variable consideration that would depend on the purchaser’s future actions? Please explain your answer.
Are you aware of any issues relating to the measurement of a recognised financial liability for variable consideration? If so, please elaborate on these issues.
QUESTION 2 - HOW TO ASSESS THAT AN ENTITY HAS NO PRACTICAL ABILITY TO AVOID TAKING AN ACTION
Chapter 2 suggests five alternative criteria for assessing when a purchaser would have no practical ability to avoid taking an action which would trigger a variable consideration (when the purchaser is not legally or constructively obliged to perform the future actions). The five suggested criteria are:
a) When avoiding taking an action would mean that the purchaser would have to cease its activities.
b) When avoiding taking an action would have a significant unfavourable economic impact on the entity.
c) When avoiding taking an action would have a significant unfavourable economic impact in the context of the acquired asset.
d) When avoiding taking an action would result in using an acquired asset in a manner that would not reflect the economic purpose of acquiring the asset.
e) When avoiding taking an action would have marginal economically unfavourable consequences for the entity.
Do you agree that the above criteria are valid for assessing whether a purchaser would not have the practical ability to avoid performing a future action that would trigger variable consideration?
Are there other criteria that should be considered? If so, please elaborate on these other criteria. Which of the above criterion/criteria would you prefer and why? QUESTION 3 - INTERPRETATIONS OF THE DEFINITION OF COST
Chapter 3 notes that the definition of ‘cost’ included in IAS 16, IAS 38 and IAS 40 (“the amount of cash or cash equivalents paid or the fair value of the other consideration given to acquire an asset at the time of its acquisition or construction, or, when applicable, the amount attributed to that asset when initially recognised in accordance with the specific requirements of other IFRSs, e.g., IFRS 2 Share-based Payment”) is interpreted differently.
How do you interpret current requirements in relation to whether/when the measurement at cost of an asset covered by IAS 16 or IAS 38 should be updated to reflect changes in estimates of variable consideration?
How do you think ‘cost’ should be defined to provide the most useful information and do you think it is useful to consider that measurement at cost should be similar across all IFRS Standards?
QUESTION 4 - POSSIBLE REQUIREMENTS FOR WHEN MEASUREMENT AT COST SHOULD BE UPDATED TO REFLECT CHANGES IN ESTIMATES OF VARIABLE CONSIDERATION
Chapter 3 explores the following three possible alternatives for requirements for when the cost of an asset should be updated in situations where the asset is acquired in exchange for variable consideration in cash or another financial instrument:
a) Alternative 1: Not updating the cost estimate.
b) Alternative 2: Updating the cost to reflect all subsequent changes in estimates of variable consideration.
c) Alternative 3: Sometimes updating the cost of an asset. The Discussion Paper lists the following criteria which could be used to determine when the cost of the asset should be updated. One or several of the criteria could be used:
• Update if estimates of variable consideration are included in the measurement of the asset’s cost at initial recognition.
• Update if the change in estimates of variable consideration takes place before the asset is ready for its intended use.
• Update the cost to the extent that variable payments are associated with future economic benefits to be derived from the asset.
• Update the cost to the extent that variable consideration is linked to the initial quality of the asset.
Do you think that other possible requirements than those explored in the Discussion Paper should be considered?
If so, what are these other requirements?
Chapter 3 presents the qualitative characteristics of useful information for the three possible alternative requirements (including the four different criteria under Alternative 3) for when measurement at cost should be updated to reflect changes in estimates of variable consideration. Do you agree with the assessed characteristics of useful information for the alternatives? If not, which elements should be considered and which assessments do you disagree with?
When do you think ‘cost’ should be updated to reflect changes in estimates of variable consideration? If you think that ‘cost’ should sometimes be updated, under what circumstances should it be updated?
QUESTION 5 - GENERAL REQUIREMENTS ON ACCOUNTING FOR VARIABLE CONSIDERATION
Chapter 4 complements Chapters 2 and 3 of the Discussion Paper by assessing the broader requirements for accounting for variable consideration. Chapter 4 examines the advantages and disadvantages of respectively developing a unified set of principles for IFRS requirements to account for variable consideration and undertaking Standard-by-Standard amendments that could apply to the two issues covered in Chapters 2 and 3 (i.e., liability recognition when payment depends on purchaser’s future actions and measurement of the acquired asset).
Do you agree with the advantages and disadvantages identified?
Based on your assessment and the outlined advantages and disadvantages of respectively developing a unified set of principles for IFRS requirements to account for variable consideration and undertaking a Standard-by-Standard amendment, which of the standard-setting responses do you support?
Do you think that requirements to deal with the issues mentioned in Chapters 2 and 3 should be based on a unified set of principles for how to account for variable consideration?
QUESTION 6 - APPLYING AN IFRS 15 MIRRORING APPROACH
Chapter 4 notes that requirements on variable consideration included in IFRS 15, could be ‘mirrored’ to provide guidance on how to account for a liability for variable consideration (with the exception of the constraint to only include in the transaction price the amount of variable consideration that is highly probable not to result in a significant reversal in the amount of cumulative revenue recognised).
Do you think such an approach would result in useful information? Please explain why or why not?