The International Public Sector Accounting Standards Board (IPSASB), an independent standard-setting board within the International Federation of Accountants (IFAC), is seeking comments on its proposed changes to IPSAS 5, Borrowing Costs, set forth in exposure draft (ED) 35, Borrowing Costs (Revised 200X).
"Public sector entities borrow for a variety of reasons, most of which are unrelated to asset acquisition," said Mike Hathorn, Chair of the IPSASB. "The IPSASB concluded that requiring public sector entities to capitalize borrowing costs as part of the cost of qualifying assets would not satisfy the qualitative characteristics of general purpose financial reporting, particularly related to the reliability of information reported. The immediate expensing of these borrowing costs instead will enhance the accountability of public sector entities."
Most notably, ED 35 proposes amendments to reflect that in many circumstances the capitalization of borrowing costs as part of the cost of an asset is not appropriate for public sector entities. This view, a departure from both IPSAS 5 and International Accounting Standards Board's International Accounting Standard 23, Borrowing Costs, is an evolution from public sector consideration of the issue. The ED proposes that entities recognize borrowing-related expenses, such as interest or loan origination fees, during the period in which they are incurred. The ED also proposes, however, that where entities borrow funds specifically to acquire, construct or produce a qualifying asset, the entity has the option to capitalize those costs as part of the cost of that asset.
ED 35 may be viewed and downloaded by going to http://www.ifac.org/EDs. The IPSASB values the public's opinion and welcomes comments on its decision to require entities to expense borrowing costs, except in the circumstances outlined.
How to Comment
Comments on ED 35 are requested by January 7, 2009, and may be submitted via email at EDcomments@ifac.org. Comments can also be faxed to the attention of the IPSASB Technical Director at +1 (416) 977-8585, or mailed to the IPSASB Technical Director at 277 Wellington Street West, 6th Floor, and Toronto, Ontario M5V 3H2, Canada. All comments will be considered a matter of public record and, ultimately, will be posted on the IFAC website.
About IFAC
IFAC (www.ifac.org) is the global organization for the accountancy profession dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies. IFAC is comprised of 157 members and associates in 123 countries, representing more than 2.5 million accountants in public practice, education, government service, industry and commerce. In addition to setting international public sector financial reporting standards through the IPSASB, IFAC, through its independent standard-setting boards, sets ethics, auditing and assurance, and education standards. It also issues guidance to encourage high quality performance by professional accountants in business.
