Decommissioning Costs - Usgaap vs Ifrs

DECOMMISSIONING COSTS [pic] |GAAP Switch | |
|IAS 37.19 |Decommissioning costs are those that arise, for example, where an oil installation or nuclear |
| |power station has to be dismantled at the end of its life. The impact of IAS 37 on the accounting|
| |for such costs is profound. |
|IAS 37 Appx C |The accounting for decommissioning costs is dealt with in IAS 37 by way of example 3 in Appendix |
| |C. This example requires that an entity should recognise a liability as soon as the |
| |decommissioning obligation is created, which is normally when the facility is constructed and the |
| |damage that needs to be restored is done. The total decommissioning cost is estimated, discounted|
| |to its present value and it is this amount which forms the initial provision and is added to the |
| |corresponding asset’s cost. Thereafter, the asset is depreciated over its useful life, while the |
| |discounted provision is progressively unwound, with the unwinding charge showing as an interest |
| |cost. No guidance is provided on accounting for changes in the decommissioning provision as a |
| |result of changes in cost estimates or changes in discount rates. This is acknowledged by the |
| |Issues Paper Extractive Industries – issued in November 2000 by the IASC Steering Committee on |
| |Extractive Industries – which identifies three possible treatments: |
| |• |the change should be recognised on the same basis as the charge was |
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