IFRIC 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities

Some entities have obligations to decommission assets or to perform environmental restoration or rehabilitation. Some such entities contribute to a fund established to reimburse the decommissioning, restoration or rehabilitation costs when they are incurred. The fund may be set up to meet the decommissioning costs of a single contributor or for many contributors.

The issues addressed in IFRIC 5 are:
- How should a contributor account for its interest in a fund?
- When a contributor has an obligation to make additional contributions, how should that obligation be accounted for?

If an entity recognises a decommissioning obligation under IFRSs and contributes to a fund to segregate assets to pay for the obligation, it should apply IAS 27, Consolidated and Separate Financial Statements, SIC-12, Consolidation-Special Purpose Entities, IAS 28, Investments in Associates, and IAS 31, Interests in Joint Ventures, to determine whether decommissioning funds should be consolidated, proportionately consolidated or accounted for under the equity method.

When a fund is not consolidated, proportionately consolidated, or accounted for under the equity method, and that fund does not relieve the contributor of its obligation to pay decommissioning costs, the contributor should recognise:
- its obligation to pay decommissioning costs as a liability, and
- its rights to receive reimbursement from the fund as a reimbursement under IAS 37.

A right to reimbursement should be measured at the lower of (i) the amount of the decommissioning obligation recognised and (ii) the contributor's share of the fair value of the net assets of the fund. Changes in the carrying amount of this right (other than contributions to and payments from the funds) should be recognised in profit or loss.

When a contributor has an obligation to make potential additional contributions to the fund, that obligation is a contingent liability within the scope of IAS 37. When it becomes probable that the additional contributions will be made, a provision should be recognised.

EFRAG has commented on Draft Interpretation Decommissioning, Restoration and Similar Liabilities on 31 March 2004.

EFRAG has issued its endorsement advice letter to the European Commission on 19 July 2004.