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IFRS 1 Amendment: Government Loans


In May 2008 the IASB amended IAS 20, as part of the Annual Improvement Project, in order to require government loans with a below-market rate of interest to be measured at fair value on initial recognition.
The IASB decided that this requirement will have to be applied prospectively to new loans.

In September 2011 the IASB decided to amend IFRS 1 in order to allow first-time adopters of IFRSs the same prospective application of the provision set out in IAS 20.

To achieve this, the IASB published on 19 October 2011 the Exposure Draft - Government Loans.

In November 2011, EFRAG issued its draft comment letter on the Exposure Draft - Government Loans (Proposed Amendments to IFRS 1) in which it was supportive of what the proposed amendments were trying to achieve but it believed that the IASB should limit the scope of the proposed transitional relief to entities that, under their previous GAAP, accounted for government loans as liabilities.
EFRAG also believed that the IASB should explain in the Basis for Conclusions why retrospective application of IAS 20 should remain an option in some circumstances.

EFRAG received seven comment letters in reply to its call for comments from constituents and considered their feedback in order to finalise its final comment letter.
On January 2012 EFRAG issued its final comment letter where it  remained supportive of what the proposals were trying to achieve even thought it still believed that further clarification was needed.
In details, EFRAG believed that the IASB should provide guidance on the recognition and measurement of all government loans existing at the date of transition, and not just on those that were recognised as liabilities under previous GAAP.
In addition, EFRAG believed that the IASB should require entities that elect to use the option for retrospective application apply it consistently to all government loans for which the information needed is available.

IASB issued on 13 March 2012 the amendments to IFRS1 Government Loans.

The intention of these amendments to IFRS1 was to deal with loans received from governments at a below market rate of interest in order to give first-time adopters of IFRSs relief from full retrospective application of IFRSs when accounting for these loans on transition.

In April 2012, EFRAG issued an Invitation to comment relating to the endorsement of the Amendments for use in the European Union and European Economic area. It was consulting both on its assessment of the amendments against the technical criteria for the endorsement in the EU and on its initial assessment of the costs and benefits that would arise from the implementation and application of the Amendments in the EU. EFRAG's initial assesment was that the Amendments satisfied the technical criteria for EU endorsement and EFRAG therefore reccomended its endorsement.

After having consulted with its constituents, in June EFRAG agreed to issue to the European Commission both the positive endorsement advice and the effective study report. The Amendments were endorsed on 4 March 2013 and published in the Official Journal on 5 March 2013.

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