In 2011 the Interpretations Committee established that there was diversity in practice because some entities reflected the time value of money and others did not. Since that time, IFRS 15 has clarified that the contract amount should be adjusted only if the contract has a significant financing component.
In the Interpretations Committee’s view, if the 2011 reported diversity arose because some supply contracts contained a significant financing component and others did not (because the prepayment was made for operational reasons) there would have been no diversity at that time in applying IFRS. The different outcomes observed would be explained by the different facts and circumstance of the two types of transactions.
At its November 2014 meeting, the Interpretations Committee asked the staff to re-perform its outreach in a way that clarifies the operating and financing distinction made in IFRS 15. It recommended that the staff collect more evidence about the nature of these transactions by conducting detailed outreach that would enable it to draw out how to distinguish, in each transaction, whether the prepayment was made for operational or financing reasons.
This would allow the Interpretations Committee to determine whether all similar types of transactions are accounted for in a similar way or whether the reported diversity occurs between transactions of the same type. This outreach would also indicate whether transactions in which a purchaser finances its supplier are widespread.
The results of outreach were disappointing. Only one entity provided evidence about this type of transaction to the staff. In the absence of additional evidence, the Interpretations Committee was unable to decide whether there was diversity in practice or whether the effect of accounting separately for a financing component would be material. Accordingly, the Interpretations Committee decided at its November 2015 meeting not to take this issue onto its agenda.