IFRIC January 2007

At its meeting in November 2006, the IFRIC asked the staff to consider whether paragraph 69 of IAS 38 could be amended to require the costs of advertising and promotional activities to be recognised as an expense when the advertising or promotion was distributed to customers rather than when the expenditures were incurred.

At this meeting, the IFRIC considered draft changes that could be made to IAS 38 paragraph 69 and the implications of making such changes for other types of expenditure including start-up costs, training costs, and costs associated with reorganising or restructuring an entity.

The IFRIC concluded that the implications of such a change might not be acceptable. For example, many members were uncomfortable with a change to the standard that would defer the recognition of start-up costs until a start-up occurred.

The IFRIC therefore tentatively agreed that it would not pursue that amendment to paragraph 69 of IAS 38. The IFRIC noted that, if it did not pursue any changes, then divergence was likely to continue to exist around the wording of paragraph 70 of IAS 38 and the treatment of prepayments, and it asked the staff to develop amendments to paragraphs 68-70 of IAS 38 to clarify that advertising costs may be deferred until they are consumed.

The IFRIC also discussed mail order catalogues. The IFRIC reaffirmed its view that such catalogues are forms of advertising. In the course of its discussion, the IFRIC considered whether to develop an Interpretation specific to direct-response advertising, mirroring US GAAP SOP 93-7. The IFRIC concluded that the scope of such an Interpretation would be too narrow and therefore decided against this approach.