Under International Financial Reporting Standards (IFRS), borrowing costs are an additional aspect of Property, Plant and Equipment (PP&E) that is worthy of mention and review. This relates to the extent to which borrowing costs incurred to construct assets can be capitalized or expensed.
Prior to 2009, IFRS and Canadian GAAP were completely aligned – you had the choice to either expense or capitalize borrowing costs. However IFRS has removed the ability to expense. Furthermore, a new requirement under IAS 23, is to capitalize borrowing costs in regards to “qualifying assets” effective for years commencing on or after January 1, 2009.
Even if your company’s current accounting policy requires that you capitalize borrowing costs it does not mean that your company is fully compliant with IFRS. You may still have issues, as there are other considerations. For instance, under IFRS, there are some differences in what can be capitalized, and there is more guidance under IFRS on how to capitalize borrowing costs and the processes that need to be followed. You will need to closely review the specific standard to ensure that you fully understand the impact.
I hope this helps. This is one of a series of blogs that is meant to convey information relating to Canada’s transition from Canadian GAAP to IFRS.
For further information, please refer to the ongoing series of IFRS blogs on the Edelkoort Smethurst Schein CPA’s LLP web-site and please remember to contact your CGA or other accounting professional for further guidance.
Edelkoort | Smethurst | Schein CPAs LLP is located in Burlington Ontario servicing the Golden Horseshoe and Greater Toronto Area and beyond. The firm is fully licensed with CPA Ontario to provide assurance, tax and accounting services as well as registered as tax preparers with the Canada Revenue Agency (CRA) & Internal Revenue Service (IRS). The firm is also registered as an IRS Certified Acceptance Agent.
All blog posts published on this site are for informational purposes only and do not constitute professional advice. Readers should contact a professional to discuss their individual situation. Neither the author or the accounting firm shall accept any liability for any reliance placed on the information posted.