IFRIC 5
Published
Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds
Addresses the accounting for interests arising from decommissioning funds where the contributor's access to fund assets is restricted, requiring gross presentation of the obligation and the fund interest.
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Conceptual Framework Linkage
Why offsetting the wrong way would mislead
Contributors to decommissioning funds often assume their obligation and their fund interest are simply two sides of the same coin and could be presented net. IFRIC 5 exists because that intuition conflicts with IAS 1's general prohibition on offsetting assets and liabilities – the contributor's obligation to a THIRD PARTY (the ultimate site owner/regulator) and its INTEREST in a separately-managed fund are, in substance, distinct rights and obligations against different counterparties.
Faithful representation of a restricted asset
A contributor typically cannot access fund assets freely – access is restricted to reimbursement of decommissioning expenditure. Recognising the fund interest as an unrestricted asset, or netting it against the liability, would obscure that restriction from users of the financial statements. IFRIC 5's gross presentation preserves that information.
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Scope & Definitions
What IFRIC 5 covers
IFRIC 5 applies to a contributor's accounting for interests arising from decommissioning funds that have BOTH of these characteristics: (a) the fund's assets are administered separately from the contributor's own assets, and (b) the contributor's access to fund assets is restricted.
TYPICAL FACT PATTERNS
Nuclear decommissioning trust funds Mine rehabilitation funds jointly funded by multiple operators Environmental remediation funds administered by an independent trustee
Key definitions
Fund
Assets segregated in a separate, restricted vehicle to fund some or all of the costs of decommissioning, restoring, or rehabilitating an asset or site.
Contributor
An entity that makes contributions to a fund, separately from its own recognised decommissioning obligation under IAS 37.
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Two Separate Items, Not One Net Balance
The central mechanic
A contributor recognises TWO separate items: (1) its OBLIGATION to pay decommissioning costs as a liability under IAS 37, and (2) its INTEREST in the fund, recognised separately UNLESS the contributor is required to make good any shortfall in the fund, in which case a right of reimbursement may instead be recognised under IAS 37's own reimbursement provisions.
⚠️ The two items are NOT offset against one another on the statement of financial position – IFRIC 5 requires gross presentation, consistent with IAS 1's general offsetting prohibition.
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Accounting for the Fund Interest
The default treatment
Where the contributor's right to receive reimbursement from the fund is NOT unconditional, the interest is recognised as a reimbursement right under IAS 37, measured at the LOWER of: (a) the amount of the related decommissioning obligation, and (b) the contributor's share of the fair value of the net assets of the fund attributable to contributors.
Worked example – reimbursement right measurement
Example: Applying the lower-of test
A contributor's share of the decommissioning obligation is $5,000,000. Its share of the fair value of the fund's net assets is $4,200,000.
The reimbursement right is recognised at $4,200,000 – the LOWER of the two amounts. The full $5,000,000 obligation remains recognised gross as a liability; the $800,000 shortfall is not reduced by any asset recognition.
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Reimbursement Rights vs Consolidation
When the fund itself must be consolidated or equity accounted
IFRIC 5's reimbursement-right mechanics apply only where the contributor does NOT control, jointly control, or have significant influence over the fund. Where the contributor DOES have such a relationship with the fund, it instead accounts for its interest under IFRS 10 (consolidation), IFRS 11 (joint arrangements), or IAS 28 (associates), as applicable.
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Obligations to Make Additional Contributions
A separate liability, recognised on its own terms
Where a contributor has an obligation to make potential additional contributions – for example, if other contributors default, or the fund's assets prove insufficient – that obligation is recognised as a SEPARATE liability, assessed under IAS 37's own recognition criteria, independently of the reimbursement right.
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Rights to Surplus Distributions
A high recognition threshold
A contributor's right to a refund of any surplus from the fund – after all decommissioning obligations are settled – is recognised as an ASSET only if the surplus is VIRTUALLY CERTAIN to be available to the contributor. This deliberately sets a much higher bar than the "probable" threshold used elsewhere in IAS 37.
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Changes in the Carrying Amount of the Interest
Where subsequent movements are recognised
Changes in the carrying amount of the reimbursement right – OTHER than contributions paid into the fund and payments received or receivable from the fund for decommissioning costs incurred – are recognised in profit or loss in the period they occur. This captures, for example, changes in the fair value of the fund's net assets that affect the lower-of measurement outcome.
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Disclosure
What IFRIC 5 requires
Nature of the contributor's interest in a fund, and any restrictions on access to fund assets Nature and amount of any obligation to make potential additional contributions Fair value of assets held by the fund, to the extent the interest is measured at the contributor's share of that fair value
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Critical Judgments & Estimates
Where judgement matters most
SIGNIFICANT JUDGEMENTS
Whether the contributor has control, joint control, or significant influence over the fund Whether a surplus refund right meets the "virtually certain" threshold
SIGNIFICANT ESTIMATES
Fair value of the contributor's share of the fund's net assets at each reporting date Likelihood and amount of potential additional contribution obligations
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IFRIC 5 vs US GAAP
Comparison – IFRIC 5 vs US GAAP
FeatureIFRIC 5 (IFRS)US GAAP
Measurement of the fund interestLower of the obligation and the contributor's share of the fund's net asset fair valueGenerally values the trust interest at fair value directly
Surplus refund recognition thresholdVirtually certain – a high barNo single codified "virtually certain" threshold
PresentationGross – obligation and interest presented separatelyGenerally also gross
Gross presentation is a shared principle across both frameworks; the more consequential divergence is in how the contributor's INTEREST in the fund is measured and capped.
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Statement Mapping
Where every IFRIC 5 event lands
EventStatement(s) affectedNotes
Recognition of the decommissioning obligationSOFPUnder IAS 37, gross
Recognition of the reimbursement rightSOFPSeparate asset, at the lower of the two measurement bases
Contribution paid into the fundSOFPIncreases the carrying amount of the interest
Change in carrying amount other than contributions or paymentsSOPLRecognised in the period it occurs
Additional contribution obligationSOFPSeparate IAS 37 liability
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Related Standards
Cross-reference map
StandardConnection
IAS 37Governs the underlying decommissioning obligation and reimbursement-right mechanics
IFRS 10 / IFRS 11 / IAS 28Apply instead of the reimbursement-right approach where the contributor controls or significantly influences the fund
IFRIC 1Governs how changes in the related decommissioning liability itself are accounted for
IAS 1Supplies the general offsetting prohibition underlying IFRIC 5's gross presentation requirement
Quick-reference glossary
Reimbursement right
An asset recognised under IAS 37 when a third party is expected to reimburse some or all of the expenditure required to settle a provision – capped so as not to exceed the amount of the related provision.
Virtually certain
A very high probability threshold, well above "probable," used sparingly across IFRS – here applied to a contributor's right to a residual fund surplus.
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Glossary
Reimbursement right
An asset recognised under IAS 37 when a third party is expected to reimburse some or all of the expenditure required to settle a provision.
Virtually certain
A very high probability threshold, well above 'probable,' used sparingly across IFRS.
Restricted assets
Fund assets to which the contributor's access is limited, typically to reimbursement of qualifying decommissioning expenditure.
Financial statement key
BS Balance sheet
IS Income statement
SE Statement of changes in equity
OCI Other comprehensive income
SCF Statement of cash flows
History & Development
Dec-2004
In December 2004 the International Accounting Standards Board issued IFRIC 5 Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds. It was developed by the Interpretations Committee.
May-2011
IFRS 10 Consolidated Financial Statements
Minor consequential amendment to IFRIC 5
May-2011
IFRS 11 Joint Arrangements
Minor consequential amendment to IFRIC 5
Nov-2013
IFRS 9 Financial Instruments (Hedge Accounting and amendments to IFRS 9, IFRS 7 and IAS 39)
Minor consequential amendment to IFRIC 5
Jul-2014
IFRS 9 Financial Instruments and Amendments to References to the Conceptual Framework in IFRS Standards
Minor consequential amendment to IFRIC 5