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Specialized Activities

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SME Par.IFRS SMEU.S. GAAP
Scope of this section
34.1 This section provides guidance on financial reporting by SMEs involved in three types of specialised activities—agriculture, extractive activities, and service concessions.  
Agriculture
34.2 An entity using this IFRS that is engaged in agricultural activity shall determine its accounting policy for each class of its biological assets as follows:
  1. The entity shall use the fair value model in paragraphs 34.4–34.7 for those biological assets for which fair value is readily determinable without undue cost or effort.
  2. The entity shall use the cost model in paragraphs 34.8–34.10 for all other biological assets.
 Unlike IFRS SMEs, U.S. GAAP does not use the term “biological assets.” Instead, U.S. GAAP has specialized accounting applicable only to agricultural producers and agricultural cooperatives.

Unlike IFRS SMEs, biological assets (living animals or plants) are reported at the lower of cost or market (LOCOM) or depreciated cost, depending on the type of asset and its use (e.g., row crop, vineyard, breeding animal).

Unlike IFRS SMEs, agricultural produce (harvested crops and animals held for sale) may be reported at sales price less costs of disposal only if all of the following conditions are met:
  1. The product has a reliable, readily determinable, and realizable market price.
  2. The product has relatively insignificant and predictable costs of disposal.
  3. The product is available for immediate delivery.
Otherwise, agricultural produce is valued at the lower of cost or market.
 Recognition
34.3 An entity shall recognise a biological asset or agricultural produce when, and only when:
  1. the entity controls the asset as a result of past events;
  2. it is probable that future economic benefits associated with the asset will flow to the entity; and
  3. the fair value or cost of the asset can be measured reliably without undue cost or effort.
 Unlike IFRS SMEs, U.S. GAAP does not limit the recognition of living animals or plants, or of harvested crops and animals held for sale, to situations in which the fair value or cost of the asset can be measured reliably without undue cost or effort.
 Measurement – fair value model
34.4 An entity shall measure a biological asset on initial recognition and at each reporting date at its fair value less costs to sell. Changes in fair value less costs to sell shall be recognised in profit or loss. Unlike IFRS SMEs, living animals and plants are are not reported at their fair value. See 34.2.
34.5 Agricultural produce harvested from an entity’s biological assets shall be measured at its fair value less costs to sell at the point of harvest. Such measurement is the cost at that date when applying Section 13 Inventories or another applicable section of this IFRS. Same if certain conditions are met. See 34.2.
34.6 In determining fair value, an entity shall consider the following:
  1. If an active market exists for a biological asset or agricultural produce in its present location and condition, the quoted price in that market is the appropriate basis for determining the fair value of that asset. If an entity has access to different active markets, the entity shall use the price existing in the market that it expects to use.
  2. If an active market does not exist, an entity uses one or more of the following, when available, in determining fair value:
    1. the most recent market transaction price, provided that there has not been a significant change in economic circumstances between the date of that transaction and the end of the reporting period;
    2. market prices for similar assets with adjustment to reflect differences; and
    3. sector benchmarks such as the value of an orchard expressed per export tray, bushel, or hectare, and the value of cattle expressed per kilogram of meat.
  3. In some cases, the information sources listed in (a) or (b) may suggest different conclusions as to the fair value of a biological asset or agricultural produce. An entity considers the reasons for those differences, to arrive at the most reliable estimate of fair value within a relatively narrow range of reasonable estimates.
  4. In some circumstances, fair value may be readily determinable without undue cost or effort even though market determined prices or values are not available for a biological asset in its present condition. An entity shall consider whether the present value of expected net cash flows from the asset discounted at a current market determined rate results in a reliable measure of fair value.
  1. U.S. GAAP does not address directly situations in which there are different active markets for agricultural produce.
  2. Unlike IFRS SMEs, if there is no active market, then agricultural produce is not measured at sales price less costs of disposal.
  3. Not applicable.
  4. Not applicable.
 Measurement – cost model
34.8 The entity shall measure at cost less any accumulated depreciation and any accumulated impairment losses those biological assets whose fair value is not readily determinable without undue cost or effort. Unlike IFRS SMEs, biological assets (living animals or plants) are always reported at LOCOM or depreciated cost, depending on the type of asset and its use (e.g., row crop, vineyard, breeding animal), rather than at fair value.
34.9 The entity shall measure agricultural produce harvested from its biological assets at fair value less estimated costs to sell at the point of harvest. Such measurement is the cost at that date when applying Section 13 or other sections of this IFRS. Unlike IFRS SMEs, agricultural produce (harvested crops and animals held for sale) may be reported at sales price less costs of disposal only if all of the following conditions are met:
  1. The product has a reliable, readily determinable, and realizable market price.
  2. The product has relatively insignificant and predictable costs of disposal.
  3. The product is available for immediate delivery.
Extractive activities
34.11 An entity using this IFRS that is engaged in the exploration for, evaluation or extraction of mineral resources (extractive activities) shall account for expenditure on the acquisition or development of tangible or intangible assets for use in extractive activities by applying Section 17 Property, Plant and Equipment and Section 18 Intangible Assets other than Goodwill, respectively. When an entity has an obligation to dismantle or remove an item, or to restore the site, such obligations and costs are accounted for in accordance with Section 17 and Section 21 Provisionsand Contingencies. Unlike IFRS SMEs, U.S. GAAP provides detailed guidance on accounting and reporting by oil and gas producing entities, includuing guidance on pre-exploration and development activities. U.S. GAAP does not contain any guidance for other extractive industries.

Unlike IFRS SMEs, oil and gas producing entities have a choice of applying either the successful efforts method or the full cost method to all oil and gas expenditures. Under the successful efforts method, costs of geological and geophysical activities, costs of carrying and retaining undeveloped properties, and costs associated with exploratory dry holes, net of any salvage value, are charged to expense. Under the full cost method, all costs (internal and external) directly identified with the acquisition of property, exploration, and development activities generally qualify for capitalization.

Unlike IFRS SMEs, capitalized acquisition costs and capitalized exploration and development costs must be amortized by the unit-of-production method.

Like IFRS SMEs, entities following the successful efforts method of accounting apply the general impairment standard. However, the methodology used to calculate an impairment loss differs from IFRS SMEs (see Section 27).

Entities using the full cost method perform a limitation calculation on capitalized costs each reporting period (“ceiling test”), unlike IFRS SMEs. An impairment loss is recognized if the carrying amount of a cost center is not recoverable and exceeds the limitation on capitalized costs (the “ceiling”). Also unlike IFRS SMEs, the test for recoverability under the full cost method is applied at the “geographic” level, which generally covers an entire country.

Unlike IFRS SMEs, impairment losses are not reversed.
Service concession arrangements
34.12 A service concession arrangement is an arrangement whereby a government or other public sector body (the grantor) contracts with a private operator to develop (or upgrade), operate and maintain the grantor’s infrastructure assets such as roads, bridges, tunnels, airports, energy distribution networks, prisons or hospitals. In those arrangements, the grantor controls or regulates what services the operator must provide using the assets, to whom, and at what price, and also controls any significant residual interest in the assets at the end of the term of the arrangement. Unlike IFRS SMEs, U.S. GAAP does not provide specific accounting guidance addressing service concession arrangements. Applying U.S. GAAP to such arrangements is likely to produce different accounting results depending on the specific facts and circumstances.
34.13 There are two principal categories of service concession arrangements:
  1. In one, the operator receives a financial asset—an unconditional contractual right to receive a specified or determinable amount of cash or another financial asset from the government in return for constructing or upgrading a public sector asset, and then operating and maintaining the asset for a specified period of time. This category includes guarantees by the government to pay for any shortfall between amounts received from users of the public service and specified or determinable amounts.
  2. In the other, the operator receives an intangible asset—a right to charge for use of a public sector asset that it constructs or upgrades and then operates and maintains for a specified period of time. A right to charge users is not an unconditional right to receive cash because the amounts are contingent on the extent to which the public uses the service.
Sometimes, a single contract may contain both types: to the extent that the government has given an unconditional guarantee of payment for the construction of the public sector asset, the operator has a financial asset; to the extent that the operator has to rely on the public using the service in order to obtain payment, the operator has an intangible asset.		 See 34.12.
 Accounting – financial asset model
34.14 The operator shall recognise a financial asset to the extent that it has an unconditional contractual right to receive cash or another financial asset from or at the direction of the grantor for the construction services. The operator shall measure the financial asset at fair value. Thereafter, it shall follow Section 11 Basic Financial Instruments and Section 12 Other Financial Instruments Issues in accounting for the financial asset. See 34.12.
 Accounting – intangible asset model
34.15 The operator shall recognise an intangible asset to the extent that it receives a right (a licence) to charge users of the public service. The operator shall initially measure the intangible asset at fair value. Thereafter, it shall follow Section 18 in accounting for the intangible asset. See 34.12.
 Operating revenue
34.16 The operator of a service concession arrangement shall recognise, measure and disclose revenue in accordance with Section 23 Revenue for the services it performs. See 34.12.
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