OIC 16 and OIC 31 Updates: Accounting for End-of-Life Asset Obligations

In March 2024, amendments were approved to OIC 16 (concerning tangible fixed assets) and OIC 31 (relating to provisions for risks and charges), introducing changes in the accounting treatment of dismantling and restoration costs associated with fixed assets. These updates apply to financial statements for fiscal years beginning on or after January 1, 2024.

Under the previous accounting framework, dismantling and restoration costs were subject to periodic provisioning, with the related expense recorded in the Income Statement over time.

Key Changes

The revised approach mandates that for fixed assets subject to specific contractual agreements or legal obligations regarding their end-of-life management, the initial capitalization of dismantling and restoration costs must be recognized. This requires the establishment of an appropriate provision at the time of asset recognition.

Consequently, the amendments specify that dismantling and restoration costs must be capitalized and systematically amortized over the asset’s useful life.

Where such costs relate to assets not recorded on the balance sheet—such as concession assets or leased assets—they should be classified as intangible fixed assets.

From a tax perspective, this approach enables the alignment of accounting and tax values, ensuring that dismantling and restoration costs are deductible over time through depreciation charges applied to the total asset value.

For ongoing transactions, retrospective application of the new standard is permitted, allowing companies to adjust opening balances as of January 1, 2024 accordingly.

Conclusions

This new framework aims to better align revenues and tax-relevant costs, providing a more consistent basis for corporate tax calculations.

One outstanding issue awaiting clarification concerns the treatment of discounting costs recorded in the income statement as a counterparty entry to the provision.