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Implementation matters

Date recorded:

Accounting Policy Changes (Proposed amendments to IAS 8)—Analysis of feedback and feedback summary (Agenda Paper 12B and 12C)

Background

These papers analyse the feedback received on the Exposure Draft Accounting Policy Changes—Proposed amendments to IAS 8. The ED proposed to amend IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors to simplify the application of accounting policy changes that result from an Agenda Decision by lowering the threshold for retrospective application of such changes. The feedback mainly related to the role and status of Agenda Decisions and the Board's decision not to amend IAS 8 to address the timing of application of accounting policy changes resulting from Agenda Decisions.

Some respondents suggested that, when questions are submitted to the Committee, either the Board should undertake standard-setting to clarify the matters raised or Agenda Decisions published should have the same (mandatory) status as IFRS Standards.

Similarly, another respondent suggested that the Board should undertake standard-setting (either amend the Standards through the Annual Improvements process or issue an IFRIC Interpretation) for any Agenda Decision that might lead to a significant and pervasive change in practice, and incorporate other Agenda Decisions into educational material.

One respondent suggested either giving Agenda Decisions the same status as IFRS Standards, or clarifying that application of the explanatory material is ‘completely optional’.

Respondents also made suggestions in relation to the process of Agenda Decisions. Those respondents suggested:

  • that Agenda Decisions follow the same due process as IFRS Standards. A few respondents said the existing 60-day comment period is not enough.
  • recognising the ‘quasi-authoritative’ status of Agenda Decisions by making changes to the Handbook, such as (i) introducing a higher threshold for the Committee to approve an Agenda Decision (for example, requiring a super-majority for approval); or (ii) requiring the Board to ratify or approve Agenda Decisions on a ‘do not object’ basis.
  • distinguishing between different types of Agenda Decisions (for example, those that provide explanatory material and those that do not), or providing a diagram that sets out where Agenda Decisions fit with IFRS Standards and other material (webcasts, etc) published by the IFRS Foundation. This diagram could then be used to determine the appropriate level of due process for Agenda Decisions and other materials.

The staff then detailed their view on the role of Agenda Decisions, where these decisions fall within the other information published by the foundation and why non-mandatory status of Agenda Decisions is appropriate. These views are detailed in Agenda Paper 12B.

Feedback on the timing of application of changes resulting from Agenda Decisions

The Exposure Draft considered the need for the Board to include in any Agenda Decisions an expected application date for any changes. The Board decided not to amend procedures so as to include this in decisions, as they felt that this is not in keeping with the scope of the meetings (being that they do not represent changes to current IFRS Standards). The Board suggested instead that implementation should be considered within any Agenda Decision.

A majority of respondents agreed with the Board’s decision not to amend in this respect. Some respondents noted that the explanation provided by the Board should be included within the Application Guidance for IAS 8.

Some respondents disagreed noting that paragraph BC22 of the Exposure Draft states that an entity should be entitled to ‘sufficient time’ but does not provide further information about the optimal implementation time. This lack of specificity could result in entities implementing a change at different times, which might impair comparison between entities.

Some respondents suggested that an entity apply an accounting policy change no later than the beginning of the next annual reporting period (i.e. the second alternative specified in paragraph BC20 of the Exposure Draft).

Staff recommendations

  1. The staff recommend that the Board not amend IAS 8 to address the timing of application of accounting policy changes that result from an Agenda Decision.
  2. The staff plan to recommend to the Due Process Oversight Committee (DPOC) at their meeting in January 2019 that, in the light of the feedback on this Exposure Draft,
    1. no changes are required to the due process for Agenda Decisions; and
    2. the DPOC amend the Due Process Handbook (Handbook) to:
      1. explicitly specify that:
        1. the objective of including explanatory material in Agenda Decisions (explanatory material) is to improve consistency in the application of IFRS Standards; and
        2. any explanatory material cannot add or change requirements in IFRS Standards. Rather, it explains how the applicable principles and requirements in the Standards apply to the question, transaction or fact pattern described in the Agenda Decision.
      2. distinguish between Agenda Decisions that include explanatory material and all others. This could be done by referring to Agenda Decisions with explanatory material as Agenda Decisions—Explanatory (or another appropriate title).
      3. explain that entities be allowed sufficient time to prepare for accounting policy changes that result from an Agenda Decision.

Board discussion

As regards the feedback suggesting that there is confusion over the status of agenda decisions, a Board member recommended that the communication of the status of agenda decisions to different stakeholder groups be reviewed.

A Board member mentioned that one of the reasons as to why the status of agenda decisions is appropriate, is that agenda decisions bring into the public domain new information that preparers had not previously had. This confirms that any changes based on agenda decisions reflect changes in accounting policy and not errors.

One member noted that the process of outreach, assessment and discussion of the Interpretations Committee does bring new insight to the thinking behind Standards, but should not reflect mandated changes. Agenda decisions should be considered as useful tools, but not as mandatory. A member also noted that the decisions leading to agenda decisions are not deliberated to the same extent as Standards. A number of members expressed their agreement with this assessment.

Another Board member detailed that the Committee’s activities since inception has been focussed on “connecting dots” between Standards, with regards to specific questions, where the Standards alone lead to diversity in practise. The member noted that this does not lead to a view that agenda decisions should be mandated, but it does highlight the usefulness of the discussions and decisions of the Interpretations Committee.

The Board agreed with the suggested amendments to the Due Process Handbook discussed in the agenda paper, to add more detail on what an agenda decision represents.

The Board clarified the idea of detailing within the Basis for Conclusions to IAS 8 the purpose and authority of agenda decisions in addition to the suggested amendment to the Handbook. This approach was supported by a number of members.

Board decision

The Board supported the staff recommendations.   

Annual Improvements to IFRS Standards 2018–2020 Cycle—Due process steps and transition for proposed amendment to IFRS 1 (Agenda Paper 12D)

Background

The Board decided to propose the following amendments in the next cycle of Annual Improvements:

  1. IFRS 1 First-time Adoption of International Financial Reporting Standards—Subsidiary as a first-time adopter;
  2. IFRS 9 Financial Instruments—Fees in the ‘10 per cent’ test for derecognition;
  3. Illustrative Example 13 accompanying IFRS 16 Leases—Lease incentives; and
  4. IAS 41 Agriculture—Taxation in fair value measurements.

 The proposed amendments are detailed in the agenda paper. The objective of the paper is to discuss transition for the proposed amendments and demonstrate that all due process requirements have been complied with so that the balloting process for the Exposure Draft can be initiated.

In June 2018, the Board tentatively decided to propose some amendments to IFRS 17 Insurance Contracts as part of its next cycle of Annual Improvements. However, in November 2018, the Board tentatively decided to propose a deferral of the mandatory effective date of IFRS 17 and in Agenda Paper 2 for this meeting, the staff recommend standard-setting to amend the requirements of IFRS 17 beyond the Annual Improvements the Board had already tentatively decided to propose. Accordingly, the staff have not included any discussion about the proposed amendments to IFRS 17 in this paper.  

Transition for the amendments

The Board had already tentatively decided that the amendments to IFRS 9 would only apply to modifications or exchanges of financial liabilities that occur on or after the beginning of the annual reporting period in which the amendment is initially applied. The Board had also tentatively decided that the proposed amendments to IAS 41 should be applied to fair values measured after the effective date of the amendment.

At the time of discussion, the Board had not made any transition decisions on the IFRS 1 amendments. For all (but one) of the previous amendments to IFRS 1, the Board did not permit or require previous first-time adopters to apply those amendments retrospectively.

This was an amendment to the deemed cost exemption in IFRS 1:D8. The Board amended IFRS 1:D8 to allow an entity to recognise an event-driven fair value measurement as deemed cost when the event occurs, provided this is during the periods covered by its first IFRS financial statements.

The staff note that retrospective application and transition requirements for IFRS 1 changes would not be appropriate as users of the accounts expect transition to IFRS Standards to be a one-off event.

Staff recommendation

The staff recommend that transition requirements for the proposed amendments to IFRS 1 are not relevant for first-time adopters. It is therefore recommended that the Board does not permit or require previous first-time adopters to apply amendments retrospectively.

The staff recommend a 90-day comment period for the Exposure Draft and ask for permission to ballot.

Board decision

The Board agreed that transition requirements for the proposed amendments are not relevant for IFRS 1.

The Board agreed unanimously to the suggested comment period of at least 90 days on the Exposure Draft. No members intended to dissent from the proposed amendments, and the Board agreed it was satisfied that the staff had followed the due process.

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