Annual improvements criteria

Date recorded:

Annual improvements criteria - comment letter analysis

In August 2010, the Trustees of the IFRS Foundation published for public comment a Consultation Document which sets out a proposal to add new paragraphs to the Due Process Handbook for the International Accounting Standards Board (IASB Due Process Handbook) relating to the annual improvements process.

The proposed amendments to the IASB Due Process Handbook are intended to provide enhanced criteria to assist the IASB and interested parties on determining whether a matter relating to the clarification or correction of IFRSs should be addressed using the annual improvements process.

The staff presented an analysis of the comments received in respect of the proposed amendments, including certain revisions.

The Committee determined that the following amendment was acceptable to the proposed paragraph 65A(a)(ii), since it is not the intention to use annual improvements as a mechanism to expose new exceptions to the application of existing principles:

A correcting amendment does not propose a new principle or change to an existing principle., but may create an exception from an existing principle'

Constituents were confused by the use of "pressing need" in the context of an amendment that was "non-urgent but necessary". Therefore the Committee tentatively proposed the following amendment to paragraph 65A(d):

If the proposed amendment would amend IFRSs that are the subject of a current or planned IASB project, there must be a pressing need to make the amendment sooner than the project would.

The Committee expressed their desire for the Trustees to reassure the constituents that any change to the accounting literature via annual improvements has the same due process as any other. It was agreed that clarifying this would negate the need for certain of the clarifications suggested by constituents, and would clarify that the Board makes the ultimate decision, even if the legwork for an issue has been done by the Committee.

As a result of certain comments raised by constituents, the Committee tentatively agreed to amend the wording in paragraph 24(d) in the IFRIC Due Process Handbook:

The proposed amendment is has a narrow and well-defined and sufficiently narrow in scope such that purpose, ie the consequences of the proposed change have been considered sufficiently and identified.

The Committee discussed the need to clarify the distinction between an annual improvement and an interpretation, with most members being in agreement that additional clarification would help constituents. There was a general agreement that criteria would be useful, but that they should not be so prescriptive as to force an issue to be either an annual improvement or an interpretation, since one of the reasons for sending something to the Committee for consideration is to allow determination regarding the most efficient way for it to be dealt with.

The Committee reached a tentative decision that today's paper should be provided to the Board along with the comments from the Committee. The Board views should then be collated with the paper and the Committee comments, and the combined comments and paper shared with the Trustees in February. When the Trustees review the analysis, it was suggested that they could consider and begin to formulate a view, but leave open for their own consideration until the effectiveness of the Committee has been assessed.

It was also recommended that the Trustees might like to consider performing their review of the effectiveness of the Committee alongside a review of the common areas considered by the Committee in the past, and use the latter to assist in determining the criteria for Committee consideration/interpretation.

The final discussion point related to whether the Committee should issue implementation guidance in respect of financial reporting issues not addressed specifically elsewhere in IFRSs, as a result of a comment received which suggested that this could be interpreted as one of its mandates according to paragraph 43(a) of the constitution. The general consensus within the Committee was that the answer to this should be no', since if the Committee were to start issuing Q&As then they would begin to move toward a more rules-based approach, rather than coming up with clear principles and allowing judgement for implementation.

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