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Conceptual Framework – Transition requirements for the revised Conceptual Frameworks

Date recorded:

The purpose of Agenda Paper 6 (link to IASB's website) was to:

  1. Inform the Committee about the IASB’s tentative decisions on transition and effective date for the revised Conceptual Framework; and
  2. To ask the Committee members if they had any comments or questions about the proposed transition guidance and effective date.

An IASB staff member introduced the paper and asked the Committee members whether they had any comments or questions about the proposed transition guidance and effective date.

A Committee member observed that the guidance in paragraph 11 of IAS 8 requires one [when using judgement in developing and applying an accounting policy in accordance with paragraph 10] to consider the applicability of the sources listed in paragraph 11 in descending order. He noted that the first sources to be considered were the requirements in IFRSs dealing with similar and related issues, and that if those IFRSs related to the old Conceptual Framework, there could be some challenges in application given such sources would be considered before the contents of the Conceptual Framework.

The staff member responded, and noted that the staff were aware of the issue, and that Standards took precedence over the Conceptual Framework, and that this would continue to be the case.

The Chairman asked the IASB members present to highlight areas where they believed it would be important for the Committee to consult the IASB.

One IASB member present noted that the situation could arise in the future where the Committee wanted to make reference to the Conceptual Framework in developing an Interpretation, and if the new Conceptual Framework was used, it may be found to be inconsistent with the Standard being interpreted, because the Standard was developed based on the old Conceptual Framework. He noted that he saw this as an example of a situation where the Committee should consult the IASB.

The Chairman noted that he could only recall one situation where the Committee had referred to the Conceptual Framework in developing an Interpretation, which was IFRIC 21; and that accordingly, this situation was expected to be rare. He also emphasised that the Committee only referred to the Conceptual Framework (to help reinforce a point), and did not actually rely on it when reaching its conclusion and that accordingly, IFRIC 21 could have been issued without reference being made to the Conceptual Framework.

Another Committee member noted that he believed the recommendation in the paper that the Committee should start applying the revised Conceptual Framework immediately after its publication was really the only logical option, as once published, this became the new Conceptual Framework under IFRS. He noted that the Standards clearly trumped the Conceptual Framework, and that in situations where there were substantial issues with the new Conceptual Framework conflicting with existing literature, the Committee would refer such issues to the IASB in accordance with the procedures set out in the due process handbook. However, he noted that he believed such situations would be rare.

Another Committee member noted that he believed that transitional provisions for those entities that had selected accounting policies on the basis of using the hierarchy in IAS 8 were necessary. He noted that he also agreed that the IASB and Committee should start using the revised Conceptual Framework immediately after its publication. He further noted that he believed it was important for the Committee to think about the process that would be followed in situations where conflicts arose between existing Standards and Interpretations and the new Conceptual Framework. He added that such situations could also arise with respect to agenda rejections and notices, where the Committee had provided some level of guidance based on the existing Conceptual Framework and Standards. He noted that these sources of guidance could be made inconsistent by the issuance of the new Conceptual Framework, and the Committee could be asked to clarify whether such guidance was still appropriate.

One of the IASB members present cautioned the Committee about making the issue unnecessarily complicated. She noted that the issuance of the new Conceptual Framework would not result in the need for the IASB to go back and question the legitimacy of all existing Standards. Accordingly, she noted that, to the extent that the Committee had interpreted those Standards; unless there were gaps where the Committee had to specifically go to the Conceptual Framework, she would not expect there to be any more questions about the legitimacy of those Interpretations because of the new Conceptual Framework than there would be about the Standards themselves, which were not being questioned.

One of the Committee members responded, and noted that while the IASB did not have to add to its agenda a project to look at a Standard; the Committee had to accept submissions that came in, and decide whether to add them to its agenda. He noted that some of those submissions could relate to existing Interpretations and specifically, whether they remained valid. He also noted that the Committee could receive questions that would need to be answered in the context of a Conceptual Framework that would conflict with a Standard. He acknowledged that such situations would be rare, but that the Committee should do some work on what its process would be if such situations arose.

The Chairman highlighted the point that, as for Standards, any Interpretations that had been issued took precedence over the Conceptual Framework. He noted that there could be situations where in previous agenda decisions, the Committee had decided not to do anything, but there was now new insight from the revised Conceptual Framework that could throw those decisions into question. He suggested that the Committee could ask the staff to formalise guidance that could be followed in such situations, but added, that he believed that such situations would be a small population.

Another Committee member questioned whether this was an issue that the Committee should wait to deal with when or if such a situation arose.

With respect to whether the Committee should start applying the revised Conceptual Framework immediately after its publication, a Committee member noted that this would also depend on the context. He noted that he agreed that the Committee should use the latest Conceptual Framework when looking at limited scope amendments. However, he noted that if the Committee was looking at a new submission on an interpretive issue, and the justification linked into the Conceptual Framework, he believed that the Committee would need to assess the appropriateness of the views it arrived at based on the version of the Conceptual Framework preparers had to follow at the time (taking into account transitional provisions for preparers).

The Director of Implementation Activities clarified that, of the Interpretations currently in existence, only IFRICs 12, 18, 19 and 20 formally referred to the Conceptual Framework, and that even though the Conceptual Framework was considered for IFRIC 21, it was not formally referenced in that Interpretation.

The Senior Director, Technical Activities observed that this was not an issue isolated to Interpretations, but one that also affected Standards. He recommended that a statement should be made by the IASB when it issued the Conceptual Framework that re-emphasised the fact that the new Conceptual Framework would not invalidate existing Standards, and that Standards took precedence over the Conceptual Framework. He added that the same message should also be conveyed with respect to Interpretations to avoid any confusion or questions.

The Chairman brought the discussion to a close. He noted that this was an issue that the Committee was aware of, and would look to the IASB members for advice on from time to time. He noted that at this point in time, the Committee would not do anything more formal with respect to this issue.

All thirteen Committee members present agreed with this conclusion.

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