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Open to interpretation

The work of the IFRS Interpretations Committee and the impact of its agenda decisions.

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Lauren Wright highlights the work of the IFRS Interpretations Committee and the impact of its agenda decisions.
Open to interpretation

As the interpretative body of the International Accounting Standards Board (IASB), the IFRS Interpretations Committee (Interpretations Committee) works alongside the IASB to support the consistent application of IFRS Accounting Standards (IFRS).

Formerly the International Financial Reporting Interpretations Committee (IFRIC), the Interpretations Committee’s focus is to respond to questions it receives on how to apply IFRS. Any stakeholder can submit a question and all eligible application questions are considered at a public meeting. The Interpretations Committee responds in the form of IFRIC Interpretations, recommendations for narrow-scope amendments to IFRS or agenda decisions. The accounting considerations and impact differs for each; this article explains how.

IFRIC interpretations and narrow-scope amendments

When considering the questions received, the Interpretations Committee needs to decide whether existing IFRS requirements are adequate to appropriately answer the question or whether they need to change. Change would be in the form of an IFRIC Interpretation or a narrow-scope amendment to IFRS. Both are issued with specified effective dates and will directly impact accounting treatment.

But what happens when standard-setting isn’t deemed necessary?

Agenda decisions

When the Interpretations Committee determines that no change to IFRS is required, it publishes a tentative agenda decision explaining its rationale. Typically, this will be because in its view:

  • existing IFRS requirements are adequate to answer the question;
  • there is no evidence that a widespread financial reporting problem exists; or
  • it is not sufficiently narrow in scope and the question could only be resolved as part of a larger IASB project.

Tentative agenda decisions are subject to consultation, with the comment period normally being 60 days. After considering feedback received, the Interpretations Committee decides whether to confirm its decision and publish a final agenda decision (subject to the IASB not objecting) or whether to take a different direction.

Agenda decisions don’t change accounting standards. However, they often include explanations of how the existing principles and requirements of IFRS apply to the transaction or fact pattern as described in the question. For preparers, this can raise key questions:

Is there an error to correct?

The IASB acknowledges that, while agenda decisions often provide new information that should be seen as helpful and persuasive, a company does not have an error simply because its previous application of IFRS was inconsistent with an agenda decision.

What is the implementation date?

The IASB expects companies to have sufficient time to implement any changes in accounting policy. ‘Sufficient’, although not specifically defined, will depend on the particular facts and circumstances of the reporting entity and the accounting policy change. The intention, however, is for the time taken to be a matter of months rather than years.

A different direction

An example of an agenda decision not being confirmed arose recently when the IASB decided not to approve the Interpretations Committee’s tentative decision regarding the recognition of cash received via an electronic transfer system as settlement for a financial asset. The feedback suggested that the interpretation would have a widespread impact on current treatment of similar transactions. The IASB decided instead to explore the issue as part of its post-implementation review of IFRS 9 Financial Instruments and added a narrow-scope project to its work plan.

Keeping up to speed

The Interpretations Committee’s activities focus on narrow-scope, emerging application questions with specific fact patterns meaning that not all IFRIC Interpretations, amendments and agenda decisions will be applicable to all entities. However, it is important for entities to be aware of them so that they can assess whether they are affected by them.

Tentative and final agenda decisions, along with IFRIC Interpretations and the IASB’s work plan, can be found at ifrs.org

By All Accounts December 2022

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