The 2020 update of the IFRS Due Process Handbook clarifies the role of IFRIC agenda decisions within the IFRS framework. Here are the facts accountants need to know.
By Megan Breen
The nature of agenda decisions produced by the International Financial Reporting Standards Interpretations Committee (IFRIC) has been clarified in the IFRS Due Process handbook.
In April 2019, the IFRS Foundation proposed changes to the previous wording that referred to agenda decisions as “helpful, informative and persuasive” as there was some concern that this wording may have caused confusion as to the applicability of IFRIC agenda decisions when preparing IFRS based financial statements.
In August 2020, the handbook was updated to clarify that IFRIC agenda decisions should be regarded as a “mini-interpretation” of the IFRS and that the decisions are mandatory by implication, says financial reporting expert David Hardidge FCPA.
“The IFRS Due Process Handbook update essentially says that because these agenda decisions refer back to the IFRS standards – and as you have to comply with the standards – by implication, you then have to follow what has been said in the agenda decision.”
What are agenda decisions?
The role of the IFRIC is to consider specific questions relating to IFRS raised by preparers of IFRS based financials. It meets up to six times a year and publishes its conclusions as an IFRIC Update after each meeting. Questions debated by IFRIC can either lead to an agenda decision, or if considered appropriate, lead to a narrow-scope standard-setting project or Interpretation.
Agenda decisions are not intended to add to or change the standards, however they may help guide practice where there is divergence from them on particular issues.
Anyone can submit a question on the interpretation of standards via the IFRS website. These will be assessed against set criteria to decide whether there is a need to move forward with a narrow-scope standard-setting project, or whether it becomes an agenda discussion with explanatory material.
The intention is not for the IFRIC to operate as a “help desk”; the question must be a genuine problem in practice relating to the application of the standards, says Matthew Tilling CPA, an independent IFRS consultant.
“If [the] problem identified meets the criteria: it has widespread material effect; it is necessary to change the standard; it can be resolved efficiently and is sufficiently narrow in scope – it will proceed to an IFRIC Interpretation which is standard setting,” says Tilling.
However, if the IFRIC concludes the standards are sufficient and change is not necessary, they will produce an agenda decision outlining why they haven’t moved forward with a standard-setting project.
Who do they assist?
Tilling says the work of the IFRIC is directly relevant to accountants preparing financial statements.
“In most cases, the agenda decisions are relatively narrow in their scope, but accountants need ways to surface those that are relevant to their work. This means keeping up to date with the latest agenda decisions and identifying the few (if any) that are relevant.
“It can also be interesting to those who read financial statements, as some of the issues raise interesting questions. In some ways the work of the Interpretations Committee is more relevant to accountants day-to-day than the work of the International Accounting Standards Board [IASB], which tends to have a much longer horizon for impact,” says Tilling.
A major shift in focus
In 2020, an important change has been made to the Handbook so that the IASB will now have an opportunity to veto an agenda decision.
Hardidge says this is welcome news as some of the decisions that were made have been borderline and were sometimes passed by a one-vote majority.
“While it may make the process a bit more complicated in determining which decisions have been voted on by the board, this move will give people more confidence if the IASB is happy with the Interpretations Committee decision, particularly for the controversial issues.”
An example of such a recent decision relates to accounting for cryptocurrencies.
“Quite often there's a diverse range of accounting being applied to a particular topic that’s raised a question [as to] which standard should be followed. For example, there's no specific standard that says ‘this is how to account for a crypto’ and diverse practices were applied because there is a variety of accounting standards that people thought could apply,” says Hardidge.
The agenda decision determined that cryptocurrencies should generally be accounted for on a cost basis, although it also concluded that a fair value broker/dealer approach can possibly be used in some circumstances. More than 75 per cent of preparers were using a fair value approach, which should be avoided following this decision, says Hardidge.
How will compliance be monitored?
As many jurisdictions incorporate IFRS Standards into their national law in some way, this may require more or less national involvement, depending on the jurisdiction, says Tilling.
“It is not clear how agenda decisions will be incorporated; however, it is likely that regulators will take a similar approach to the Due Process Oversight Committee, saying that as agenda decisions simply reflect what is already in the Standards there is no need to bring them into legislation.
“In other words, compliance will simply be part of the usual monitoring processes.”