ThinkTWENTY20

By David Hardidge, Brisbane, Australia

[This article was written before the publication of the updated IFRS Foundation Due Process Handbook]

Do you know what IFRS Interpretations Committee (IFRIC) Agenda Decisions are?  Do you understand the implications of intentions to make them mandatory?

Background to Interpretations and Agenda Decisions

IFRIC Agenda Decisions might be regarded as mini interpretation of International Financial Reporting Standards (IFRS) – and there are more than 200 of them. An important change on the horizon is that there is an intention to clarify that they are mandatory. 

Interpreting accounting standards can be complicated and time consuming, so instead of putting the onus on the International Accounting Standards Board (IASB), a separate body, called the IFRS Interpretations Committee, takes on that work. 

IFRIC issues Interpretations.  Interpretations are part of the definition of IFRSs.  I often refer to Interpretations as shark standards, as they can come and bite you when you least expect them.  They are not as widely known as the IFRS themselves.  Technically, Interpretations do not modify standards, so issuing them is not considered standard setting, even  though Interpretations often involve a change in practice and have effective dates and transition provisions.

How Many Interpretations Are There?

We are up to IFRIC Interpretation 23, the latest for uncertain tax positions.  There are also another half a dozen or so from the predecessor body, the Standards Interpretations Committee.

For a while, IFRIC issued  several Interpretations each year, although that has slowed down a lot – the last one was issued about three years ago.

Why Are They Called Agenda Decisions? 

When asked to make an Interpretation, what IFRIC does first is to consider whether the issue should be placed on its agenda.  Quite often, IFRIC decides that there is no need for an Interpretation, as the answer is already in the IFRS.

If that were the case, in the past, IFRIC would issue a Rejection Notice.  That is, IFRIC rejected the request to put the issue on its agenda and told people go and work out the answer from the standards.

Now, IFRIC issues an Agenda Decision, saying it will not develop an Interpretation, and include explanatory material as to why the answer is in the standard or explanatory material accompanying the standard.

So that is where the name Agenda Decisions comes from. I believe that it is not a good description of what they mean, or the impact those decisions might have.

Proposed and Agreed Changes to their Status

Currently, Agenda Decisions are regarded as explanatory material that “should be seen as helpful, informative and persuasive.”[1]

In April 2019, the IFRS Foundation issued Proposed amendments to the IFRS Foundation Due Process Handbook.  The proposed changes included clarifications (paragraph 8.5) allowing companies “sufficient time” to change their accounting policies to those included in an Agenda Decision.

The IFRS Foundation Due Process Oversight Committee (DPOC) considered the feedback from respondents.  Respondents questioned what appeared to be optionality of applying Agenda Decisions (the reference to “helpful, informative and persuasive”) and the apparent mandatory requirement relating to “sufficient time” to apply Agenda Decisions.

After deliberating on the feedback, the DPOC decided that relevant Agenda Decisions are mandatory (“an entity is required to apply”).[2]

At the date of writing, the final wording has not been publicly released.

Where Will the Requirement for Mandatory Application Be Located?

The proposed clarification will be in the Due Process Handbook.  Even fewer people know about that Handbook than those that know about IFRIC and Interpretations.

The Due Process Handbook is not where I would go to determine the application of accounting standards.  After all, it is about the due process for setting accounting standards, not their application.

When Will Affected Companies Have to Change Their Policies?

Agenda Decisions do not have transitional provisions as they interpret, and do not change, existing accounting standards.  Agenda Decisions are issued throughout the year, following IFRIC meetings that occur around five or six times a year.  So, an Agenda Decision can come out just before a company releases its results, or even after it has released its results but before it has finalized the annual report.  

Given these circumstances, the Handbook will be updated to clarify that companies have “sufficient time” to change their policies.  They do not intend to define “sufficient time.”  The indication is that “sufficient time” is months not years.  During deliberations, it was discussed that sufficient time means “as soon as possible,” “as soon as practicable.”

Conflict Between Mandatory Status and the Delay in Changing Policies

So, what happens in the meantime, during the “sufficient time” period?  If companies have not adjusted their policies to be consistent with an Agenda Decision, will they be in compliance with IFRS?  If not, will their financial statements be qualified by their auditors?

This issue does not seem to have been discussed during deliberations.  There was separate focus on the mandatory status, and the “sufficient time” issue, but not on the implications of the two changes together.

What Are Some of the Recent Controversial Agenda Decisions?

Recent controversial Agenda Decisions include:

• Cryptocurrencies – Which is cost focused, though possibly a fair value broker/dealer approach can be used in some circumstances – when more than 75% of preparers were previously using a fair value approach.
• Lease term – Determining the lease term for “renewable” and “cancellable” leases – the Agenda Decision passed the simple majority threshold by one member. 
• Sale and leaseback – What is the nature of the liability for the leaseback payments?How do you account for variable payments when the standard was written with variable payments not being included in the lease liability?The Agenda Decision was issued without the “day 2” accounting, referring that issue to the IASB for standard setting.

Conclusion

IFRIC Agenda Decisions have been issued for the new standards IFRS 15 Revenue from contracts with customers and IFRS 16 Leases.  There are dozens of other Agenda Decisions.  Which IFRIC Agenda Decisions affect you?  If you are affected, will you be changing your accounting policies, and how quickly?

[1] IFRS Foundation, Due Process Handbook (June 2016), paragraph 5.22.

[2] Report of the IFRS Foundation Due Process Oversight Committee Meeting (December 16, 2019).