Exposure draft released on how to account for changes in accounting policies as a result of IFRS Interpretations Committee agenda decisions
The International Accounting Standards Board (“IASB”) has released an exposure draft that proposes amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (“IAS 8”). The exposure draft, IASB ED/2018/1 Accounting Policy Changes (Proposed amendments to IAS 8) (“the Exposure Draft”), proposes narrow scope amendments to IAS 8 where voluntary changes in accounting policies are applied by entities because of agenda decisions published by the IFRS Interpretations Committee.
Under IAS 8, an entity changes an accounting policy only if the change is required by an IFRS Standard or results in improving the usefulness of information provided to users of its financial statements.
In some instances, an entity voluntarily changes an accounting policy to reflect explanatory material included in agenda decisions published by the IFRS Interpretations Committee (“Agenda Decisions”). An Agenda Decision is non-authoritative and, therefore, any resulting change is not required by IFRS Standards (i.e. it is a voluntary change in accounting policy).
Applying a voluntary change in an accounting policy that results from an Agenda Decision can be challenging in some situations, because IAS 8 requires an entity to apply a voluntary change in accounting policy retrospectively as if it had always applied the new policy, except to the extent it is impracticable to do so. “Impracticable” is a high hurdle to meet under IFRS standards.
To facilitate voluntary changes in accounting policy that result from an Agenda Decision, the IASB proposes amending IAS 8 to lower the “impracticability” threshold for retrospective application of such changes. The proposed threshold would include consideration of whether the expected benefits to users of the financial statements of applying the new accounting policy retrospectively outweigh the cost to the entity of determining the effects of retrospective application.
The External Reporting Board (“XRB”) will make a submission to the IASB on the Exposure Draft. The deadline for providing comments for the XRB to consider when preparing its submission to the IASB is 25 June 2018. More information on the Exposure Draft is available here.
For more on the above, please contact your local BDO representative.