IFRS changes to IAS 8 Accounting Policies released
The IFRS Foundation has published a document providing an overview of its proposed amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, which are designed to simplify the application of accounting policy changes resulting from agenda decisions published by the IFRS interpretations committee
14 May 2018
The International Accounting Standards Board (IASB) was informed that the requirement in IAS 8 to apply changes in accounting policy retrospectively, subject to impracticability, may reduce the usefulness of the interpretations committee’s agenda decisions.
As a result, the board is proposing a narrow scope amendment to simplify the application of accounting policy changes that result from agenda decisions. The proposed amendment would not change the non-authoritative status of agenda decisions, nor the approach in IAS 8 to apply voluntary changes in accounting policy retrospectively.
The board is proposing that in deciding how far back to go in applying a change in accounting policy that results from an agenda decision, a company will consider not only whether it is practicable but also the benefits to users and costs to the company of making the change.
Voluntary changes in accounting policy are applied retrospectively, with restatement of comparative information. However relief is available if retrospective application is impracticable as defined by IAS 8. When this is the case, a company applies the new policy from the earliest date practicable.
The proposed amendment does not change this approach in IAS 8 of applying an accounting policy change.
Instead, it proposes an alternative threshold to the impracticable threshold for assessing how to apply an accounting policy change resulting from an agenda decision. The proposed threshold is based on an assessment of the expected benefits to users and the cost to a company.
IASB states: ‘Importantly, the proposed threshold is not a “free pass” to prospective application; it is designed to achieve a balance of cost and benefits on initial application of accounting policy changes resulting from agenda decisions.’
When applying the proposed cost/benefit threshold to an accounting policy change resulting from an agenda decision, a company is required to consider the additional cost it would reasonably expect to incur and the additional effort it would reasonably expect to make to determine the effect of the change; and how the absence of information that retrospective application would provide could affect decisions that users of financial statements make based on the company’s financial statements.
The overview provides an illustration of how the proposed threshold would be applied in practice, and a list of FAQs about its application and the ways of calculating the costs and benefits of applying accounting policy changes.
The comment period for the exposure draft on proposed amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors ends on 27 July.
Report by Pat Sweet