12 March 2018
The International Accounting Standards Board (IASB) has released the exposure draft, Accounting Policy Changes (Proposed Amendments to IAS 8) (Exposure Draft). The Exposure Draft proposes narrow-scope amendments to International Accounting Standards (IAS) 8, Accounting Policies, Changes in Accounting Estimates and Errors. The comment deadline is 27 July 2018.
IAS 8 provides requirements for selecting and changing accounting policies. The circumstances under which companies would change accounting policies include the adoption of new requirements under International Financial Reporting Standards (IFRS) or when an accounting change would provide better information for financial statement users. IAS 8 requires a company that changes an accounting policy to apply the new policy as if it had always applied that policy. This requirement does not apply in situations where such application is not practicable.
A company also may decide to change an accounting policy based on an agenda decision released by the IFRS Interpretations Committee. The IFRS Interpretations Committee considers questions of application of IFRS to particular situations. It evaluates financial reporting issues and decides whether to recommend amendments or additions to IFRS and provides reasoning for their conclusion. Although the IFRS Interpretations Committee’s agenda decisions are non-authoritative, they include explanations on application of IFRSs.
The Exposure Draft proposes guidance on deciding how far back to apply a change in accounting policy that results from an agenda decision. The proposal, if adopted in its present form, provides that in deciding how far back to apply an accounting policy change, the company is to consider not only whether the change is practicable, but should perform a cost benefit analysis of the change. That analysis should consider the benefits to users and the costs to the company of making the change.
The IASB’s purpose in proposing these narrow-scope amendments is to promote greater consistency in IFRS application, reduce company burdens in changing accounting policies resulting from an agenda decision, and improve financial reporting.