IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors currently only prescribes how to account for changes in accounting policies arising from initial application of an accounting standard and voluntary changes in accounting policies.
IAS 8, paragraph 19 requires these to be accounted for in accordance with the specific transitional requirements of the standard, and if there are none, then to restate comparatives retrospectively.
IAS 8, paragraph 19(b) also requires the impact of voluntary changes in accounting policies to be accounted for retrospectively, i.e. comparatives are restated.
If it is impracticable to quantify either the impact on the comparative period, or the cumulative effect on the opening balance sheet, IAS 8, paragraphs 24 and 25 provide some relief to permit restatement back to the time when retrospective adjustment is practicable, which could be at the beginning of the current period.
As noted in our article Recent agenda decisions by the IFRS Interpretations Committee, agenda decisions of the IFRS Interpretations Committee, although not authoritative guidance, in practice are regarded as being highly persuasive, and entities may voluntary change accounting policies in light of these. Because of their non-authoritative status, any resulting change is not a change required by IFRS Standards, and therefore any transitional requirements that may have been available on first time adoption of the standard do not apply, meaning retrospective restatement is required for these voluntary changes.
Applying a new policy as a result of agenda decisions can be challenging in practice because IAS 8 requires the new policy to be applied as if it had always applied to the entity, except if it is impracticable to do so. ‘Impracticable’ is a very high hurdle to meet under IFRS standards.
The International Accounting Standards Board (IASB) is therefore proposing to lower the ‘impracticability’ threshold for retrospective application of policy changes as a result of agenda decisions. Instead, cumulative adjustments can be avoided if the cost to the entity of determining these retrospective adjustments exceed the benefits to users.
Paragraphs A6-A10 are proposing guidance on assessing expected benefits vs costs and judgement is required.
The deadline for comments on these proposed changes to the IASB close 27 July 2018. Please contact Aletta Boshoff if you have any feedback on these proposals.