IFRIC Agenda Decision is a document issued by the IFRS Interpretations Committee (“IFRIC”). What is IFRIC? IFRIC is an interpretive committee of the International Accounting Standards Board (“IASB”).
The function of the IFRIC is to deliberate, respond, and provide a recommendation on issues submitted to the committee regarding the application of the accounting standards issued by the IASB.
Why IFRIC issues IFRIC Agenda Decision?
Being the committee which receives and deliberates IFRS application issues from IFRS users around the world, IFRIC decides whether to recommend standard-setting to address the issues submitted to them.
Where IFRIC decides not to recommend standard-setting to address the issues, IFRIC communicates the basis for such decisions to the public. IFRIC communicates the basis of not recommending standard-setting for the issues rejected through the issuance of IFRIC Agenda Decision.
Such an agenda decision may include explanatory material. The explanatory material included in the IFRIC Agenda Decision helps the IFRS users. This is because the explanatory material explains how the applicable principles and requirements in IFRS apply to the question raised.
In addition, the inclusion of explanatory material in IFRIC Agenda Decision aims at improving consistency. The consistency is in applying the IFRS among users. IFRIC Agenda Decision however does not add or change the requirements in IFRS to the issues.
The authority of IFRIC Agenda Decision
The IASB and IFRIC Due Process Handbook (published in August 2020) explains the authority of Agenda Decision. It emphasises that explanatory material included in IFRIC Agenda Decision derives its authority from IFRS itself. Because of this, entities are required to apply the applicable IFRS, reflecting the explanatory material in IFRIC Agenda Decision.
In fact, the explanatory material in IFRIC Agenda Decision may change the current practise in the market on the issue. For instance, the application of the principles in the explanatory material requires entities to adjust their accounting policy.
Having said this, a change in accounting policy requires entities to have sufficient time. This is in order to implement the accounting principles included in the explanatory material. This includes the need to change the system or to obtain the necessary information to account for such change.
When to apply IFRIC Agenda Decision?
The Handbook however does not stipulate a specific time frame for entities to apply the new accounting policy. Instead, the Handbook states that in determining how much time is “sufficient” to make an accounting policy change is a matter of judgement based on an entity’s specific facts and circumstances.
Nevertheless, IASB expects entities to apply such change on a timely basis, and, if material, to also include the necessary disclosure related to such change. Interestingly, the Vice-Chair of IASB and Chair of IFRIC, Sue Llyod, made a statement in Agenda decisions – Time is of essence that the rule of thumb that the IASB and IFRIC had in mind concerning “sufficient time” is a matter of months rather than years.
How does IFRIC Agenda Decision affect you?
The Malaysian Financial Reporting Standards (“MFRS”) is fully converged with IFRS. Accordingly, MFRS users are also expected to apply and follow the explanatory material included in IFRIC Agenda Decision.
For this, there are 2 effects on applying the agenda decision. Firstly, it requires a retrospective adjustment. Secondly, entities need to make certain disclosures in the financial statements.
Reporting of financial impact on applying IFRIC Agenda Decision
As mentioned earlier, under MFRS 108 Accounting Policies, Changes in Accounting Estimates and Errors, entities apply a change in accounting policy retrospectively. Consequently, entities need to adjust the opening balance of each affected component of equity for the earliest prior period presented and the other comparative amounts disclosed for each prior period presented as if the new accounting policy had always been applied.
Disclosure of a change in accounting policy
MFRS 108 also requires an entity to disclose the following when there is a change in accounting policy:
- the title of the MFRS;
- when applicable, that the change in accounting policy is made in accordance with its transitional provisions;
- the nature of the change in accounting policy;
- when applicable, a description of the transitional provisions;
- when applicable, the transitional provisions that might have an effect on future periods;
- for the current period and each prior period presented, to the extent practicable, the amount of the adjustment:
- for each financial statement line item affected; and
- if MFRS 133 Earnings per Share applies to the entity, for basic and diluted earnings per share;
- the amount of the adjustment relating to periods before those presented, to the extent practicable; and
- if retrospective application required by paragraph 19(a) or (b) is impracticable for a particular prior period, or for periods before those presented, the circumstances that led to the existence of that condition and a description of how and from when the change in accounting policy has been applied.
What should you do?
In order to manage the potential impact of a change in accounting policy, we suggest you to consider IFRIC Tentative Agenda Decisions which are relevant to your company as early as possible. This includes to determine and establish how the IFRIC Tentative Agenda Decisions may change or affect the accounting policy of your company. This is also to allow you to have enough time to gather information required for such accounting policies change.
To give you an example from the Malaysian context, the IFRIC Agenda Decision on IAS 23 Borrowing Costs, issued in March 2019, has a significant impact on the practise of the real-estate industry in Malaysia in relation to an over-time transfer of constructed goods. The Malaysian Accounting Standards Board (MASB) had, in its official statement, dated 20th March 2019, decided for such accounting policy change to be applied for annual periods beginning on or after 1 July 2020.
Examples of disclosures in the financial statements
Examples of selected Malaysian listed companies disclosures on the impact/potential impact of agenda decisions in their financial statements/financial report are as follows:
- Avillion Berhad has, in its interim financial report for the quarter ended 31 March 2019, reported a restatement of its land held for development, development properties, and retained profits of the Group as follows:
|As previously reported as at 31.03.18||As Restated|
|Land Held for development||67,568||58,890|
- MKH Berhad has, in its audited financial statements for the financial year ended 30 September 2019, disclosed that the Group has changed its accounting policy in accordance with the IFRIC Agenda Decision on IAS 23, retrospectively.
- Sime Darby Property has, in its quarterly report ended 31 March 2019, reported that the Group is assessing the impact on the change in accounting policy pursuant to IFRIC Agenda Decision on IAS 23.
- OSK Holdings Berhad had even disclosed early in its audited financial statements for the financial year ended 31 December 2018 on the need for the Group to take up any adjustments due to the tentative IFRIC Agenda Decision on IAS 23.