News
A Holistic Look at IFRS Standards: the Role of Post-implementation Reviews
26-Oct-2017
By Gary Kabureck, Member, International Accounting Standards Board
At the International Accounting Standards Board (Board), developing new IFRS® Standards to improve financial accounting and reporting is our stock in trade. However, no matter how comprehensive the development process is, for a variety of reasons there may be a need to make subsequent amendments.
Mostly these amendments have been either narrow in scope or transaction-specific in nature and come to us from a variety of sources such as recommendations from our IFRS Interpretations Committee. But we also stand back and take a holistic look at an entire Standard after it has been in use for some time. We call this activity a Post-implementation Review (PIR).
These are a relatively new process for us. To date, we have completed PIRs on IFRS 3 Business Combinations and on IFRS 8 Operating Segments. Currently, we are asking stakeholders to provide information to our third PIR, which is on IFRS 13 Fair Value Measurement, with comments and other input due on 22 September.
The PIR process in a nutshell
The Board's Due Process Handbook outlines why, when and how we conduct PIRs. First, let’s be clear: a PIR is not intended to be a cover-to-cover reconsideration of the entire underlying Standard. It starts with an initial assessment of how well the new Standard is performing in practice and includes outreach to the Board's consultative network.
Whilst not reopening the Standard, we look at a number of things, including: have the Standard’s objectives been achieved? Are the Board's requirements on the most difficult or conscientious issues performing as intended? Have new issues emerged since the Standard was issued? Are the compliance costs consistent with expectations?
After the initial assessment, the Board may determine no additional research is necessary. However, if important issues are identified, we then publish a formal Request for Information (RFI), seeking input on specific topics from any interested constituent. After the RFI responses are analyzed, the Board then determines the next steps, which could range from standard-setting to a conclusion that no additional work is necessary.
For example, our PIR on IFRS 3 Business Combinations identified important challenges with its definition of a business and in evaluating goodwill for potential impairment. On the first issue, we are near finalization of a revised definition of a business, and on the second, we are deep into a research project on the subsequent accounting for acquired goodwill, including potential improvements to our impairment testing requirements.
The possible outcomes of the process are summarized as follows:
1- IFRS Practice Statement 2: Making Materiality Judgements (Practice Statement) provides companies with guidance on how to make materiality judgements when preparing their general purpose financial statements in accordance with IFRS Standards.
The need for materiality judgements is pervasive in the preparation of financial statements. IFRS Standards require companies to make materiality judgements in decisions about recognition, measurement, presentation and disclosure.
2- The Practice Statement:
• provides an overview of the general characteristics of materiality;
• presents a four-step process companies may follow in making materiality judgments when preparing their financial statements; and
• provides guidance on how to make materiality judgements in specific circumstances; namely, how to make materiality judgements about prior-period information, errors and covenants, and in the context of interim reporting.
The Practice Statement is a non-mandatory document. It does not change or introduce any requirements in IFRS Standards and companies are not required to comply with it to state compliance with IFRS Standards.
Companies are permitted to apply the guidance in the Practice Statement to financial statements prepared any time after September 14, 2017.
http://www.ifrs.org/news-and-events/2017/09/role-of-post-implementation-reviews/