24 June 2005

Dear Mr Seidenstein

IFRIC - Review of Operations

The Group of 100 (G100), an organisation which represents the views of chief financial officers of major business entities in Australia, is pleased to provide comments on the review of IFRIC’s operations.

The G100 believes that ideally, all Interpretations of IFRSs should be developed by IFRIC in order to provide clarity and certainty as to whether a pronouncement is IFRS compliant.

Where interpretations are not developed by IFRIC there is a significant risk that different practices will develop and that the resulting requirements may not be IFRIC compliant. This danger is further exacerbated by the operation of the hierarchy in IAS 8 ‘Accounting Policies, Changes in Estimates and Errors’. However, we recognise that in some circumstances national standard-setters (or their interpretative bodies) may have to respond to particular domestic needs and concerns. Further, we believe that adoption of robust and transparent processes by IFRIC and achieving strong co-operative arrangements with national standard-setters should ensure that interpretations at a national level are rare.

1. Capacity to produce interpretations

The G100, as with other constituents, has been concerned that IFRIC has not been developing interpretations on a timely basis. This is particularly evident in the transition process with many constituents confronting issues arising in the first-time adoption of IFRSs. With the benefit of hindsight it would have been desirable if the IASB had a more timely process for dealing with such issues. Timely responses is particularly important to preparers in these circumstances.

However, we believe that problems associated with first-time adoption of a new accounting regime should be separated from the design of an ongoing process for developing interpretations. We consider that the IFRIC model can be adapted to respond to meet ongoing expectations and consider that a number of the proposed changes reflect this need for change.

2. Machinery for rejecting issues

We consider that the development of a transparent process for accepting/rejecting issues for IFRIC consideration is essential to avoid the creation of an environment in which national bodies feel the need to enter this space. Greater transparency of the agenda committee process would be encouraged by preparers. We have the impression that the Agenda Committee (AC) seems to be more responsive to issues being raised from some jurisdictions than from others. The experience in respect of issues raised by, or on behalf of, Australian corporates has not been promising. For example, some of our members are bemused by the inclusion of the issue leading to IFRIC D16 ‘The Scope of IFRS2’ on the IFRIC agenda while issues raised in respect to employee share plans are not addressed.

We strongly believe that the AC must have protocols and disciplines to ensure that it addresses issue proposals within a specified time. It is unacceptable for issues to accumulate awaiting AC consideration. In respect of interpretations, timeliness is crucial.

In this regard we believe that:

• the proposed data base of issues should be publicly available. This would help signal whether issues are general or local for both preparers, national bodies and IFRIC. In addition, publication of the issues data bank and the AC agenda items may contribute towards a reduction in the time taken for a matter to be addressed by the AC;
• the list of issues for consideration by the AC should be made public before a meeting;
• the proposal that other IFRIC members may attend the AC, subject to concerns about the quorum, are supported as membership and participation should be broader than the BIG 4. We presume that all IFRIC members would receive copies of the AC agenda papers so are in a position to determine whether to participate;
• while the recently introduced process for publication of the AC’s views is a welcome initiative the AC should be required to address an issue proposal within a specified period;
• the proposals to make IFRIC agenda papers publicly available on a more timely basis is supported. We believe that these papers should be available before a meeting. Availability of these documents as the issues are addressed by IFRIC should mean that the exposure period for Draft Interpretations can be reduced. We have found that the availability of such documents (as Issue Summaries) by the Australian Urgent Issues Group is extremely valuable in inducing preparers to participate in the development of an interpretation.

3. Possible other mechanisms

The G100 believes that the IFRIC model, in co-operation with national standard-setters, is appropriate to deal with ongoing interpretations issues. However, different mechanisms would be appropriate to deal with urgent issues and first-time transition issues. For example, the current AC process of giving reasons for not including an item on the agenda could be extended to include views on transition issues in particular. These ‘snapshots’ should not take several months to resolve as appears to be the case at present. We consider that providing IFRIC with increased and dedicated resources and changing processes to ensure more timely development of interpretations would serve to diminish a number of these concerns.

However, we believe that more co-operative and consultative arrangements involving national standard-setters would also assist in more timely resolution of issues. In this respect the model proposed to IFRIC (para 50) has some attractions. We are particularly attracted to the proposal that nationally developed draft interpretations which may have been prepared (say, because an issue is locally significant as a result of local legislation) receives negative clearance from IFRIC regarding consistency with IFRSs. We consider that, however, described, such clearance/endorsement is essential to provide preparers with clarity in making an unreserved statement of compliance with IFRSs. The G100 sees this as the major challenge facing the IASB and national standard-setters.

4. Involvement of other standard-setters and interpretative bodies.

The G100 considers that greater involvement by, and co-operation with, national standard-setters is essential if the potential problems associated with several bodies developing interpretations are to be avoided. In our view the proposal outlined in paragraph 50 would minimise these risks. It is our strong belief that there should not be any doubt on the part of preparers whether an interpretation is IFRS compliant or not.

Other Issues

a. The G100 supports the proposal (para 17) to reset the IFRIC quorum in certain limited circumstances. However, it is not clear whether the voting to achieve a consensus (para 20) would be changed to reflect the effect of the change in the quorum because it is possible that a consensus could be reached on the favourable vote of 5 members of IFRIC.

b. There would appear to be the possibility of conflict between the requirements of para 38 regarding IFRIC agenda papers and the proposals to make them more publicly available (paras 61 and 62).

Yours sincerely

Tom Honan
National President