18 August 2014

EBF commented on EFRAG’s proposal to enhance IFRS quality control

The EBF has published its comment letter to EFRAG on its proposal to enhance IFRS quality control. The EBF agrees that despite all the efforts of the IASB and the transparency of the IASB process and deliberations, the final wording of standards may sometimes be difficult to understand.

The drafting of the final wording may also lead to interpretation that diverges from the IASB intentions. Ambiguous wording may result in divergences in interpretation and implementation, leading auditors or, in some instances national and regional authorities, to provide guidance on IFRS. At worse, internationally active entities may face local variations of IFRS, contrary to the IFRS global objective. At best such inefficiencies will increase implementation costs.

The EBF would see merit in an enhancement of the standard setting process that would improve the clarity and constituents’ understanding of the standards as well as avoiding any unintended consequences or unforeseen operational challenges as a result of the final wording. However, the EBF is concerned that public fatal flaw reviews may i) substantially prolong the standard setting process, ii) risk reopening of issues that have already been decided and iii) jeopardise the principle based character of IFRS.

While some operational issues may become apparent only during the actual implementation, introduction of a post-publication review of the final standard risks reducing the implementation and endorsement time, since the final text would remain uncertain, unless the effective date of the new standards take into account the additional post-publication phase.

Such increased uncertainty can be detrimental to the timely implementation of the standards by some entities, in particular those previously not involved in the standard setting process due to limited resources who may be reluctant to commence implementation efforts until the standard is final. Further amendment to standards shortly after their publication also increases the implementation costs. Therefore, the IASB needs to continue to work towards getting standards right first time.

Although the EFRAG proposal could help in this regard, it would also introduce additional difficulties. Therefore, the EBF would prefer to assess the functioning of the IASB Transition Resource Groups which the IASB has set up in support of the more complex new standards recently issued. The EBF believes the experience with the IFRS 9 ‘Financial Instruments’ and IFRS 15 ‘Revenue Recognition’ will provide a solid basis to review the due process for new standards and determine if any further changes are needed.

Comment letter

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