Effective dates and transition methods

Comments from ACCA to the International Financial Standards Board, January 2011.

Q1. Background information
ACCA is the global body for professional accountants. We aim to offer business-relevant, first-choice qualifications to people of application, ability and ambition around the world who seek a rewarding career in accountancy, finance and management.

We support our 140,000 members and 404,000 students throughout their careers, providing services through a network of 83 offices and active centres. Our focus is on professional values, ethics, and governance, and we deliver value-added services through 57 global accountancy partnerships, working closely with multinational and small entities to promote global standards and support.
We use our expertise and experience to work with governments, donor agencies and professional bodies such as the International Federation of Accountants (IFAC) to develop the global accountancy profession and to advance the public interest.

Q2 and Q3. Costs and other effects
We assess that the costs of implementation of the various proposed standards for companies will be principally a function of the complexity of the proposals and the number of companies who will be likely to have to make changes (under scale of impact below). For the other effects we have noted below the tax impact (in the UK as an example) as likely to have a widespread effect.

New IFRSAccounting complexity of transitionTax impactScale of impact
Fair value measurementmoderatemoderatewidespread
Financial instrumentsseveresignificantWidespread but severe for financial institutions
Insurance contractsseveresignificantRestricted to insurance companies
Joint arrangementsmoderatemoderateWidespread
LeasesseveresignificantAlmost every company
Defined benefit plansmoderatenoneWidespread but only in certain jurisdictions
Other comprehensive incomemoderatenoneAlmost every company
Revenue from contracts with customersseveresignificantEvery company

We do not think that any of the changes proposed should give rise to changes to auditing standards.

Q4. Transition method

We have responded to the appropriateness of the transition method – prospective, full retrospective or partial – in response to the consultations on individual standards. The implementation of a series of new standards  should lead to no overall impact on this.

Q5. Single date or sequential approach for mandatory adoption

Some of these changes are going to have a very widespread effect on all companies using full IFRS and others will be affecting only certain companies (particularly banks and insurers) but where the impacts will be fundamental on their financial statements. For these reasons it is right for special consideration to be given to the adoption approach.

Of the raft of standards coming through

  • financial instruments
  • insurance
  • leases
  • revenue recognition

are the most significant and will be making fundamental changes to existing accounting. For these reasons we support a single date approach for them. The mandatory adoption date should be 18 months after the publication of the last standard in the package.

The adoption of

  • Consolidation
  • Fair value measurement
  • Joint arrangements
  • Defined benefit plans
  • Other comprehensive income

will primarily close certain existing optional treatments or elaborate existing guidance. We think there is merit in including these other standards into the same single-date package, but do not regard it as of such importance.

Our reasons for supporting the single date approach are mainly

  • Greater comparability between companies as the application period would not be extended over several years with successive changes
  • effects of the restatements, given that they will not all be fully retrospective, can start to work themselves out over a shorter period
  • A 'big bang' generates awareness and so focuses the attention of preparers and users on the significance of the restatements which might be involved
  • May be easier to plan for if sufficient time is allowed to assess the impacts

The disadvantage will primarily be the extra demands of time on accounting staff at preparers in the transition period. This will fall disproportionately on smaller preparers who may have fewer staff to spread the work over. This may lead to extra costs for them as they are more likely to need external assistance from consultants.

Q6. Early adoption

We support a ban on early adoption. As with the date of adoption, for the four fundamental projects this is more important than for the group of other projects  identified above. Our principal reason for not permitting early adoption is to improve the comparability of financial statements.

Q7. Same dates in US GAAP and IFRS?

If practicable the same dates of implementation should be available. However given the existing lack of comparability this is not a very significant matter.

Q8. First time adopters

As an exception to our answer to Q6 above, we would like to see early adoption available to first time adopters of IFRS to avoid their having to make double changes for the same item in a relatively short space of time. There may in any case be other reasons why their IFRS financial statements would not be fully comparable with those of existing IFRS preparers.