The International Financial Reporting Interpretations Committee [IFRIC] is the interpretative body of the IASB, the entity that develops, maintains and issues IFRS. IFRIC is designed to help the IASB improve financial reporting through timely identification, discussion and resolution of financial reporting issues within the framework of IFRS. Following a process detailed in the Due Process Handbook for the IFRIC, the committee develops authoritative interpretations of existing IFRS. IFRIC refers its interpretations to the IASB for discussion and approval, and once they are approved by the IASB, the IFRIC interpretations (IFRICs) become part of IFRS. To be in compliance with IFRS, an entity must comply with all aspects of IFRS, including IFRICs.
Any individual or organization, including IFRIC members, IASB staff members or official IFRIC observers, may recommend agenda items for consideration by IFRIC. In recent years, IFRIC has received requests for interpretation on a variety of topics, including financial instruments, revenue recognition, employee benefits, share-based payments, business combinations, consolidations, intangible assets and income taxes.
In determining which questions might be appropriate for IFRIC to consider, the committee applies specified agenda criteria, as follows:
- Widespread and practical relevance of issue.
- Significant divergence in practice (existing or emerging).
- Improved financial reporting.
- Efficient, cost-effective resolution.
- Probable to reach consensus on a timely basis.
- No current IASB project will be completed before IFRIC could respond.
After applying the agenda criteria to a specific issue, IFRIC may make one of four possible decisions:
- Not to add the issue to the IFRIC agenda, but explain in an agenda decision published in IFRIC Update why the issue was not added to its agenda.
- Develop an IFRIC interpretation.
- Recommend that the IASB change an IFRS.
- Recommend that the IASB include the item in a current IASB project.
Items not added to the IFRIC agenda are rejected generally because IFRIC believed the question was more in the nature of implementation or application guidance instead of interpretative guidance. For example, IFRIC was recently asked to provide guidance on how a discount rate should be determined when fair value is established using a valuation technique. While the question is relevant and important, IFRIC decided not to add the item to its agenda because the standards and existing application guidance already specify the objective of the measurement and the relevant factors to consider. Therefore, any guidance it could issue would be in the nature of implementation guidance.
In other cases, IFRIC may reject a potential project because it believes sufficient guidance exists in the literature, or IFRIC may determine the issue should be addressed by the IASB. For example, recently IFRIC was asked to interpret how the equity method of accounting in IAS 28, Investments in Associates, was affected by revisions in IFRS 3 and IAS 27. While IFRIC staff noted that FASB’s EITF had recently added the issue to its agenda, IFRIC decided not to add the questions to its agenda because IAS 28 provides explicit guidance on two of the issues in question and, therefore, IFRIC did not expect divergence in practice. The IASB will address the remaining two questions as part of its review of the potential impact of IFRS 3.
It is important to note that while IFRIC may not address every question posed to it, no agenda decision is finalized until constituents are given the opportunity to comment on IFRIC’s tentative decision that is published in the IFRIC Update. IFRIC reviews the comment letters before finalizing its agenda decisions. Each agenda decision and IFRIC’s reasons for it are fully disclosed, both in the IFRIC Update and on the IASB Web site in a cumulative list by standard.