UK Financial Reporting Council Raises Concerns on Draft Interpretation
The FRC has issued a response to the IASB with regard to the draft IFRIC Interpretation 'Levies Charged by Public Authorities on Entities that Operate in a Specific Market'. The UK Financial Reporting Council stated in its response that it did not feel that the interpretation of the draft provides helpful information for the users.
Though the FRC did mention that the interpretation does technically analyze the manner in which IAS 37 Provisions, Contingent Asset and Contingent Liabilities must be applicable on levies, correctly. But the FRC argued that it did not always lead to the substance of the transaction that was being reported. The UK Financial Reporting Council also mentioned that in the absence of trusted representation of the transactions’ effects, other conditions as well as events would contradict IAS 1 Presentation of Financial Statements that requires that statements must always provide the performance and position of an organization fairly.
According to the FRC, the fundamental principle in International Accounting Standard 37 is incorrect or is contradictory to International Accounting Standard 1 and therefore should be checked all over again. The FRC came to this conclusion on the basis of the fact that an interpretation that is technically right results in conclusions, which don’t reflect the very substance of the fundamental transaction. In its letter to the IASB, the UK Financial Reporting Council highlighted their concerns stating that the fact that reporting and accounting, which diverges from the fundamental substance of a particular transaction has the ability to bring disrepute to accounting.
The FRC has recommended that instead of issuing the IFRIC, the fundamental principle in International Accounting Standard 37 must be reviewed by the International Accounting Standards Board. In addition to this, the UK Financial Reporting Council has also contradicted the European Financial Reporting Advisory Group’s initial view pertaining to the fact that the interpretation would offer helpful information for the users of the statements.
In the month of July 2012, the EFRAG had issued a draft letter that also consisted its comments on the IFRS Interpretations Committee Draft Interpretation DI/2012/1, in which the board had acknowledged the fundamental principles in the Conceptual Framework as well as IAS 37.