BDO issues comment letters on IASB ED/2017/5 and ED/2017/6

BDO has submitted its comment letters in response to the International Accounting Standard Board’s exposure drafts ED/2017/5 Accounting Policies and Accounting Estimates (Proposed Amendments to IAS 8) and ED 2017/6 Definition of Material (Proposed amendments to IAS 1 and IAS 8), both issued in September 2017

In the response to ED/207/5, we agree:

• with the Board’s decision to clarify the definition of accounting policies and the interrelation of accounting policies and accounting estimates; and
• that the definition of changes in accounting estimates should be replaced by the definition of accounting estimates.

However, we disagree with:

• the addition of ‘measurement bases’ to the definition of accounting policies.   A change in measurement basis is an example of a change in accounting policy and the proposed definition could therefore inappropriately result in certain changes in presentation failing to be accounted for as changes in accounting policy; and
• the identification of the choice of cost formulas as an example of an accounting policy.  In our view, the application of FIFO or weighted average cost represents an accounting estimate, in the application of the accounting policy that is required by IAS 2 which is to measure inventory at the lower of cost and net realisable value

In the response to ED 2017/6, we agree with the proposals as drafted to refine and clarify the definition of material and the accompanying explanation within IAS 1 and IAS 8; however, we believe some modifications should be made to the proposed wording or terminology.  We also agree that any changes to the definition of Materiality should be carried forward and amended in the Materiality Practice Statement and the revised Conceptual Framework to maintain consistency.

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