In a recent edition of his Inside Standard Setting, Armand Capisciolto, Chair of Canada’s Accounting Standards Board, pulled off one of the all-time memorable segues:

• …it’s hard to argue that Led Zeppelin IV isn’t one of the greatest rock albums of all time. It features “Rock and Roll,” “Black Dog,” “Stairway to Heaven,” and “When the Levee Breaks.” Which brings me to IFRIC 21, Levies, which the IASB proposes to withdraw as part of the Provisions – Targeted Improvements Exposure Draft.

Well, of course it does. You may recall that the exposure draft focuses in particular on how an entity determines under IAS 37 that it has a present obligation (legal or constructive) as a result of a past event: I’ve expressed the opinion that the proposals should provide amuch-enhanced basis for analyzing unfamiliar and complex fact patterns.The main point of Capisciolto’s post is that the “targeted improvements” label might cause stakeholders not to appreciate the possible impact of the proposals: “The truth is, any change in wording to a standard—even an illustrative example or the basis for conclusions—will impact how the standard is applied. If there were no impact, why would we allocate our limited resources, particularly time, to making the change? If an amendment doesn’t reduce diversity or provide better information to financial statement users, leading to a change for some entities, there’s no reason to amend a standard.”

In a related train of thought, the Institute of Chartered Accountants in England and Wales wrote in their comment letter that “we are concerned that the scale and complexity of the proposed amendments risk adversely impacting the Standard’s understandability and clarity.” On the specific issue of levies, they “do not believe that the challenges associated with ‘fitting’ levies into IAS 37 have been adequately identified and addressed.” They gave an example of practical consequences that might arise:

• many entities do not provide for royalties payable on future sales on the basis that there is no obligating event because they can choose not to make such sales. However, an entity that only sells one product (on which a royalty is payable) must make future sales to continue operating as a going concern. In applying (the exposure draft) the entity might conclude that the future sales are a separate action and, as it has no practical ability to avoid the future sales, a provision for royalties payable on future sales is required.

Here are some comments from Accountancy Europe:

• we welcome the IASB’s efforts to align IAS 37 with the conceptual framework and to better structure the provisions recognition criteria, which ought to support the consistent application of IAS 37. However, we are concerned that the proposed amendments will result in a more complex standard and might therefore not achieve the goal of more consistent application. At times, the navigation and the understanding of the various new concepts were confusing…
• Additionally, we note that the outcome of the accounting for many levies under the proposals will be the opposite of what was required by IFRIC 21, and in many cases will revert to how some entities accounted for those levies before IFRIC 21 was issued. Whilst the amendments are built on the revised Conceptual Framework issued in 2018, they rely on interpretations that the Board is making of those requirements…Whilst many people were dissatisfied with the accounting required by IFRIC 21 when it was introduced, there was general acceptance that it was a valid interpretation of IAS 37 at the time (May 2013). Furthermore, preparers and users have since largely grown accustomed to its requirements. We therefore invite the Board to carefully assess whether the upheaval and associated cost that will be required to change the accounting for levies as a result of these proposed amendments will be outweighed by the benefits that some might gain from the changed accounting.

The Autorite des Normes Comptables also weighed in, saying it “understands the merits of the IASB’s plan to integrate levies into the IASB provisions model…However, it is essential that this objective be accompanied by robust application guidance included in the body of the standard, making it possible to identify clearly the “actions” and “thresholds” to be taken into account, and to avoid tedious discussions that could lead to detrimental diversity in practice within a single jurisdiction.” The ANC goes on to say it studied the accounting for ten French levies, so the use of “tedious” may be deeply felt…

I previously expressed the opinion that it seems unfortunate that some companies will have to reexamine accounting determinations made relatively recently, the outcome of which has little or no benefit to the organization itself. The comments cited above, and others along the same lines, seem to support Capisciolto’s view that “targeted improvements” isn’t really a sufficient label for what’s going on here. Which brings me, naturally, to the often underrated Joe Jackson’s Night and Day album and his cracking song “Target”…

The opinions expressed are solely those of the author.