International Financial Reporting Interpretations Committee (IFRIC)

Definition

The International Financial Reporting Interpretations Committee (IFRIC) is a committee that assists the International Accounting Standards Board (IASB) by providing guidance on the application and interpretation of International Financial Reporting Standards (IFRS). The IFRIC is instrumental in ensuring consistent and accurate application of IFRS across different jurisdictions.

Roles and Duties of IFRIC:

Interpretation of IASs and IFRSs: To interpret the application of International Accounting Standards (IASs) and International Financial Reporting Standards (IFRSs) and to provide timely guidance on financial reporting issues not specifically addressed in these standards.
Convergence of National Standards: To work with national standard setters to achieve convergence between national accounting standards and IFRS.
Publications: To publish draft Interpretations for public comment after clearance from the IASB and to consider these comments within a reasonable period before finalizing an Interpretation.
Approval and Reporting: To report to the IASB and obtain its approval for final Interpretations.

Historical Context:

Before December 2001, the Standard Interpretations Committee (SIC) was the IASB’s interpretative body. In December 2001, the SIC was reconstituted as IFRIC with enhanced duties and responsibilities.

Examples:

Revenue Recognition Guidance: IFRIC may provide detailed guidance on complex revenue recognition transactions not clearly addressed by existing IFRS.
Lease Accounting Interpretations: Clarifications on the application of IFRS 16 ‘Leases’ could be issued by IFRIC to ensure proper implementation across various entities.
Cryptocurrency Accounting: As new financial instruments emerge, such as cryptocurrencies, IFRIC might issue interpretations to guide the accounting treatment under IFRS.

Frequently Asked Questions (FAQs):

What is the main function of IFRIC?

The main function of IFRIC is to interpret and provide guidance on the application of International Accounting Standards (IASs) and International Financial Reporting Standards (IFRSs) in order to ensure consistent application across various jurisdictions.

How are IFRIC members appointed?

Members of IFRIC are appointed by the trustees of the International Accounting Standards Committee Foundation (IASC Foundation).

Does IFRIC work in isolation?

No, IFRIC collaborates with similar interpretative groups sponsored by national standard-setters to ensure consistency and convergence of accounting standards globally.

How does IFRIC disseminate its interpretations?

IFRIC publishes draft Interpretations for public comment, considers feedback, and then publishes final Interpretations after obtaining approval from the IASB.

What was the predecessor of IFRIC?

Before December 2001, the Standard Interpretations Committee (SIC) served as the IASB’s interpretative body, which was later reconstituted as IFRIC.

IASB (International Accounting Standards Board): The independent body responsible for the development and oversight of IFRS.
IFRS (International Financial Reporting Standards): Standards issued by the IASB aimed at ensuring transparency, accountability, and efficiency in financial markets worldwide.
IAS (International Accounting Standards): Standards issued by IASC, the predecessor to the IASB.
IASC (International Accounting Standards Committee): The organization that created the IASB.
Convergence: The efforts to harmonize national accounting standards with IFRS.

Online Resources:

Suggested Books:

“International Financial Reporting Standards (IFRS) Workbook and Guide” by Abbas Ali Mirza
“IFRS For Dummies” by Jana Revedin and Lidia D. KleinVPY
“Wiley IFRS: Practical Implementation Guide and Workbook” by Abbas Ali Mirza, Graham Holt, and Magnus Orrell

Accounting Basics: International Financial Reporting Interpretations Committee (IFRIC) Fundamentals Quiz

### What is the primary role of IFRIC? - [x] To provide guidance on the application and interpretation of IFRS - [ ] To set new International Accounting Standards - [ ] To audit financial statements of international companies - [ ] To develop national accounting standards > **Explanation:** The primary role of IFRIC is to provide guidance on the application and interpretation of existing IFRS. ### Who appoints the members of IFRIC? - [ ] The United Nations - [x] The trustees of the International Accounting Standards Committee Foundation (IASC Foundation) - [ ] The European Union - [ ] The World Bank > **Explanation:** Members of IFRIC are appointed by the trustees of the IASC Foundation. ### What was IFRIC known as before December 2001? - [ ] International Accounting Standards Committee (IASC) - [x] Standard Interpretations Committee (SIC) - [ ] Financial Accounting Standards Board (FASB) - [ ] International Auditing and Assurance Standards Board (IAASB) > **Explanation:** Before December 2001, the body now known as IFRIC was called the Standard Interpretations Committee (SIC). ### How does IFRIC publish its interpretations? - [ ] Direct implementation without public consultation - [ ] Publication on national newspapers - [x] Publishing draft Interpretations for public comment - [ ] Through confidential reports to designated auditors > **Explanation:** IFRIC publishes draft Interpretations for public comment and considers feedback before finalizing them. ### Why is the work of IFRIC important? - [ ] To set international tax guidelines - [x] To ensure consistent application of IFRS globally - [ ] To provide funding to the IASB - [ ] To assess the economic impact of IFRS > **Explanation:** The work of IFRIC ensures that IFRS are applied consistently and accurately across different jurisdictions. ### Does IFRIC work independently of other national standard-setters? - [ ] Yes, it does all its activities without external input - [x] No, it collaborates with national standard-setters - [ ] It only works with national standard-setters from G7 countries - [ ] It depends solely on the guidance from IASB > **Explanation:** IFRIC collaborates with national standard-setters to ensure convergence of accounting standards. ### How are IFRIC interpretations finalized? - [ ] By gaining approval from local accounting bodies - [ ] Through external auditing processes - [ ] By independent votes from international companies - [x] By obtaining approval from the IASB > **Explanation:** Final interpretations by IFRIC are approved by the IASB. ### What does IFRIC aim to achieve regarding national accounting standards? - [ ] Establish a complete replacement of national standards - [ ] Allow regions to have unique accounting treatments - [x] Convergence with IFRS - [ ] Segregate national and international standards > **Explanation:** IFRIC works towards the convergence of national accounting standards with IFRS. ### What type of issues does IFRIC address? - [x] Financial reporting issues not specifically covered in IFRS - [ ] Ethical issues in accounting - [ ] Human resource practices in accounting firms - [ ] Legal compliance in taxation > **Explanation:** IFRIC provides guidance on financial reporting issues that are not specifically addressed in current IFRS. ### What is expected after IFRIC publishes draft Interpretations? - [ ] They are immediately adopted without changes - [x] Public comment is solicited and considered - [ ] IFRIC conducts seminars for clarification - [ ] Regional audits to assess implementation readiness > **Explanation:** IFRIC publishes draft Interpretations for public comment and reviews feedback before finalizing them.

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