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EFRAG Short Discussion Series - Levies: what would have to be changed in IFRS for a different accounting outcome?


Project History

The EFRAG Short Discussion Series addresses topical and problematic issues with the aim of helping the IASB to address a cross-cutting dilemma in financial reporting after having stimulated debate among European constituents and beyond.

Levies: what would have to be changed in IFRS for a different accounting outcome?

In May 2013, the IASB published IFRIC 21 Levies. The objective of IFRIC 21 is to clarify what the obligating event is, that gives rise to the recognition of a liability for levies. There was agreement that the consensus in IFRIC 21 was a technically correct interpretation of the principles in IAS 37. However, concerns were expressed that, on occasion, it would result in delayed or anticipated recognition of liabilities and inappropriate recognition pattern of the cost.

Combined with the requirements of IAS 38, IFRIC 21 will often result in the immediate expense of levies charged on a periodic basis, when the law indicates an activity that occurs at a point-in-time. Some have expressed concern with this outcome, because they believe that the cost of a levy charged on a periodic basis should be recognised over the period it refers to.

Based on this, some have claimed that the EU should call for a revision of the principles in IAS 37. However, it is important to note that the definition of a liability in IAS 37 is derived from the Conceptual Framework. In addition, some of the principles in IAS 37 are unrelated to the issue under discussion and consequential changes to IAS 37 would not affect the outcome.

EFRAG Discussion Paper

In August 2014, EFRAG issued a paper to consider which changes to IFRS (including, but not limited to IAS 37) would need to be made to achieve a different accounting treatment for levies whose obligating event occurs at a point in time. EFRAG believes that the paper will assist the IASB in its work and will stimulate debate in Europe and beyond.

In response to the Discussion Paper EFRAG received seven responses. A majority of respondents favoured developing specific requirements in IAS 34 to address their concerns.

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