Global Standards for the world economy

Sunday 28 February 2021

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IFRS Research Centre

Evidence-supported standard-setting

Evidence-supported standard-setting

The IASB is moving to a more evidence-supported standard-setting process through the whole of the development cycle for Standards.

We have a broad definition of evidence—it can include collecting and analysing views from surveys; empirical analysis such as from studies of reported accounting data, share price relationships and analysts forecasts; fieldwork such as assessing systems changes or the hypothetical application of a proposed new financial reporting requirement; the results of experimental studies; analytical modelling; targeted consultations; and general consultations (such as when we issue documents for comment).

Evidence-supported decision-making simply involves using evidence to give the IASB more confidence that it is making the best decisions. It also allows those affected by the decisions to see that the IASB has demonstrable evidence that is consistent with, or supports, the contentions and views held by the IASB. 

Evidence collected by the IASB, or independent researchers, supports the objectivity and credibility of the conclusions reached by the IASB.

Examples of evidence-supported decision-making

The IFRS Interpretations Committee (the ‘Interpretations Committee’) considers matters in which entities are having difficulty applying a Standard; generally, because they think the requirements could be interpreted more than one way. In assessing whether the Interpretations Committee should develop an Interpretation, the staff will look for evidence of diversity in the practice to help it assess the extent, and economic significance, of the diversity. That evidence can come from observed financial reporting practice and consultations with securities regulators and auditors. 

In developing its requirements for the financial reporting of joint arrangements, the IASB collected information about how entities were reporting their investments in joint ventures. The analysis showed that about half of the entities using IFRS used the equity method and the other half used proportionate consolidation. The analysis showed that there was no diversity in some jurisdictions, mixed practice in others and diversity between jurisdictions. 

In developing its requirements for business combination accounting, the IASB undertook fieldwork with case studies that were designed to see if valuation professionals reached conclusions from applying the proposed new definition of fair value as an exit value.

In reviewing the implications of the first two years of its new requirements for segment reporting, the IASB reviewed independent research studies that examined how segment reporting had changed and whether the changes affected the relevance of the reported information—using share price and analyst forecast information. 

Credibility and accountability throughout the standard-setting process

As the IASB is a public organisation, accountability—and communication that comes with it—is an important part of the IASB’s activities. Research is useful for the IASB not only for forming its conclusions, but also for communicating those conclusions and their reasons to constituents and other interested parties. 



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