The International Accounting Standards Board (IASB) sometimes writes requirements in the form ‘if A is the case, an entity shall do B’. But in other places it writes such requirements in the form ‘if, and only if, A is the case, an entity shall do B’. Are those two forms intended to have different meanings? Logically, they have different meanings. Nevertheless, because of changes in drafting practice over the last 5 decades, it may not be clear whether they were intended to have different meanings in particular contexts.
I discuss below:
- One-directional requirements
- Two-directional requirements
- When versus if
- Changes in drafting practice
- Questions caused by one-directional requirements
- Reverse one-directional requirements
The form ‘if A is the case, an entity shall do B’ contains a one-directional requirement: it requires an entity to do B if A is the case. That form does not state explicitly whether, if A is not the case, doing B is: (1) required; (2) permitted (but not required); or (3) prohibited.
A one-directional form will often be clearer if it goes on to specify which meaning is intended: (1); (2); or (3).
In contrast, the form ‘if, and only if, A is the case, an entity shall do B’ contains a two-directional requirement:
- it requires an entity to do B if A is the case; and
- it requires an entity not to do B if A is not the case.
Said differently, the two-directional form ‘if, and only if A, then B’ is short for the following compound expression: ‘(if A, then B) and (if not A, then not B)’.
An example of the two-directional form is in paragraph 59 of IAS 36 Impairment of Assets:
59. If, and only if, the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset shall be reduced to its recoverable amount. …
Although that two-directional form has a precise logical meaning and is concise, it is very compressed. As a result, many readers struggle to find the components that tell them what it means. To make it easier for readers to unpack the meaning, the IASB has sometimes used less compressed drafting, as in this example from paragraph 14 of IAS 37 Provisions, Contingent Liabilities and Contingent Assets.
14. A provision shall be recognised when:
(a) an entity has a present obligation (legal or constructive) as a result of a past event;
(b) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and
(c) a reliable estimate can be made of the amount of the obligation.
If those conditions are not met, no provision shall be recognised.
(To highlight the paragraph’s two-directional structure, I have removed the original bold type, keeping bold only where this picks out the structure.)
The first part of paragraph 14 imposes a requirement in one direction: a provision shall be recognised when conditions (a)-(c) are met.
The final sentence imposes a requirement in the opposite direction: no provision shall be recognised when conditions (a)-(c) are not met.
Typical compressed wording for this two-directional requirement would be something like: A provision shall be recognised when, and only when: [(a); (b); and (c)].
When versus if
In this post I talk about the forms ‘if’ and ‘if and only if’. A similar distinction exists between the forms ‘when’ and ‘when, and only when’. Some IASB standards use those latter forms—particularly when the emphasis is on when an entity must do something and not just on whether a condition is met.
Changes in drafting practice
The drafting practice of the IASB and of its predecessor (IASC—the International Accounting Standards Committee) changed over the years:
- up until about 1996 or 1997, IASC typically wrote its requirements in a one-directional form. As far as I can tell, IASC typically gave no thought to whether its requirements should be written in a one-directional form or a two-directional form. (I once came across a comment letter from the early 1990s in IASC’s archives. In it, an academic complained that a one-directional requirement does not explicitly set a requirement in the opposite direction and wrote 3 pages in precise logical notation to demonstrate this fact.)
- from about 1996 or 1997, IASC’s Secretary-General (Sir Bryan Carsberg) strongly encouraged IASC’s technical staff to use the explicit two-directional forms (‘if and only if’; ‘when, and only when’) in cases when that was the intended meaning.
- From the early 2000s, the one-directional form started to appear again in Standards that were being written (or substantially amended). That was perhaps mainly because the IASB’s Editorial Director of the time strongly discouraged the two-directional form, feeling that it was too emphatic. I believe that his preference was entirely stylistic, rather than intended to be substantive, though I have not seen any documentation to support my belief.
Because of that history:
- If a requirement is written in the two-directional form ‘if, and only if’ (or its near equivalent ‘when, and only when’), it is clearly intended as a two-directional requirement.
- If a requirement is in the one-directional form ‘if’ (or its near equivalent ‘when’), the intention may depend on when the requirement was written:
- if the requirement was in a standard issued before about 1996, IASC probably did not even consider whether the requirement should be one-directional or two-directional.
- if the requirement was in a standard that was issued between about 1996 and about 2001 (and if that requirement is still in its original form), IASC may well have made a conscious decision to make it a one-directional requirement.
- if the requirement was in a standard issued (or substantially amended) after about 2001, the IASB probably did not consider whether the requirement should be one-directional or two-directional, unless the Basis for Conclusions discusses that question.
Questions caused by one-directional requirements
Using one-directional wording can lead to questions. Questions are more likely if the Basis for Conclusions does not state explicitly whether the use of one-directional wording was intentional.
For example, in 2010, the IASB added paragraph 51C to IAS 12 Income Taxes. That paragraph contains a requirement worded in a one-directional form. As a result, a question came to the IFRS Interpretation Committee, which then issued the following agenda decision in November 2011.
Rebuttable presumption to determine the manner of recovery
Paragraph 51C of IAS 12 contains a rebuttable presumption, for the purposes of recognising deferred tax, that the carrying amount of an investment property measured at fair value will be recovered through sale. The Committee received a request to clarify whether that presumption can be rebutted in cases other than the case described in paragraph 51C.
The Interpretations Committee noted that a presumption is a matter of consistently applying a principle (or an exception) in IFRSs in the absence of acceptable reasons to the contrary and that it is rebutted when there is sufficient evidence to overcome the presumption. Because paragraph 51C is expressed as a rebuttable presumption and because the sentence explaining the rebuttal of the presumption does not express the rebuttal as ‘if and only if’, the Committee thinks that the presumption in paragraph 51C of IAS 12 is rebutted in other circumstances as well, provided that sufficient evidence is available to support that rebuttal. Based on the rationale described above, the Committee decided not to add this issue to its agenda.
Reverse one-directional requirements
Sometimes, a requirement is written in a one-directional form, but using wording such as ‘an entity shall do B only if A is the case’, or ‘an entity shall not do B unless A is the case’. This type of wording is explicit only about the ‘only if’ part of the two-directional requirement ‘if, and only if, A is the case, an entity shall do B’.
Because this form deals only with the only if part and not with the if part dealt with by a normal one-directional requirement, I am calling it here a reverse one-directional form. Here is an example from paragraph 32 of IAS 1 Presentation of Financial Statements:
32. An entity shall not offset assets and liabilities or income and expenses, unless required or permitted by an IFRS.
In wording reverse one-directional requirements, particular care is needed to avoid ambiguity. For example, suppose that a requirement says: ‘an entity is required to do B only if A occurs. It may be unclear what that means:
Possible meaning 1: If A occurs, an entity is required to do B. If A does not occur, an entity is not permitted to do b.
Possible meaning 2: If A occurs, an entity is required to do B. If A does not occur, an entity is not required to do B, but is permitted to do B.
The one-directional form (if A, then B) and the two-directional form (if, and only if, A, then B) have different meanings. Nevertheless, many readers do not pick up that difference. It may sometimes be clearer to readers what is intended if:
- one-directional forms spell out explicitly what is permitted, required or prohibited when the specified conditions are not met.
- two-directional forms are written out in a less compressed form, with separate statements for each direction.
If you are trying to determine whether a requirement is intended to be one-directional or two-directional, the Basis for Conclusions may say something that helps you reach a conclusion. If the Basis for Conclusions does not help, it is important to remember that drafting styles have changed over the years. As a result, a difference in wording may not always indicate a difference in intention—and identical wording may not always indicate that that the intended meanings are identical.