Are practical expedients practical?

The term ‘practical expedients’ litters accounting standards on leasing and revenue recognition on both sides of the Atlantic and for once, both the Financial Accounting Standards Board and the International Accounting Standards Board agree to use the same term. A rather obscure term at that.

Yet practical expedients are not defined. Some accountants know what the term means, many do not. If one happens to reach paragraph 129 of IFRS 15 Revenue from Contracts with Customers, one might be able to guess what a practical expedient means:

“If an entity elects to use the practical expedient … the entity shall disclose that fact.”

‘Elects’ suggests that it is optional. They don’t have to use it if they don’t want to, but they can if ‘practical expedient’ is mentioned in the text. 

One accounting site defines practical expedient as a relief effort which is not helpful. Another calls it an accounting policy election that provides relief, which is confusing. The explanation I like best is ‘shortcut’.

Companies, then decide on the criteria of simplicity and lower cost when choosing whether to elect for a practical expedient. But is this right? Should companies not choose as the criteria, the more noble reason from the mission of both accounting boards: that of providing useful information to investors and other users of financial reports? And not merely mundane cost.

I do not have an answer just this question. Yet I add this reflection from the late Alan Paton, the South African writer, which perhaps answers my question:

“Ask yourself not if this or that is expedient, but if it is right.” [2]

And sometimes, the practical expedient takes longer to prepare or costs more for the company to implement and ends up more a burden than a shortcut. Perhaps this happens when it is not right?

 [1] Quotation attributed to Alan Paton by

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