International standard-setting–the convergence agenda
In August the International Accounting Standards Board announced its agenda of technical projects, including a long list of work with national standard-setters around the globe. The international standard-setting partnership has begun!
High on the IASB's immediate agenda are performance reporting and accounting for share-based payment, topics on which the ASB has made a significant contribution to international thinking through FRED 22 and its authorship of a G4+1 Discussion Paper respectively. A project on business combination accounting seems likely to provide an early international exposure draft—see page 2. The IASB is also taking urgent action to improve its 'mixed model' financial instruments standard, IAS 39 (see Inside Track July).
Two sectoral topics are on the priority list—accounting for insurance contracts, and activities of financial institutions (disclosure and presentation). The IASB will also develop guidance on the first-time application of international standards, and will focus on general improvements to those standards that are not otherwise targeted for substantial change.
Papers produced by the 'international standard-setting partnership' will be exposed for comment in the UK. As new international standards are approved, the ASB intends to bring them into the UK reporting framework. The convergence agenda will thus become convergence in practice.
The initial IASB agenda described above is, however, only 'the tip of the iceberg'. Sixteen topics are being developed by national standard-setters around the world, with the potential for the IASB to take them onto its agenda in due course. With these, and the general improvements work, it is not difficult to predict that almost all the existing IASs will change over the next few years.
Some of the 'research topics' may seem surprising as they are already the subject of standards in a number of countries. Problems arise, however, either because the national standards and existing IASs are quite different from each other, or because all standard-setters agree that there are substantial improvements to be made. The aim must be financial reporting convergence, and convergence on high quality standards.
Examples of such topics are accounting for leases, taxes, employee benefits, intangible assets and some aspects of business combinations not dealt with in the priority project. More fundamental, even, is the need to explore the basis of consolidation and to consider the derecognition of assets and liabilities (for which the UK guidance is largely in FRS 5 'Reporting the Substance of Transactions'). These two issues (and particular consideration of special purpose entities) are seen as critical to the work on financial instruments, and may move onto the priority agenda soon.
There are some more general 'framework' issues as well; for example, the outcome of the project on accounting measurement could radically change our views on how asset impairment is measured and certain revaluations are calculated (Inside Track July page 3). Work on the definitions of elements of financial statements will similarly link with a major review of accounting for liabilities and equity, itself with links to criteria for revenue recognition.
Last to report, but not least, are projects on IAS-based accounting for smaller enterprises and in emerging economies, the need for an international equivalent of the ASB Statement 'Operating and Financial Review', and accounting by extractive industries. And work will of course continue on analysing the responses to the Joint Working Group paper on financial instruments, and on how to take that forward.
For national standard-setters, there is certainly no shortage of projects in which to be influential. Nor, of course, can any national standard-setter afford to neglect to monitor the progress of everything on the international agenda.
