To say we live in interesting times is an understatement. 2005 has been a pivotal year in more ways than one. Who would have thought that the Australian sporting community would come bearing early Christmas gifts in the form of the Ashes, and of allowing both England and Wales victories in the rugby? I am confident that this is merely a temporary state of affairs and that the natural order of the sporting world will be resumed in the near future.
Change, however, is rather more permanent I hope in the world of financial reporting, with the requirement that, for accounting periods beginning on or after 1 January 2005, listed companies in the UK and Republic of Ireland must use EU-adopted international accounting standards in their group financial statements. This has necessitated a massive exercise across the business community and we look forward to seeing the results of the first year coming through in 2006.
This dramatic change in the environment for accounting standardsetting prompted the Board to consider its own role in this brave new world. In March, we issued a draft Policy Statement which argued that the most significant future role of the ASB will be in seeking to influence the development of high quality international accounting standards by working with the IASB, FASB and other national, European and international bodies involved with standard-setting.
During the exposure period, I met with many constituents to discuss the implications of the changed circumstances in which we now all operate. From those discussions, and the thoughtful responses we had to the exposure draft, it is clear that - while all agree that there is an important future role for the Board (which is a relief!) - two main issues need further consideration, namely: the Board's policy on convergence of UK standards and IFRS; and how we should relate to and communicate with our constituents and influence European and international matters in the new circumstances. As highlighted on page 1, we are working on proposals in these two areas and I look forward to discussing them at the public meeting in January.
The discussions on the Board's future role have been an important feature of the year, but by no means the only one. We have continued to fly the flag for high quality financial reporting in a number of ways. In working with the IASB, we have been leading a research project on accounting for leases and played an active role in the project team that developed the proposals on management commentary that the IASB issued as discussion paper in October. As part of our influencing role, I have taken on the chairmanship of a group of National Standard-Setters (NSS), which met in London in April and September and will meet again in Canada in March.
The European scene has taken up a great deal of my time during the year. I have continued to attend meetings of the EFRAG Technical Experts Group (TEG) as a non-voting member and I have been pleased to play a part in helping EFRAG develop a more proactive approach in order to improve the input from Europe to the global standard-setting process, under the banner Proactive Accounting Activities in Europe (PAAinE). I look forward to the proactivity bearing some positive results during 2006. To paraphrase European Commissioner Charlie McCreevy in one of his recent speeches - no PAAinE, no gain!
The EU endorsement of IFRS has also required my attention during the year. At the beginning of 2005, it was the controversy over the two 'carve-outs' from the EU-adopted version of the financial instruments standard, IAS 39 (now reduced to one, with the agreement on the fair value option). The year is ending with concerns about the length of the endorsement process and the fact that a number of IASB pronouncements will not be endorsed for use in the EU until after the end of 2005.
During the year, I have been struck by just how high a profile standard-setting has now assumed. What was once seen as a technical function has regularly hit the headlines. Concerns about the IASB's business combinations proposals, accounting for pensions, the OFR and even UITF 40 have all been reported widely. While I am pleased that the Board and its work has become more visible, it does place on us a responsibility to ensure that our due process and decisionmaking is clear and transparent.
Looking back over the year, I think that the Board has done some excellent work. We fulfilled our commitment to HM Treasury by issuing a report on financial reporting for life assurance, a complicated subject; we published what I believe is a very good reporting standard on the OFR, even with the removal of its statutory underpinning; and we have kept UK standards on financial instruments up-to-date with IFRS, which is no mean feat.
All this could not have been achieved without the commitment, enthusiasm and knowledge of my fellow Board members, together with all those who serve so willingly on the Board's committees. I am grateful to them all, as I am to the staff, who have managed a heavy workload with skill and dedication.
I am also grateful to you - our constituents - for the interest you show in good quality financial reporting. We cannot manage without your help. So on that note, I would like to wish you all a very Merry Christmas and let's hope for a successful 2006, which I am sure - like 2005 - will be another challenging year.
