The vision of a single global set of high quality standards is not merely intact, but being realised at a faster rate than many would have predicted a matter of months ago. ASB Chairman Ian Mackintosh explains why there is still a role for the ASB and other national standard setters in this converging world.
Although the headlines often focus on the divergences of opinion, the achievements of the last few years in moving towards a single global set of accounting standards have been remarkable. More than 100 countries on all five continents require or permit the use of IFRS, or are converging with them. Most importantly, this list includes not only Japan but also the US.
However, there are still many hurdles to overcome, with some countries – notably China – still seeking to adopt 'equivalent' rather than 'identical' standards that reflect differences in the commercial environment of that country.
Even the EU, which started at the forefront of the move towards IFRS with its bold adoption of the IAS Regulation in 2002, is now in danger of finding itself out of step and with the laggards with its existing 'carve-out' for financial instruments portfolio hedging and with the potential for greater political involvement delaying the endorsement process for future standards. What role should the national standardsetters play in this? Should they try to enhance their influence on the IASB by supporting and becoming involved with the convergence process, or should they maintain the right to differ if they do not entirely agree with the proposed standards? Or does the continuing emergence of the IASB as the world's standard-setter mean national standard-setters including the ASB are redundant?
We believe that there is still a leading role for national standard setters. They can exert intellectual influence through thought leadership and as hubs of regional debate, and through their practical experience as interpreters and implementers of standards. Their ability to carry out research, to test theories or proposals on the market and to assist in articulating the impact of standards can provide a highly useful contribution to international standard setting. For instance, the recent research work on pensions, led by the ASB, will be of great use internationally when a full review of the existing standards is undertaken.
Through regional bodies and international groupings, such as EFRAG and its collaborative Proactive Accounting Activities in Europe group (PAAinE), global forums such as the National Standard Setters group and the World Standard Setters annual meeting, and the International Public Sector Accounting Standards Board in the public sector, we can both seek consensus and exert influence all the more effectively.
As well as providing support to the IASB's consultative and decisionmaking processes, the national standard setters also have a role in building support and acceptance of international standards amongst their constituents. An important part of this is in encouraging the uniform implementation and enforcement of global standards. Without uniformity in these areas, the advantages of global standards would be largely lost. The balance must be struck to ensure consistent application of the principles without underpinning them with a raft of detailed rules and interpretations – and this, in turn, can provide the opportunity to assist the IASB in ensuring that the drafting of the principles-based standards is clear and unambiguous even across a multiplicity of languages and cultures. Understanding of local needs and conditions is also essential when considering appropriate standards for smaller enterprises. IFRS focuses on, and is most appropriate for, listed and large international private sector companies and may place too high a burden on smaller entities. The exposure draft of the IFRS for SMEs is out for comment and is to be welcomed. But many companies will still fly below its radar. Equally sectors outside the private sector – such as notfor- profit and public benefit entities – also do not always fit easily within the IFRS standards. These are areas where a national or regional approach, taking into account local business practice and needs, is needed and where national standard setters must take the lead.
Within the UK, the ASB's fundamental aim is, as it has always been, to achieve the best financial reporting standards. Central to this is the convergence of UK standards with IFRS. At round-table discussions in London, Edinburgh and Dublin last year, there was a clear message that there is no longer a case for retaining two sets of GAAP. The debate has now moved on to whether there should be a three-tier or two-tier system of reporting.
A three-tier system would see listed companies, and perhaps other large or important entities, applying full IFRS; unlisted companies other than the smallest would apply the IFRS for SMEs; and the smallest layer would continue to apply the Financial Reporting Standard for Smaller Entities (FRSSE), amended to align it with IFRS. A two-tier system would apply the IFRS for SMEs to both those last categories.
Assuming the final IFRS for SMEs is published by the end of 2008, as projected by the IASB, and effective from mid-2009, a transition period of perhaps two years might be sufficient to allow SMEs to prepare for the changes. This would bring a final transition date from UK standards of 2011. Of course, there are many complex issues to be considered – not least, the cut-off points between the tiers, and the relationship with the EU accounting directives. The ASB will have a major role to play in collating the views of its constituents over this period, and pulling together all the different arguments put forward by preparers, users and advisers.
