IFRS 2009 – less to implement than 2005 but critical issues to influence

In July 2006, the IASB gave an undertaking that it would not make any major new standards effective before 2009. This move acknowledged that the many companies that had adopted IFRS in 2005 would benefit from a period of stability. On one hand, this has enabled the financial reporting community to enjoy a period of relative calm, but on the other hand, there has been fear that 2009 would be another year of upheaval with a large number of new standards needing to be implemented all together. Indeed, many who visit this blog do so because they have an interest in “IFRS 2009” or a similar topic.

We are now well into 2008 so it is likely that the only new or amended standards that will apply in 2009 are those that we already know about – and it is not as many as were originally on the agenda. The provisions amendment to IAS 37, for example, has been delayed, while the joint ventures standard, which is expected to prohibit proportional consolidation, is not expected before the final quarter of this year.

The only entirely new standard due for implementation in 2009 is IFRS 8, Operating Segments, which will require management to consider their approach for disclosure of their operating segments. The other key requirements for 2009 are amendments to the following:

• IAS 1, Presentation of Financial Statements’
• IAS 23, Borrowing Costs
• IAS 32, ‘Financial instruments: Presentation’
• IFRS 2, ‘Share-based Payment

The much talked about revision to IFRS 3, Business Combinations, will not apply to most companies until their 2010 year ends (it actually applies to accounting periods beginning on or after 1 July 2009).

Changes on the horizon

But this is not the full story. There may be little new double-entry bookkeeping to do in the next year or so, but changes are on the horizon that will go to the very heart of financial reporting.

Last week, the IASB issued a discussion paper on the subject of financial liabilities with characteristics of equity. Many people refer to this as the debt/equity question. This is a wide-ranging project that will affect most companies and could fundamentally change the way in which debt and equity are dealt with in the financial statements. But this is only the first instalment of what could be a fascinating series of publications by the IASB this year. Other discussion papers and exposure drafts that the IASB says it will publish this year include:

• Post-retirement benefits, including pensions
• Revenue
• Financial statement presentation
• Income tax, including deferred tax
• Financial instruments – a replacement for IAS 39

These are very important topics that have the potential to really change the way you account for your business and possibly the way investors value your business.  You may not be moved to comment on all issues and papers, but you will probably want to consider which topics throw up critical issues for you and contribute your views to the debate before the standards are set in stone.

Time to examine priorities

A few weeks ago, in a previous posting, I asked whether the projects on the IASB’s current agenda are so important that progress needs to be made urgently, or is insufficient attention being paid to agreeing the underlying principles in the Framework?

There is another angle. Many of the projects on which the IASB is currently focusing its attention (including the first four in the list above) are described as ‘convergence projects’. In other words, they were originally driven by the ambition to converge IFRS and US GAAP. Is this still the best goal for the IASB? One of the objectives that the IASB and the FASB signed up to in their Memorandum of Understanding in 2006 was to remove the requirement for a US-GAAP reconciliation in the financial statements of foreign private issuers. Now that the reconciliation requirement has been lifted, it might be the right time to reappraise these goals and ask what the IASB’s priorities should be in building and sustaining robust global standards.

I would be very interested in your views, either by email or by commenting here.

Comments

[IVAN GRIXTI]

Dear Richard,

You are quite right about the framework and that the IASB/FASB should now prioritise given that the IFRS/USGAAP reconciliation requirement has gone.

I am currently doing a PhD on Fair Value Accounting at the University of Southampton and it is a state of fact that the set of FV based standards lack a coherent body of knowledge. You even get different FV definitions within the standards.

So, I perfectly agree that there should be a shift in emphasis in such a way that the IASB/FASB speed up the Joint Project on a Conceptual Framework. That would, definitely, alleviate the promulgation of future standards.

[Anton Kalanov]

Well, I've got another angle. I must say - as a preparer of financial reporting under IFRS - that these three years have passed VERY quickly.... So I haven't really felt that we have had 'a period of stability', especially with IFRS 7 implementation to worry about.