IASB programme – coping with complexity

21 September 2010

Welcome to my first IFRS blog and happy retirement to Richard Keys. I took over as Global Chief Accountant from July 2010 and promptly went off on vacation, feeling confident that nothing significant would be issued by the IASB during the Northern Hemisphere summer. How wrong I was.

We had three big exposure drafts before I even got chance to get my feet under the table – revenue recognition, insurance and leasing. Not to mention a few smaller ones. Obviously there is a lot of work to do, but I am tremendously excited to lead PwC’s Accounting Consulting Services through this time of change. If the proposals go through with minimal change, you as preparers, auditors and users of the accounts will have to deal with systems, reporting and probably tax changes.

In one of my previous roles as chair of PwC’s Corporate Reporting Technical Forum I saw how difficult it could be to reach consensus on technical issues. So I understand the pain that the IASB and FASB have been through in getting this far. We are fully behind a single set of high-quality accounting standards and agree with much of the proposals in the exposure drafts.

However, I believe we must guard against introducing too much complexity without good reason.  In considering any exposure draft, we must assess the operational complexities of implementing the proposals and, if these are significant, consider if there are more practical alternatives. In the current crop, for example:

  • Will entities be able to identify all of the individual performance obligations in a contract for revenue recognition purposes?
  • Can an entity calculate an explicit risk adjustment for the effects of uncertainty about timing and amount of cash flows on each insurance contract?
  • Can lessees reliably measure the likelihood of renewal?

These questions all affect measurement and the detailed records that an entity will need to keep. And that is before we move on to considering the ever-expanding disclosure requirements.

We will be commenting on the complexity in our response letters. I urge you to read the proposals now, respond to the IASB (or FASB) and start to consider the practical implementation issues. It will take longer than you think, so please don’t leave it too late. And please talk to me or your local PwC contacts if you want any help understanding the technical or practical issues.

Finally, I can’t finish this first posting without reference to the unexpected early departure of Bob Herz from the FASB. You will have seen other comments elsewhere on the web. For my part, I think it heralds the start of an unusual period for the FASB (and the IASB as they try to move forward the revised Memorandum of Understanding schedule).

Bob’s departure leaves the Board split on a number of key topics. It remains to be seen what progress they will make before the new seven-person board is appointed in 2011.

Do send me your comments and thoughts. I look forward to corresponding with you.



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It is good to hear from you.
IASB & FASB has indulged in another set of reforms to their own standards. Some of them were part of thier convergence i.e. MOU & other were those where fixes were overdue. Nonetheless the amendment they are proposing are huge & require considerable efforts of preparers & users to comprehend & assess the consequences. There are some lingering doubts over departure of Mr. Bob(FASB chairman), however, it would be of interest how reconstituted Board would take convergence forward.

The unrealised gain on account of 'mark -to -market' of assets available for sale gets reported in OCI . I strongly feel that this is the correct method of reporting such unrealised gain as the same should not be available for distribution by way of dividend.

The year in which the assets available for sale are sold the unrealised Gain linked to that asset which appeared in OCI in the earlier periods should be transferred to 'Net Income'.

The unrealsied loss on assets available for sale should appear in 'Net Income' .

This emphasises the importance of OCI and Performance reporting to the overall accounting framework.

The Boards need to table this as a priority after the 2011 deadlines. The key questions for the the Boards are: what is OCI for? when, if ever, should recycling be allowed?

I am very interested in the answers to those questions so intend to write a fuller blog piece on the subject in the future.

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