Still packing a punch

The IASB goes from strength to strength, but the ASB continues to have an important role, says Liz Fisher

The implementation of International Financial Reporting Standards (IFRS) by listed companies in Europe in 2005 finally sealed the reputation of the IASB as the world standard setter. The IASB’s ongoing SME project will eventually produce a raft of standards that will be suitable for smaller entities. What, on paper at least, is left for domestic standard setters to do?

If anyone was expecting the ASB to pack its bags and switch off the lights, the recent public meeting held in London to discuss the future of the Board will have proved a surprise. While the ASB is technically no longer setting standards, the decisions it will make over the coming months and years will affect every company in the UK. It must manage the convergence process as painlessly as possible, while also ensuring that the UK retains a strong voice in the international standard setting arena. With every seat at the meeting taken, it was clear that all eyes are on the ASB.

IFRS are currently used by - and were designed for - listed multi-nationals. The SME standard is being developed by the IASB with a company with 50 employees in mind, although the IASB has said that they could be suitable for a wide range of entities. The IASB, though, has no authority to mandate the standards in any jurisdiction.

That leaves the question of how far IFRS should apply in the UK. If IFRS and UK GAAP are converged, as is intended, would the resulting standards be too complex for the more than one million small companies in the UK? The general opinion was that they would be. Stella Fearnley of Portsmouth University told the meeting that the UK had to face up to the complexity of IFRS. “The pragmatic approach would be that only people who have to apply it should apply it. IFRS should be the price of a listing, not of anything else,” she said.

ASB chairman Ian Mackintosh presented the meeting with four options for convergence. Two options relied on a two-tier approach: the ASB could require IFRS for only the top tranche of large companies, with the rest using a version of the SME standard; or all but the smallest companies use full IFRS. The alternative is a three-tier approach, with medium-sized companies using either a simplified version of IFRS (IFRS-minus) or an enhanced version of the SME standard (SME-plus). Whichever option is chosen, the ASB is tentatively proposing a “big bang” approach to convergence, when IFRS based accounting standards would be introduced with the same effective date, possibly as soon as 1 January 2009.

The London audience was evenly split on whether a two-tier or three-tier approach to national GAAP was the right option. Richard Martin, ACCA’s head of financial reporting, felt that the ASB should require full IFRS for only the largest companies, with the SME standards applying for all others. Some delegates felt that the gap between full IFRS and the SME standard was too large. It was also clear that full IFRS is less than popular, as is the IASB’s convergence project with the US Financial Accounting Standards Board. “The solution,” said Paul White of Sage, “has to add value to UK businesses. There is a strong case for full IFRS adding value for large companies, but that is not the case for the SME sector.” Richard Thorpe of the Financial Services Authority disagreed: “I’m not convinced by the argument that IFRS is too tough for unlisted companies,” he said. “If we don’t like the standards we should be fighting back against them at IASB level, not failing to apply them to private companies.”

It is clear that much rests on the completion of the IASB’s SME standard, which could eventually replace the UK’s FRSSE. Judging by the mood of the meeting, though, the IASB should not expect an easy ride.

Liz Fisher is a freelance journalist specialising in business and accounting issues.