The Role of the ASB Ian Mackintosh Accounting Standards Board (ASB) 19 June 2006

Introduction: about the ASB ASB is an operating body of the UK Financial Reporting Council (FRC). In the UK, the ASB is the body recognised under the Companies Act 1985 to issue accounting standards. In Ireland, ASB standards are issued by the ICAI. Will that change once Section 41 of the Companies Act 2003 is commenced? Accounting standards responsibilities impacted by move to International Financial Reporting Standards (IFRS). ASB has consulted on its future role in 2005.

Introduction: the changing world Push for global standards. IASB formal agreements with US FASB and Japan. Convergence roadmap between IFRS and US GAAP – The potential impact of China… and other emerging economies. EU adoption of IFRS from First-time implementation of IFRS.

“To contribute to the establishment and improvement of standards of financial accounting and reporting for the benefit of users, preparers and auditors of financial information”. Remains valid in new circumstances. ASB’s Fundamental Aim

ASB’s role in the new environment Aside from convergence, on which more later, the role covers:

ASB role: working with the IASB Contributing to the development and implementation of IFRS. IASB needs a range of inputs. ASB and other National Standard Setters (NSS) work with IASB. Joint work at various levels. National constituent views important. As is liaison with other standard-setters. US FASB has a special role. Particular agenda challenges – on which more later.

ASB role: working in Europe Influencing EU policy on accounting standards, including the endorsement of IFRS. ASB participates fully in the work of the European Financial Reporting Advisory Group (EFRAG). EFRAG important as a consensus finder and in research. EFRAG formal role in advising Commission on EU adoption of IFRS. EFRAG enhanced liaison with the IASB. NSS in Europe working together… Proactive Accounting Activities in Europe (PAAinE).

ASB role: Urgent Issues/Interpretations International Financial Reporting Interpretations Committee (IFRIC) the appropriate body to interpret IFRS. IFRIC first stop. Role of Urgent Issues Task Force (UITF) to be reviewed. European roundtable on consistent application – ‘temporary and informal’ filter to IFRIC. Purely national interpretations should be rare.

ASB role: other aspects Improving other aspects of accounting standards – –Entity specific issues: for example, smaller entities. –Sector specific issues: for example, use of Statements of Recommended Practice (SORPs) –Improving communication between companies and investors: narrative reporting and the Operating and Financial Review (OFR). Greater emphasis on communication. Communication strategy on ASB website SBCommStrat.pdf SBCommStrat.pdf

ASB role Questions or comments?

ASB Convergence Strategy Ian Mackintosh Accounting Standards Board (ASB) 19 June 2006

Convergence: background ASB policy: no case for maintaining differences between the principles underlying UK and Irish accounting standards and IFRS. Consulted on convergence strategy in 2004: responses indicated support for phased approach. Responses to role consultation 2005 highlighted change of view: –Phased approach complicated/difficult to implement –Complicated IFRS may not be suitable for many companies –Await the outcome of the IASB SME project. So what to do?

Convergence: possible solutions Full IFRS SME Standards/FRSSE Full IFRS SME Standards/FRSSE Full IFRS IFRS minus SME Standards/FRSSE Full IFRS SME plus SME Standards/FRSSE

Convergence: possible solutions Discussed at January 2006 public meeting in London. Significant amount of debate, but differing views. Should full IFRS be applied to more entities than are required to adopt them under EU law? Should large private companies be required to report under full IFRS, or should the test be ‘public accountability’? General agreement on simplified alternative for smaller companies. But where should boundary be between full IFRS and simplified alternative? Proposal to move to ‘big bang’ convergence from 2009.

Convergence: tentative proposals (1) ASB issued tentative proposals in May for public comment. Current thinking is: 1. All publicly quoted and other publicly accountable companies would be required to apply full IFRS. 2. Use of the Financial Reporting Standard for Smaller Entities (FRSSE) extended to include medium-sized entities.

Convergence: tentative proposals (2) 3. Subsidiaries of group companies that apply full IFRS would also be required to apply full IFRS for measurement and recognition, but with reduced disclosure requirements (yet to be determined). 4. No decision yet on companies that do not fall in 1, 2 or 3. Alternatives seem to be: (i)extend FRSSE application further, (ii)apply IFRS to more companies, (iii)maintain UK and Irish GAAP for them, or (iv)some combination of (i), (ii) and (iii).

Issues: what is public accountability? IASB definition: “An entity has public accountability if: (a)there is a high degree of outside interest in the entity from non-management investors or other stakeholders, and those stakeholders depend primarily on external financial reporting as their means of obtaining financial information about the entity; or (b)the entity has an essential public service responsibility because of the nature of its operations.” How to put this definition into operation still to be determined.

Issues: FRSSE or IASB SME standard? Is it appropriate to apply the FRSSE to medium-sized and possibly even larger companies? Should the FRSSE or any IASB SME standard be applied? But … Cannot make any final decisions until outcome of the IASB SME project is clearer. Still awaiting to see any output on the IASB project. Exposure Draft likely to be published in the autumn.

Issues: costs and benefits ASB will need to consider costs and benefits involved. Will prepare a Regulatory Impact Assessment when it issues firm proposals. Specifically seeking views of constituents on costs and benefits.

ASB convergence proposals Views, questions or comments?

International standard-setting: Big Issues and Hot Topics David Loweth Accounting Standards Board (ASB) 19 June 2006

Big Issues Convergence between IFRS and US GAAP: the ‘roadmap’ to Attitudes to short-term convergence: concerns with some projects, eg – –Borrowing costs –Income taxes. Longer-term direction. IASB and ‘Europe’. Relationship between IASB and NSS other than US FASB.

Hot topics: agenda Pensions Fair value measurement (FVM) Conceptual framework The list goes on…!

Pensions: who is doing what? FASB –initial phase exposure draft out –comprehensive reconsideration to come IASB –considering ways forward ASB –revised disclosure proposals –comprehensive project under way

Pensions: ASB’s disclosure proposals Conform FRS17 with IAS19. Non-mandatory additional disclosures –funding obligations –sensitivities of scheme liabilities –more on assumptions (mortality) –buy out basis –relationship between employer and trustees. Deadline for responses 11 September.

Pensions: ASB comprehensive project Objective Discussion Paper to inform the development of a new accounting standard that can be applied globally Principles-based approach and Consider implications for the UK & Ireland

Pensions: ASB comprehensive project Working method Significant ASB staff resource ASB assisted by Pensions Advisory Panel EFRAG working group established, led by UK Updates (will) appear on ASB website

Fair Value Measurement (FVM) Canadian Discussion Paper ‘Measurement on initial recognition’. Forthcoming FASB standard on FVM – a ‘how to’ measure standard. IASB to issue as an Exposure Draft. Fair value as market exit value. Stimulated debate – but not universally popular! IASB and FASB to consider as part of measurement phase of joint conceptual framework project – on which …

Conceptual Framework project IASB and FASB joint agenda project to develop a common conceptual framework. Multi-phase project over a number of years: converged framework – 2010? More than an esoteric academic exercise. Will have major impact on way in which the Boards will develop and revise standards. First discussion paper imminent …

Conceptual Framework: first discussion paper (1) Phase A ‘preliminary views’ discussion paper due out for comment end June/early July. ASB will be raising awareness and holding a public meeting on the issues. Covers objective of financial reporting and qualitative characteristics.

Conceptual Framework: first discussion paper (2) Preliminary views set out some significant issues eg: –Reference to financial reporting, not just financial statements. –Stewardship no longer a specific objective of financial reporting. –Primary users “present and potential investors and creditors and their advisors”. –Faithful representation rather than reliability. –Verifiability as a component of faithful representation.

And there’s more… Business combinations: IASB and FASB continuing to redeliberate Phase 2 proposals issued in Liabilities: IASB continuing to consider proposals issued for comment last year. Planning to hold round- tables November and December Performance reporting – IASB issued exposure draft on Segment A proposals in March. Two statement approach similar to FRS 3. Segment B proposals awaited with interest.

Big issues and hot topics Views, questions or comments?