IASB should put this battle on hold

The IASB has a lot on its plate at the moment. It’s attempting to converge US and international accounting rules while also fighting a rearguard offensive from Europe which is yet to adopt its reformed fair-value rule for measurement, released in the wake of the crisis.

In this climate the body should perhaps reconsider another battle over a standard that many wise accounting heads believe isn’t broke. Efforts to reform IAS 37, specifically on how to record and measure non-financial liabilities, have been ongoing for five years and grew out of a review of
business combinations.

Five years is a long time to have proposals in discussion and, if initial feedback is anything to go by, the IASB will have an uphill battle getting these reforms out the door by June, to the satisfaction of current IFRS users and the US, which has totally different rules.

Accounting for these sort of difficult-to-calculate liabilities, such as court cases, is hardly a critical issue at what is a critical time in the IASB’s history.

Perhaps this issue should be laid aside and revisited when the US signs up to international standards and the global accounting regime is more balanced and stable.

Perhaps then there could be another comprehensive review of the entire standard. In the meantime, there are enough battles to fight for the IASB.

Pre-packs need reform, but not too much

Ian Lucas, the minister for business, has to be careful he doesn’t throw the baby out with the bathwater when reforming pre-packaged administrations.

They have so far proven an efficient and cost-effective means to give a company a fighting chance of survival, while also offering creditors some chance of recovering their cash.

The need for independence and oversight is vital, however, when this increases the overall costs and draws the entire process out, it becomes self defeating.

Lucas also has to outline what the problem is. What needs fixing. Any reforms will need to take into consideration the overall purpose of pre-pack administrations and whether this will be compromised.

And then there’s the possibility it will lead to an old boys’ club within the profession. Pre-packs might be unpopular among creditors, but they have proven effective in saving jobs.

Any changes made to the process need to be undertaken with this fact in mind.

Further reading:

Costly new rules will put a drag on pre-packs