Final Standards

There may have been only FRS 8 on related parties issued in 1995 and the revised FRS 1 on cashflow in 1996, but plenty is happening under the surface. 1997 shows every sign of being a very active year.

We are likely to see a continuing stream of proposals, discussion papers and exposure drafts, partly revisions of existing standards and partly new ones. The predominant theme is the international influence.

International harmonisation is a two-way process and the Accounting Standards Board is an advocate of UK thinking. It has been trying to convince others of the merits of non-amortisation of goodwill and intangibles in the right circumstances, and interest them in the statement of total recognised gains and losses, established under FRS 3.

Derivatives is one area being worked on jointly by the ASB, the International Accounting Standards Committee (IASC) and the US Financial Accounting Standards Board (FASB). There have been joint studies, involving Canada and Australia (together ‘G4+1’) too, on provisions, leasing and hedge accounting.

In some other subjects, we seem more like importers of ideas. UK thinking on deferred tax and pension costs is strongly influenced by the IASC and the US. The ASB sponsors a discussion as to whether UK accounting should either (a) develop according to national considerations or (b) be strongly influenced by the IASC/US methodology, possibly to the extent of adopting the international standard in place of our own.

The same influences are at play in impairment of fixed assets, segmental reporting and earnings per share. Interim financial reporting is not destined to be a standard in the UK but the IASC is developing proposals for a standard.

Not everything, however, bears the same degree of international origin.

One of the key issues in the UK is whether, or to what extent, or on what basis, companies should be allowed or required to revalue fixed assets.

The ASB’s recent discussion paper, Measurement of Tangible Fixed Assets, proposes that historical cost accounting should remain acceptable but revaluations would also be acceptable, provided valuations are kept up to date. This reflects the IASC’s position but the emphasis is very different: in the UK it is much more common for companies to revalue assets than in most other countries.

But even here, international harmonisation is important. In the UK (and under IAS) capitalisation is optional and this is clearly unsatisfactory.

In the US it is mandatory, but only for interest incurred (not notional interest).

At the heart of the ASB’s programme, and what at first sight seems the Board’s own initiative, is the Statement of Principles, pilloried since being issued in draft form a year ago. Even this has its origins elsewhere since it is based closely on the IASC’s Framework. This itself is based on the US FASB conceptual framework developed in the 1970s and 1980s.