The convergence question

A few years ago, the Accounting Standards Board was one of the most important
bodies in the UK profession. Responsible for determining what UK GAAP would look
like, its decisions had a major impact on every accountant in the country.

But times have changed. When Sir David Tweedie left the position of ASB
chairman over four years ago, to take the equivalent post at the International
Accounting Standards Board, he effectively took many of his responsibilities
with him.

The European Commission’s decision to unify accounting standards for listed
companies across the EU, based on IASB standards, meant a significant reduction
in the powers of the ASB, and with plans to convert all UK GAAP to IFRS, soon it
will not have the same standard-setting influence.

The board’s dilemma over its future role is illustrated by the fact it
briefly considered that its new head, a position filled by Ian Mackintosh
(pictured) last year, should work part-time. A review is planned for next summer
to see whether a full-time chairman is still required.

So, what exactly does a standard setter do when it is not setting standards?
This was the question Mackintosh asked, and the first major project he oversaw
was to seek an answer.

A consultation on the future role of the ASB was published in March 2004 with
a surprisingly long comment window of six months, the responses to which are now
finally surfacing.

But while that statement talked much about the board’s role following
convergence with IASB standards, the concerns coming back from the profession
focused heavily on how this convergence would occur.

One of the most outspoken views has come from the ICAEW, which effectively
called for a halt to convergence. The institute claimed the current plans could
place heavy burdens on smaller companies, who may see the standards altered if
the IASB produces a second set for SMEs.

‘If the ASB was to proceed with the current IFRS convergence programme,
private companies could face the grim prospect of switching from UK GAAP to full
IFRS to simplified IFRS in short succession,’ says ICAEW chief executive Eric

‘This would be an unacceptable outcome, involving substantial costs and
uncertainties, without delivering any corresponding benefit.’

This view has been backed by the Federation of Small Businesses and the Forum
of Private Business, who are worried over the damaging effects of constantly
shifting standards.

But the institute’s fiercest rivals, ACCA and ICAS, are looking to pick a
fight with the ICAEW over this proposition. Both have been vocal in saying they
are taking a very different stance on the matter.

‘Convergence with IFRS should continue,’ says Richard Martin, ACCA’s head of
financial reporting. ‘In its standards for SMEs, the IASB is currently
consulting on where significant recognition and measurement differences might be
made compared to full IFRS. This might delay UK convergence in these areas, but
we believe there is still scope for significant convergence to continue.’

‘IFRS should be applied to every company on a clearly stated timetable,’
agrees Hugh Shields of the ICAS accounting standards committee.

But despite this dissent, if you look closely at the institutes’ proposals,
there are striking similarities between them. Both ACCA and ICAS question the
ASB’s convergence scheme, which gradually introduces the new standards over a
period of time.

Instead they talk about a ‘big bang’ method of convergence, which would
involve the introduction of a complete set of new standards based on IFRS on a
given date. This would either be in two, three or four years’ time, depending on
which institute you follow.

This would, in effect, hold off any further changes until it is deemed the
right time. A cursory glance at the IASB’s timetable shows that it plans to have
a final SME standard published in 2007, which would be in time for either
institute’s big bang proposals.

The board’s other proposed activities, once standard setting is mostly
removed from its repertoire, largely revolve around gathering views from
interested UK parties on IASB standards and channelling these through EFRAG, the
EU’s advisory body on accounting rules.

This plan is widely supported in the profession, although views on how to go
about it differ. The ICAEW, for instance, believes the board should ‘concentrate
its resources on identifying and explaining particular issues that UK
constituents may wish to consider and comment on’.

ACCA also makes the salient point that these roles ‘are not about standard
setting as such’, and therefore the board’s activities will need to change to
fit with this new role.

Of course, it is not only the main board of the ASB that it affected by the
IASB’s new dominance. The work of the ASB’s Urgent Issue Task Force will be
largely superseded by IFRIC, the IASB’s interpretation committee.

What is clear from this process is that the ASB will not be what it once was,
and will struggle to find consent on what its new voice should be in an
IASB-dominated era. Its future success will depend more on building strong
relationships with other, more influential, bodies than dictating accounting
rules to the masses.

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