Much has been made of the apparent unwillingness of UK business to be ready for 2005, when all listed companies within the EU will have to adopt IFRS, but there are worrying signs that the International Accounting Standards Board might struggle with the deadline itself.
The potential derailing of plans to secure a controversial standard on performance reporting ready in time for early adopters in 2005 is one of several indicators that the process is not going as smoothly as the IASB hoped. But such a delay could signal a change in the board’s practice that could see chances of hitting the deadline increase substantially.
The standard on reporting comprehensive income, a joint project with the UK Accounting Standards Board, was never meant to be one of the standards that would become mandatory in 2005. Instead, the plans were to have it ready for those that wished to use it in that timeframe, before enforcing it in 2006.
While any potential slip is a worry, it is perhaps encouraging that any delay could be a sign of the board refocusing its efforts into the standards that really matter and those that will be enforced come January 2005.
In the past, the IASB has been accused of not putting enough of its energies into the 2005 plan, and instead taking on time-consuming tasks that could be dealt with later, including a convergence project with the Financial Accounting Standards Board in the US.
‘The IASB should first focus on getting the standards for 2005 out and devote all of its resources to it,’ said Mark Vaessen, head of KPMG’s IAS advisory services group. ‘Nobody disputes convergence is also an important issue, only the timing of it. If completing the standards in time means slowing down on convergence, that’s what needs to be done.’
Such a focus is becoming increasingly necessary after several standards hit glitches en route to being finalised.
The two standards on financial instruments, IAS32 & 39, are a prime example of this. The board faced massive opposition to its proposals on the standards, particularly in relation to the issue of derivatives and hedging, from banks and financial institutions.
The European Commission also got involved, with even French president Jacques Chirac speaking out on the matter, and the pressure finally told with the IASB releasing another draft rule that sought compromise with the banks. But there is still work to be done before any compromise is reached.
It is clear that the IASB has got its hands full and as 2005 gets closer, it will become more apparent to the board how much time needs dedicating to core issues and that other concerns may need to be pushed aside in order to get the best standards possible in the time allocated.
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