ASB raises concerns about derecognition standard

The Accounting Standards Board has voiced concerns about emerging rules
covering derecognition, amid concerns new standards could encourage “financial
structuring” opportunities.

In a letter, addressed to International Accounting Standards Board (IASB)
chairman, Sir David Tweedie, the ASB said it had “significant concerns about the
direction of travel” on the derecognition project.

Derecognition is a collection of accounting rules that outline when companies
can “derecognise” items from their balance sheets. Since the Enron scandal there
has been great demand to keep as much on company balance sheets as possible, to
deter companies from trying to hide assets and their corresponding risks.

The debate was revived following March’s Valukas reports which claimed
collapsed US bank Lehman Brothers had removed items from their balance sheet
using repurchase agreements.

In the letter, ASB chairman Ian Mackintosh, said the rules is inconsitant
with current accounting principles.

“The IASB’s proposed model is likely to fundamentally change the “landscape”
for reporting of financial assets under IFRS, with a different picture of the
balance sheet than that presented currently,” he said.

“We believe this will lead to inconsistent and counterintuitive results as
well as increasing structuring possibilities.”

The IASB’s project is still being developed and includes an exemption for the
repurchase agreements mentioned in the Valukas report. The body is continuing to
discuss the standard and has arrived at no firm conclusions.

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