International standard setting ‘more practical than ever’

ACCUSATIONS that standard setting at the International Accounting Standards Board is too theory based are less pertinent than ever, according to technical accountant Kathryn Cearns.

Observers have long complained that the IASB is obsessed with pure accounting theory to the detriment of standards users. Yet outreach in recent years has been more effective and wide ranging, lessening the risk of divorced-from-reality standards.

The body has “taken more practical issues on board” and spoken to more stakeholders, following widespread criticism of its failure to listen. Cearns described the change as “a welcome development”.

There are many who insist that the setters remain mired in complex theory. Accounting Standards Board chairman Roger Marshall questioned the usability of recent IASB output, saying some projects – such as guidelines on valuing intangible assets – could even be ignored by users.

The Association of British Insurers has taken a more pragmatic view, saying “you work with what you’re given”. While it refutes the suggestion that users will avoid overly complex standards, the body is convinced that the IASB has “gone too far in the direction of theoretical purity”.

It argued that filling the board with non-practising members leads to divorce from the day-to-day needs of account users and preparers and added that International Financial Reporting Standards are more theory based than UK GAAP would ever have been.

The IASB was quick to refute commentators’ concerns. Mark Byatt, director of corporate communications, pointed to the complexity of due process, detailing the lengths the board goes to in capturing feedback on its work.

Early in its history, the IASB board was heavily populated by professional standard setters but Byatt said that concerted efforts have been made to address this: “In the last few years, the trustees have prioritised the appointment of board members with significant practical experience of using or preparing IFRS financial statements.”

It now contains former investors, auditors, regulators and CFOs of large multinational companies, which may reassure those anxious about a lack of real-life grounding at standard setters’ HQ.

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Fiona Westwood of Smith and Williamson.