Treasurers have a duty to respond – and decide
Sir David Tweedie was obviously well briefed. Speaking at The Treasurers’ Conference held in May, the Chairman of the International Accounting Standards Board (IASB) asked treasurers to work alongside him and his team in turning the vision of a single set of high quality, global standards into a reality. In a wide-ranging address over the development of international accounting standards, Sir David nevertheless tailored his message to his audience. It was only half in jest that he suggested that if treasurers thought they understood IAS 39 Financial Instruments: Recognition and Measurement, then it was only because they had not read it properly. He condemned the standard for being 100 pages long and for having 200 questions and answers, half of which he dismissed as being “blindingly obvious”.
The IASB has got the message that IAS 39 is deeply disliked by treasurers. Before Sir David was given the floor, the conference had heard about the practical implications of dealing with IAS 39. It is clear that many preparers are unhappy about the anomalies caused by this standard.
The Chairman of the IASB could hardly have been given a better introduction. In that case, said Sir David, it is up to you to do something about it. But by something, he means a radical reassessment not a minor tinkering at the edges. “Don’t tell me you want to change paragraph 37,” he warned the audience, “ I want you to start with a blank sheet of paper.”
Don’t think you will persuade the IASB, as long as it is headed by Sir David, that we can simply forget about trying to account for derivatives. He acknowledged that some want only the cost of derivatives recorded, not their full financial effect. Last year over the counter derivatives amounted to $6.4 trillion, according to Sir David. How, he asked, can you leave that off the balance sheet?
The speech to the assembled treasurers was crystal clear – IASB is set on revising IAS 39. The choice for the financial community is equally unequivocal. It is possible to have a shorter more principle based standard. The downside is that preparers and their auditors will then have to exercise judgement and restraint. If players in this game want the global standard setting body to answer every possible question then they have to accept the standard will contain tens of thousands of words. According to Sir David, the choice rests largely with knowledgeable professionals such as members of the ACT. Sounds like it is decision time.
See Conference report page 39.
PETER WILLIAMS
Editor