the Market Soul © 1999 - 2011 Headlines

Saturday, 6 February 2010

Introducing the 'EconoCountant © 2010' and IFRS 9 commentary

I am amending the title and purpose of this post slightly, as the content is duplicated at EconoCountant © 2010:

IFRS 9 Financial Instruments the IASB's latest accounting standard press release was published back on 12 November 2009.  So, there you have it, I took my eye off the accounting standards development radar screen and missed it.

This post makes reference to my earlier entries, see for example Comments from a lay economist on the credit quake  published in October 2009, and Asset bubbles: not just valuations but what and how we value  published in January 2010; in which the current IAS 39 Financial Instruments: Recognition and Measurement was criticized. 

In the IASB’s (International Accounting Standards Board) own words, in the preamble (Why we undertook this project) briefing to the IFRS 9 Financial Instruments documentation:

“Many users of financial statements and other interested parties have told us that the requirements in IAS 39 are difficult to understand, apply and interpret.  They have urged us to develop a new standard for the financial reporting for financial instruments that is principles-based and less complex”.

Their words, not mine.  [Lets repeat it, just for clarity:

            Difficult to          (1) Understand
                                    (2) Apply
                                    (3) Interpret]

But it begs to ask the question:  Who are the ‘they’ referred to in the above paragraph?

The Harvard Business Review (“Fair Value Accounting for the financial crisis”, November 2009) offers a possible solution and explanation:

“But European politician have far more leverage over the International Accounting Standards Board than Congress has over the Financial Accounting Standards Board, its US counterpart.  Before a new IASB standard can go into effect in Europe, it must be ‘endorsed’ by three European bodies – the European Parliament, the European Commission, and the EU Council of Ministers.  Because of these three potential vetoes, the IASB is highly sensitive to threats from EU politicians to legislate their own accounting standards for European companies.”

Again, a quote I took directly from the Harvard Business Review, not my own words at all.

As this blog is supposed to be dedicated to ‘clarity of economic thought’ and has the odd poem thrown in for good measure (besides some of my usual rants), I have decided to move any accounting related commentary to a new blog page on Wordpress called 'The EconoCountant'.

All commentary on purely accounting related, as opposed to economic and economic value related topics, will in future be posted at , with some degree of cross referencing, just to ensure the usual level of confusion is maintained.

A further question the paragraph in the IASB’s documentation quoted above begs to be asked is this:

If the standard was so difficult to (1) understand, (2) apply and (3) interpret, why was it published and practitioners expected to implement it in the first place?

I thought that a ‘wide ranging consultation process’ was always adopted or, as in Sir David Tweedie’s words has “[benefiting] from unprecedented levels of consultation with stakeholders around the world, the IASB has made significant changes in its initial proposals to improve the standard, provide enhanced transparency and respond to stakeholder concerns”, only occurred in this round of the review of IAS 39?

“The new standard enhances the ability of investors and other users of financial information to understand the accounting of financial assets and reduces complexity – an objective endorsed by the Group of 20 leaders (G20) and other stakeholders internationally.”

Is it right then to return to my assertions made in October 2009 that the crisis was partly fueled by flawed International Accounting Standards?

theMarketSoul © 2010

No comments: