It should be noted that the call for contributions to the IASB’s agenda consultation process is the first opportunity for some time for all of the IASB’s constituents to have their say on the issues they want to see on the top of the list.
There is not guarantee of course that some of the priorities that Australian organisations place at the top of their priority list will get attention. The IASB has a global constituency with several key players yet to fully adopt the standards. Chief among those of course is the United States. The US has kept the IASB sitting on edge with its regulatory consultation and approval processes, which has been disconcerting for those countries that have adopted International Financial Reporting Standards (IFRS).
During the Asia-Oceania Standard Setters Group (AOSSG) meeting held last November there was an overwhelming sentiment amongst standard-setters in the region for the IASB to focus on dealing with issues of interest to those that are using the product. While the political imperative for the IASB to get countries such as the United States and India to fully adopt IFRS is understood, there is continual pressure directed at the IASB from countries that have adopted the standards for their needs as existing customers to be acknowledged. The consultation process was the ideal opportunity for this to take place.
One critical issue that has come up during the various consultations the Institute of Public Accountants has had on this topic with members is the need for the IASB to complete the conceptual framework.
Conceptual framework
Completion of the conceptual framework should be given greater priority if the IASB decides to provide the global market place with a ‘period of calm’. It is important for the credibility of global financial reporting to have a conceptual framework that is complete. We note that the conceptual framework outcomes may have a consequential impact on accounting standards and these could be dealt with simultaneously as a part of this ‘period of calm’.
The Global Financial Crisis distracted the IASB from longer-term projects such as the conceptual framework. While we acknowledge the immediate political challenges of the GFC needed resolution, longer-term projects suffered as a consequence. The conceptual framework sets the foundations for financial reporting and should be used as the basis for the development of accounting standards rather than being developed in an ad hoc manner.
A framework ensures the literature is internally consistent and also provides stakeholders a reference point to determine appropriate accounting in cases where a transaction may have no further authoritative guidance. A completed framework also ensures that constituents are able to better understand the direction a standard-setter is taking on a particular issue as the deliberations would be generally in line with the conceptual framework.
Not-for-profit failure
The IASB has set a low priority in the past on the framework element dealing with not-for-profits. This topic is particularly significant in Australia as the Federal Government is in the throes of consultation on a reporting framework for not-for-profit entities. The not-for profit element of the framework has a heightened importance domestically for Australia as a new regulator is deliberating on the appropriate reporting regime for charities and not-for-profit entities. It is an element of the framework we ask the IASB to deal with more quickly than it may have previously intended. The debate over the reporting framework for not-for-profits has already commenced in Australia and as there is no framework element on which the Government can draw, commentators are suggesting regulators look elsewhere for guidance. The work of the International Public Sector Accounting Standards Board (IPSASB) is often mentioned as a source for guidance on accounting for the not-for-profit sector.
The consequence of not having the not-for-profit element of the financial reporting framework in place is that jurisdictions may develop their own solutions that fill the gap in accounting guidance for private sector not-for-profit entities. Dealing with this internationally may assist in ensuring that there are fewer conflicts with domestic standard-setters that need to be resolved in the future. Some of these conflicts may be brought about as standard-setters in countries such as New Zealand contemplate the use of standards developed by the IPSASB to deal with accounting for not-for-profits. Continued deferral of consideration of this vital area ultimately leads to a fragmented approach to dealing with accounting for this sector. It underscores the need for the IASB to extend its mandate to focusing beyond entities that have public accountability under the IASB’s framework.
A further danger the IASB needs to bear in mind is that when constituents rely on standard-setters other than the IASB for guidance it is possible that transactions that are the same will attract different accounting treatment. This situation is not optimal for preparers of financial statements, auditors or analysts seeking to understand the accounting applied by various entities. It is critical the framework be given greater focus in the short to medium term so that accounting can be – as far as is possible – the same irrespective of the sector in which a transaction occurs.
IFRS for SMEs
The Institute has previously submitted to the Australian Accounting Standards Board (AASB) recommending against the adoption of IFRS for SMEs in its current state in Australia. Our submission followed an extensive due process using our Faculty of Accounting Regulation as a key source of feedback. We remain concerned about recognition and measurement differences between the full suite of IFRS and IFRS for SMEs.
Among the concerns is the three-yearly review process that the IASB has promised for IFRS for SMEs. This approach does not permit the IASB to make changes to the standard where it may be advantageous for smaller entities to adopt a better accounting treatment. While other preparers can take advantage of a new standard by adopting it, those using IFRS for SMEs would find themselves waiting for an answer for anything up to three years, depending on how long it is between the issue of a new or revised standard for the main body of IFRS and the time of the review of IFRS for SMEs.
Consideration should also be given to linking the due process between the two documents so that the IASB can make accounting policy decision for IFRS for SMEs in sync with changes to the full suite of IFRS. The present process creates a system of ‘double handling’ and it places a demand on stakeholders to respond to both documents on the same issues at a different time. It may be better to prepare an amendment to IFRS for SMEs at the same time as a topic is being dealt with in the context of the full suite of IFRS. Views can be obtained from respondents on amendments to both documents without requiring additional time to be spent thinking about a treatment that had already been resolved during a previous call for public comment.
A similar debate may be had in the context of the setting of international public sector accounting standards. The IASB issues its standards following a due process and the International Public Sector Accounting Standards Board (IPSASB) follows up to 18 months to two years later with exposure drafts that draw from the work of the IASB. This means that there are some individuals and organisations that will be responding to the same types of issues twice at an international level.
This fails to take into account that those countries with national standard-setters may also ask constituents to comment. A similar number of responses may be sent to a domestic standard-letter. This highlights the risk of ‘consultation fatigue’, a situation where those being consulted feel they are unable to respond any further because of many consultations taking place at a similar time. It is important for the IASB’s process to be streamlined where possible be so that ‘consultation fatigue’ is avoided. Consulting on possible amendments to IFRS for SMEs as topics are being dealt with by the standard-setter globally is one way of achieving this goal.
Regional issues
The IASB has spent much time focusing on issues such as convergence with the US. This constant focus has meant that other issues needed to be relegated to a lower priority on the IASB agenda. Consider the discussion on accounting for Islamic finance. This is a topic about which the IASB has some knowledge. The standard-setter is also aware that there are parts of the world that do need the IASB to focus on Islamic finance in order to provide some consistent global guidance in the area. It may be necessary for the IASB to place the US on a watching brief and deal with countries that have other technical issues that require resolution.
