The Role of the ASB

1
The Role of the ASB

• Ian Mackintosh
• Accounting Standards Board (ASB)
• 19 June 2006

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Introduction about the ASB

• ASB is an operating body of the UK Financial
  Reporting Council (FRC).
• In the UK, the ASB is the body recognised under
  the Companies Act 1985 to issue accounting
  standards.
• In Ireland, ASB standards are issued by the ICAI.
  Will that change once Section 41 of the Companies
  Act 2003 is commenced?
• Accounting standards responsibilities impacted by
  move to International Financial Reporting
  Standards (IFRS).
• ASB has consulted on its future role in 2005.

3
Introduction the changing world

• Push for global standards.
• IASB formal agreements with US FASB and Japan.
• Convergence roadmap between IFRS and US GAAP
  2008.
• The potential impact of China and other emerging
  economies.
• EU adoption of IFRS from 2005.
• First-time implementation of IFRS.

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ASBs Fundamental Aim

• To contribute to the establishment and
  improvement of standards of financial accounting
  and reporting for the benefit of users, preparers
  and auditors of financial information.
• Remains valid in new circumstances.

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ASBs role in the new environment

• Aside from convergence, on which more later, the
  role covers

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ASB role working with the IASB

• Contributing to the development and
  implementation of IFRS.
• IASB needs a range of inputs.
• ASB and other National Standard Setters (NSS)
  work with IASB.
• Joint work at various levels.
• National constituent views important.
• As is liaison with other standard-setters. US
  FASB has a special role.
• Particular agenda challenges on which more
  later.

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ASB role working in Europe

• Influencing EU policy on accounting standards,
  including the endorsement of IFRS.
• ASB participates fully in the work of the
  European Financial Reporting Advisory Group
  (EFRAG).
• EFRAG important as a consensus finder and in
  research.
• EFRAG formal role in advising Commission on EU
  adoption of IFRS.
• EFRAG enhanced liaison with the IASB.
• NSS in Europe working together Proactive
  Accounting Activities in Europe (PAAinE).

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ASB role Urgent Issues/Interpretations

• International Financial Reporting Interpretations
  Committee (IFRIC) the appropriate body to
  interpret IFRS.
• IFRIC first stop.
• Role of Urgent Issues Task Force (UITF) to be
  reviewed.
• European roundtable on consistent application
  temporary and informal filter to IFRIC.
• Purely national interpretations should be rare.

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ASB role other aspects

• Improving other aspects of accounting standards
• Entity specific issues for example, smaller
  entities.
• Sector specific issues for example, use of
  Statements of Recommended Practice (SORPs)
• Improving communication between companies and
  investors narrative reporting and the Operating
  and Financial Review (OFR).
• Greater emphasis on communication. Communication
  strategy on ASB website http//www.frc.org.uk/docu
  ments/pagemanager/asb/ASBCommStrat.pdf

10
ASB role

• Questions or comments?

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ASB Convergence Strategy

• Ian Mackintosh
• Accounting Standards Board (ASB)
• 19 June 2006

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Convergence background

• ASB policy no case for maintaining differences
  between the principles underlying UK and Irish
  accounting standards and IFRS.
• Consulted on convergence strategy in 2004
  responses indicated support for phased approach.
• Responses to role consultation 2005 highlighted
  change of view
• Phased approach complicated/difficult to
  implement
• Complicated IFRS may not be suitable for many
  companies
• Await the outcome of the IASB SME project.
• So what to do?

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Convergence possible solutions
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Convergence possible solutions

• Discussed at January 2006 public meeting in
  London.
• Significant amount of debate, but differing
  views.
• Should full IFRS be applied to more entities than
  are required to adopt them under EU law?
• Should large private companies be required to
  report under full IFRS, or should the test be
  public accountability?
• General agreement on simplified alternative for
  smaller companies.
• But where should boundary be between full IFRS
  and simplified alternative?
• Proposal to move to big bang convergence from
  2009.

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Convergence tentative proposals (1)

• ASB issued tentative proposals in May for public
  comment. Current thinking is
• All publicly quoted and other publicly
  accountable companies would be required to apply
  full IFRS.
• Use of the Financial Reporting Standard for
  Smaller Entities (FRSSE) extended to include
  medium-sized entities.

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Convergence tentative proposals (2)

• Subsidiaries of group companies that apply full
  IFRS would also be required to apply full IFRS
  for measurement and recognition, but with reduced
  disclosure requirements (yet to be determined).
• No decision yet on companies that do not fall in
  1, 2 or 3. Alternatives seem to be
• extend FRSSE application further,
• apply IFRS to more companies,
• maintain UK and Irish GAAP for them, or
• some combination of (i), (ii) and (iii).

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Issues what is public accountability?

• IASB definition
• An entity has public accountability if
• (a) there is a high degree of outside interest
  in the entity from non-management investors or
  other stakeholders, and those stakeholders depend
  primarily on external financial reporting as
  their means of obtaining financial information
  about the entity or
• (b) the entity has an essential public service
  responsibility because of the nature of its
  operations.
• How to put this definition into operation still
  to be determined.

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Issues FRSSE or IASB SME standard?

• Is it appropriate to apply the FRSSE to
  medium-sized and possibly even larger companies?
• Should the FRSSE or any IASB SME standard be
  applied? But
• Cannot make any final decisions until outcome of
  the IASB SME project is clearer.
• Still awaiting to see any output on the IASB
  project. Exposure Draft likely to be published in
  the autumn.

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Issues costs and benefits

• ASB will need to consider costs and benefits
  involved.
• Will prepare a Regulatory Impact Assessment when
  it issues firm proposals.
• Specifically seeking views of constituents on
  costs and benefits.

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ASB convergence proposals

• Views, questions or comments?

21
International standard-setting Big Issues and
Hot Topics

• David Loweth
• Accounting Standards Board (ASB)
• 19 June 2006

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Big Issues

• Convergence between IFRS and US GAAP the
  roadmap to 2008.
• Attitudes to short-term convergence concerns
  with some projects, eg
• Borrowing costs
• Income taxes.
• Longer-term direction.
• IASB and Europe.
• Relationship between IASB and NSS other than US
  FASB.

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Hot topics agenda

• Pensions
• Fair value measurement (FVM)
• Conceptual framework
• The list goes on!

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Pensions who is doing what?

• FASB
• initial phase exposure draft out
• comprehensive reconsideration to come
• IASB
• considering ways forward
• ASB
• revised disclosure proposals
• comprehensive project under way

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Pensions ASBs disclosure proposals

• Conform FRS17 with IAS19.
• Non-mandatory additional disclosures
• funding obligations
• sensitivities of scheme liabilities
• more on assumptions (mortality)
• buy out basis
• relationship between employer and trustees.
• Deadline for responses 11 September.

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Pensions ASB comprehensive project Objective

• Discussion Paper to inform the development of a
  new accounting standard that can be applied
  globally
• Principles-based approach
• and
• Consider implications for the UK Ireland

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Pensions ASB comprehensive project Working method

• Significant ASB staff resource
• ASB assisted by Pensions Advisory Panel
• EFRAG working group established, led by UK
• Updates (will) appear on ASB website

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Fair Value Measurement (FVM)

• Canadian Discussion Paper Measurement on initial
  recognition.
• Forthcoming FASB standard on FVM a how to
  measure standard. IASB to issue as an Exposure
  Draft.
• Fair value as market exit value.
• Stimulated debate but not universally popular!
• IASB and FASB to consider as part of measurement
  phase of joint conceptual framework project on
  which

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Conceptual Framework project

• IASB and FASB joint agenda project to develop a
  common conceptual framework.
• Multi-phase project over a number of years
  converged framework 2010?
• More than an esoteric academic exercise. Will
  have major impact on way in which the Boards will
  develop and revise standards.
• First discussion paper imminent

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Conceptual Framework first discussion paper (1)

• Phase A preliminary views discussion paper due
  out for comment end June/early July.
• ASB will be raising awareness and holding a
  public meeting on the issues.
• Covers objective of financial reporting and
  qualitative characteristics.

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Conceptual Framework first discussion paper (2)

• Preliminary views set out some significant issues
  eg
• Reference to financial reporting, not just
  financial statements.
• Stewardship no longer a specific objective of
  financial reporting.
• Primary users present and potential investors
  and creditors and their advisors.
• Faithful representation rather than reliability.
• Verifiability as a component of faithful
  representation.

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And theres more

• Business combinations IASB and FASB continuing
  to redeliberate Phase 2 proposals issued in 2005.
• Liabilities IASB continuing to consider
  proposals issued for comment last year. Planning
  to hold round-tables November and December 2006.
• Performance reporting IASB issued exposure
  draft on Segment A proposals in March. Two
  statement approach similar to FRS 3. Segment B
  proposals awaited with interest.

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Big issues and hot topics

• Views, questions or comments?