BEWARE THE POLITICISATION OF ACCOUNTING STANDARD-SETTING

Although the setting of financial reporting standards is typically viewed as a technocratic process best left to experts, occasionally it is targeted for attention by governmental regulators or legislators, often with unfortunate consequences. One recent example of such an intrusion was the demand to provide ‘carve outs’ from the requirements of certain International Financial Reporting Standards (IFRS) by the European Commission in advance of the mandate that EU-based public companies adopt IFRS in 2005, which had the result that ‘Euro-IFRS’ differs from that promulgated by IASB, thus hindering comparability among EU-based and non-EU companies.

Another example was the pressure exerted by the US Congress on FASB to make changes to financial instruments standards, in order to smooth recognition of value changes, thereby masking (real) volatility in the valuation of financial instruments, the reporting of which was blamed, in part, for the financial crisis that began in 2008.

Currently, FASB and IASB are completing work on several important new standards (some of which may not be fully converged, despite the Boards’ respective best efforts) that have generated considerable controversy, including what appear to be threats of official interference. The current proposal to substantially revamp the always-contentious matter of lease accounting has drawn the attention of two senior US legislators, raising the spectre of such an intervention.

Jan-Mar 2015 Issue

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