[Excerpt] "Even at the beginning of 2001, Europe was aiming for a tight timetable to adopt international accounting standards (IAS). We now know that the deadline is 2005 and, in a way, that imposes a stress on the standard-setting process", says Mary Keegan.
"We could have taken our time in a lot of active debate for the six or seven years but now we have got to try to deal with some of the urgencies by 2005. So they are going to be very challenging years between now and 2005. There are going to be a lot of proposals for change of the IAS and we are all going to have to try and cope with that - companies, auditors, institutes, and all the people who serve on committees and try and give responses to documents."
Ms Keegan sees her role as building on what Sir David Tweedie (the former chairman of ASB and now IASB Chairman) did for the UK and Ireland "in terms of putting us on the map of world standard setting and making sure that we use that position of strength from the UK and Ireland to influence the IAS. That's the first priority, and the second is to help to manage the change process of getting through to the year 2005."
Asked whether she believes that the 2005 deadline is realistic and achievable for the European member states, she says: "I think they are determined to do it. I think we have a better chance of doing it successfully in the UK and Ireland ... (and) that the standards we will have to adopt in 2005 are nearer to what we know at the moment than they are for some of the other countries."
Rules and Principles
As to whether the Americans will accept IAS, Ms Keegan says: "It's absolutely right that the Americans have had more of a tendency to write rules. In part, that is the way the standard setter thinks but quite substantially the reason that there are a lot of rules in US GAAP is because companies and auditors have asked the standard setter to provide a lot of rules. And that's for a number of reasons - one of the strongest, perhaps, is that they have such a litigious society; they want more certainty over what the rules are. I think Enron has probably made the Americans realise that sometimes, and I emphasise sometimes, detailed rules give rise to loopholes. And ill-intentioned people sometimes exploit loopholes. Therefore on balance, perhaps it is preferable not to create loopholes by creating rules. I think the Americans are genuinely now starting to reconsider some of their more detailed rules and that means that we can hope that we won't get too much pressure internationally for the IAS to be too detailed."
Who should comply with IAS?
On the difficult question of whether all companies should have to comply with IAS, Ms Keegan says: "Under the European regulation it's "the group accounts of listed companies" and after that, individual member states have a choice. I know that the DTI in the UK and the DETE in Ireland are thinking about that. My personal view is that probably we should seek to maintain our tradition in Ireland and the UK that we all use mostly the same standards. However I do believe that some of the standards that will come from IASB will be so focused on the capital markets that we couldn't justify application to unlisted companies."
Taking financial instruments as an example, Ms Keegan questions whether "one would necessarily want to ask all unlisted companies - even big ones - to start valuing all their financial instruments from 1 January 2005." She suggests that one way of achieving the right balance is "to recommend that we transfer the IAS into the UK and Irish framework where it seems appropriate that unlisted companies should use the particular IAS, but on some occasions we should not seek to impose the IAS for unlisted companies. So we preserve something that we call Irish and UK GAAP which will perhaps be 90% the same as IAS, but it gives us some flexibility. But ultimately that's not my decision."
A continuing role for the ASB
Ms Keegan believes that there must be a continuing role for something like the ASB after 2005 so that there will be an effective and informed means of challenging the thinking of the IASB: "You might as well have something like ASB that works successfully between Ireland and the UK and takes good opinion from our constituents. On the whole we tend to think that monopolies are not a good thing. I think it would be a mistake if we assumed that IASB should ultimately be the only place where there was accountant thinking. I think the model that was set up, which was IASB at the centre with the national standard setters grouped around it, allows exchange of views and thinking, allows development of new ideas in accounting to happen in various different places but to come together in a melting pot. If we don't preserve strong national centres of accounting then we have nothing with which to challenge the thinking of IASB. "
Managing Change
ASB has taken some proposals from IASB regarding IAS and last month issued them for comment in the UK and Ireland.
"We're saying what do you think about them in the first instance? And secondly, should we early adopt so as to help manage the change? They are broadly in areas of least change as far as accounting is concerned but it would enable us all to get used to the new text and the new way of writing the standards. And that's what broadly the exposure drafts issued in May are about. It's unfortunate that there are a lot of them all at the same time. I would not have wished to do that generally but IASB is putting out a lot of exposure drafts and we are mirroring that process so we're rather following the international process."
The comment period which opened last month, will finish on 15th September.
Financial Instruments
While the EDs issued in May are not particularly difficult, this month (June) sees the release of a very complex exposure draft on financial instruments.
"The most difficult area is about accounting for a number of financial instruments at fair value rather than historical cost. It really matters that we get Irish opinion as part of the international debate. Our constituents in the UK and Ireland may not agree with all the proposals - the important thing is, though, that people take time to consider the proposals and to respond either to us or to IASB or to both. I don't have any very strong feelings about it so long as we make sure that people have the opportunity to give response in the same time frame as IASB is after for its comments so that we can influence the international debate."
"In Ireland there are some very big corporates who have quite extensive treasury functions and they need to think about the implications of the proposals and decide whether they like them. At the same time they need to realise that many of the proposals will be implemented. They will need to think about the implications on systems and data collection methodology and to think about what they'll do to earnings. Because if you value financial instruments at fair value it means your earnings will tend to go up and down a bit more than they used to."
Accountancy Ireland Vol 34 No 3 June 2002