Another day at the office – the ups and downs of standard-setting

Once in a while, it’s appropriate to pay a little tribute to the staff of the IASB.

I wouldn’t have the patience, the dedication or the intellectual capacity to do what they do – that is to focus on the smallest nuances of potential changes to IFRS, and to work on identifying their possible impact as fully and objectively as possible, and to maintain this focus through round after round of discussion and consultation and research, possibly extending over years. It must take a very particular kind of idealism.

Take for example some recent twists and turns on the ongoing review of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. IAS 8.34 currently says: “An estimate may need revision if changes occur in the circumstances on which the estimate was based or as a result of new information or more experience. By its nature, the revision of an estimate does not relate to prior periods and is not the correction of an error.” No argument there. Earlier this year, a staff paper proposed (among other things) extending this, to add the following:

  • “If an entity uses estimation techniques or valuation techniques in making accounting estimates, a change in those techniques is a change in an accounting estimate. A change in an estimation technique or in a valuation technique is appropriate if, in the circumstances, the resulting measurement is equally or more representative of the amount being estimated. This may be the case if, for example, any of the following events take place: (a) new markets develop; (b) new information becomes available; (c) information previously used is no longer available; (d) estimation techniques or valuation techniques improve; or (e) market conditions change.”

In their commentary, the writers of the staff paper recorded that “in summary, almost everyone who we spoke to believed that the recommendations provide more clarity than the current guidance in IAS 8” and that “staff believe unanimously that the recommendations would result in an improvement to the existing guidance.” They also noted: “during our work we have tried to identify any potential unintended consequences of the recommended amendments, and we have not identified any: the recommended amendments are based to a significant extent on the guidance that exists elsewhere in IFRS Standards, they also aim to clarify (ie not to change) IAS 8.”

That sounds pretty cut and dried then, especially as the proposed wording would have been much in line with language already included in IFRS 13.65, addressing changes in valuation techniques. But a few months later, staff had a rather different perspective:

  • “During discussions with the Board, and especially with ASAF members, we heard the following feedback about introducing the threshold for changes in estimation techniques and valuation techniques:
  • IAS 8 already says that estimates should be reasonable and they should be based on the latest available, reliable information;
  • introducing the threshold would impose unjustifiable burdens and costs on preparers of financial statements because: (i) the test would require a substantial amount of effort; and (ii) changes in estimation techniques and valuation techniques are common;
  • introducing thresholds might be perceived as intending to change the existing guidance in IAS 8, which was not the intention of this project; and
  • from the standard-setting point of view, the most effective way to handle this issue might be to set thresholds when required in individual standards as, for example, IFRS 13 does.”

On this basis, staff withdrew the bulk of its proposed wording, retaining only the first sentence, that is: “If an entity uses estimation techniques or valuation techniques in making accounting estimates, a change from one technique to another is a change in an accounting estimate.” We’ll have to wait until the exposure draft, expected in the first quarter of 2017, to see if this at least makes it into the final version.

One imagines that the staff had much more fun writing the material about improving existing guidance with no unintended consequences than they did, months later, trotting out the familiar surrender-ridden language about unjustifiable burdens and costs. It’s easy to look at this and say it only proves they should have done more work in the first place (how could “virtually everyone we spoke to” be so out of step with the final consensus?), and that this just illustrates the IASB expensively spinning its wheels. Well, I’ve leave that to the staff manager to decide. But I’m choosing to see it (perhaps entirely implausibly, but that’s just the mood I’m in today) as the same kind of doggedness that keeps the community activist going, or the operative for a perpetually also-ran political party – you have a vision, you get excited, you convince yourself it’ll break through…then when it doesn’t happen, you adjust to expecting a little less from life, and you soldier on, hopefully a little wiser and more strategically astute for the experience, no less a believer in the possibility of future glory.

I mean, if the New Democratic Party can break through in Alberta, can’t a staff member have an idea and see it fly with the IASB…?

The opinions expressed are solely those of the author