Question: What starts with ‘P’ and ends in chaos? Answer: The International Accounting Standards Board’s Phase I pensions accounting project.

It has all been a bad dream. That was the message from the 21 April joint board meeting in London between the IASB and the US Financial Accounting Standards. At least it will be if the board reins in the project to focus on disclosures and smoothing. The reason? The IASB’s research director is unconvinced by the definitional integrity of the board’s effort to tackle cash-balance plans.

“Our recommendation would be that if the comment letters reveal that we haven’t adequately addressed [cash-balance plans], or that they are still a problematic as before, that we drop them from the project,” Upton told the assembled board members. The real reason, as the smart money knows, is to smooth the path for a US adoption of IFRS.

As the scale of the potential climb-down unfolded, Upton revealed that “any work on Phase II of the project would be suspended and those resources allocated elsewhere in the memorandum of understanding. We can reconsider that decision when our Phase I is complete.” On the issue of financial statement presentation, he noted: “That there is not majority board support for a direct charge to profit and loss.” Nor might there be “majority support for a single approach to other comprehensive income presentation.”

He went on to outline two sticking points: “One is certainly definition and scope. Our definition includes a variety of plans that have sat very comfortably inside defined-benefit accounting for years. And that for us to achieve a level of internal consistency and definitional consistency we said ‘well they must be contribution-based plans’ and therefore changed the accounting for them.” There is also the “operationality” of the proposed measurement attribute.

Meanwhile, more details have emerged about the full extent of the FASB’s impact on Phase I. Observer notes accompanying the 21 April discussions reveal that: “The FASB continues to evaluate how changes in plan assets and benefit obligations would be presented under the proposed presentation principles developed in the financial statement presentation project.”

Many across the EU were unaware that they had even started; not one of the 17 references to the FASB in the IASB’s discussion paper - at pages 5, 8, 20, 23, 24, 25 and 33 - spells it out.

At page 21 of the paper, the board reveals that: “[The IASB’s Phase I] does not encompass a comprehensive review of post-employment benefit accounting.” It continues at paragraph 1.15 that: “The IASB’s project has aims different from those of the FASB’s first phase.” And so: “Consequently, the FASB and IASB projects should be viewed as parallels. Each board monitors the other and learns from their experience.” Squaring the IASB’s understanding of “parallel” with the position described in the IASB-FASB meeting notes is rather a case of fitting a quart into a pint glass: “That work [on presentation] should continue and can assist the IASB in resolving the open questions of presentation in its discussion document.”

The reality is that since at least 2007, the IASB has developed blue-skies thinking on plan definitions in Phase I, while the FASB addressed financial statement presentation - at least that’s what FASB chairman Bob Herz thought.

As regular followers will know, respondents to the IASB’s consultation process, which excludes an opportunity to comment on the FASB’s presentational work, will have a choice between one presentation option for contribution-based plans, three possible outcomes for defined-benefit plans … and no clue whatsoever where the FASB thinks presentation should go in the future.

Of course, you could always ask the IASB. Jochen Pape, a member of Germany’s national standard setter, the DRSC, tried just that at the November 2007 Standards Advisory Council.

In the light of recent developments, the reply from the IASB’s Liz Hickey raises more questions than it answers: “You are asking for our work plan … to indicate the progress that the FASB is making on various projects. We will not do that. It is for the FASB to explain.”

The real mystery is why the IASB backed itself into this particular corner in the face of Pape’s question. The easy answer would have been: “We are working on plan definitions, the FASB is addressing presentation, and together we will provide regular detailed updates for constituents.”

The uncertainty doesn’t end there. The two boards merely agreed tentatively to revisit the agenda proposals sometime during June.

As Wayne Upton put it: “I’m personally not convinced that the definitional integrity that we were seeking was appropriate. But we’ll see how the comment letters go.” Now he tells us.