It looks like 2012 is going to be busy for the International Accounting Standards Board (IASB) as significant projects towards completion, some affecting pensions accounting.
In the first quarter of the year the feedback statement on the agenda consultation process will be published. If you are expecting this to be a simple binary choice some time before Easter that adds up to ‘Yes, we will do pension plan measurement issues,’ or ‘No, we won’t,’ then think again. The board will only take that decision after it has held a series of roundtable meetings and tied in the agenda process with the conclusions reached in the entirely separate strategic review.
This year expect to see no let up on the IASB’s work on financial instruments. According to the IASB work plan, a re-exposure of the impairment component is due by the mid-2012. A review draft is slated for the second quarter of the year on hedge accounting, with an exposure draft on macro hedging due in the third quarter.
It all adds up to the need for a quick reality check. There is a chance that the board will meet the mid-2012 deadline - sorry, target - for the impairment document. In part, this optimism is justified by the newfound willingness of US FASB members to agree with their IASB counterparts on the three-bucket impairment model. It is, after all, a convergence project.
Similarly, the IASB-only general hedge accounting model will likely be well received by constituents.
The most glaring omission from the work plan is any frank account of the implications of amending IFRS 9, the IASB’s new financial instruments standard. The IASB has already amended the effective date of IFRS 9 to take account of the fact that EU businesses with a NYSE listing would, for SEC purposes, have had to apply IFRS 9 from January 2013, despite being prohibited from doing so by EU law.
The board’s November 2011 decision to revisit classification and measurement under IFRS 9 was driven by the need address an accounting mismatch between the liabilities side on insurance and the asset side under IFRS 9, specific application issues with IFRS 9, and the need to converge on classification and measurement with the FASB.
Rather like Alice in Wonderland, that adds up to three impossible things before breakfast.
The risk that the board’s work plan hyperbole obscures is that project creep has repeatedly dogged the IASB, adding up to a marked inability to set an objective and stick to it. Three areas are targeted for action: the relatively simple question of clarifying which instruments qualify for amortised cost treatment, the bifurcation of financial assets, and the expanded use of OCI or a third business model for some debt instruments.
The second and third issues ought to carry a health warning. IFRS 9 has seen the board ditch IAS 39’s unloved bifurcation requirements, leaving the board on course to return to the complexity of the past that it had supposed removed. It is a similar story with debt instruments. Here the board might well reintroduce some sort of available for sale category. Scrapping AFS was supposedly one of the benefits and simplifications of IFRS 9.
But what the 20 December work plan well and truly omits is any mention of the fact that once the FASB has finalised its financial instruments model, the IASB plans to re-expose it for a round of public comment. No one knows what the comments on that exposure process will be and whether IFRS 9 will change yet again.