The Effects of Accounting Standards – A Comment

Abstract

This paper brings together the comments made by the European Accounting Association's Financial Reporting Standards Committee to a discussion paper (DP) issued by European Financial Reporting Advisory Group/UK Accounting Standards Board (ASB). It analyses the content of the DP and then discusses what effects should be considered. It considers that all effects should be evaluated, irrespective of whether they normally fall within the standard-setter's purlieu, and provides a taxonomy of effects. It illustrates the difficulty of determining what effects should be considered by the standard-setter. The paper then discusses when effects should be reviewed. It agrees with the DP that effects need to be considered from inception of the project. It disagrees that the standard-setter should necessarily be responsible for all of the effects analysis. It argues that effects are likely to be different by geographical region and industry sector, and recourse should be had to national standard-setters and other organisations. While preparers may make representations about effects during the due process, these are not likely to be a representative sample. The paper suggests that in particular post-implementation reviews are better carried out independently. It observes that the DP does not address the practicalities of carrying out research in this area.

Notes

For further information about the OECD activities concerning regulatory impact assessment, see http://www.oecd.org/document/39/0,3746,en_2649_34141_35258801_1_1_1_1,00.html.

For further information, see http://ec.europa.eu/governance/impact/index_en.htm.

See http://ec.europa.eu/internal_market/accounting/docs/ias/endorsement_process.pdf ‘A dedicated endorsement process’.

This view is also taken by other institutions that perceive the cost–benefit analysis is a part of an impact or effect assessment; see OECD (2008), p. 9 or EC (2009), p. 5, see also references in DP para. 3.4 and the following.

We suppose that ‘effects analysis’ might be used because the term has been used before in the context of IFRS. The International Accounting Standards Committee Foundation used it in the Due Process Handbook for the IASB (see para. 2.3 of the DP) and the IASB itself used it to describe what was published in 2008 in relation to IFRS 3/IAS 27. In choosing ‘effects analysis’ it ‘did not want to give the impression’ that it would undertake ‘a comprehensive regulatory impact assessment’. See Agenda paper 4 to the Standards Advisory Council meeting in February 2010 (para. 6).