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Only one cook

Allan Cook’s departure as technical director of the Accounting Standards Board marks the end of an era for standards setting in the UK. Along with the more outgoing one-time chairman Sir David Tweedie, Cook can claim credit for the reputation that UK accounting standards enjoy today.

Cook is the real architect of the board’s technical output. When he and Tweedie joined forces 13 years ago, success was by no means assured. Cook divides the ASB’s work into three headings: putting out fires, expanding frontiers and engaging in international debate.

Some observers thought the ASB should only do the first of those tasks, and there were certainly enough blazes to douse. The abuse of extraordinary items was making a mockery of stated profits and earnings; the use of acquisition provisions had turned into an art form; goodwill accounting allowed the disposal of unprofitable parts of the business to be shown at a profit; and debt could be tweaked to be shown as equity.

Cook claims the ASB expanded the frontiers through the financial reporting standards it introduced. He points to standards such as FRS 3, which brought in the notion of comprehensive income.

The ASB was also prepared to look abroad for solutions such as the way it used the internationally accepted definitions of assets and liabilities to deal with off balance-sheet financing in FRS 5. The result was to give the UK and Ireland a unique standard that won acclaim both at home and abroad. These definitions were also used to apply new thinking to old problems in standards FRS 7 and FRS 12.

Cook’s work goes on. He has left his successor – long-time ASB hand Andrew Lennard – with an undiminished agenda. The most controversial issue over the next few years is likely to be comprehensive income with the search continuing for the Holy Grail of meaningful reporting of performance.

Issues such as accounting for leases and fair value may also dominate. The only down side to the past 13 years has been the seemingly inexorable growth in the number of standards.

The ASB’s technical director may have been applying a clear set of underlying accounting principles, but those have been backed up by detailed workings.

Cook is proud of the way the ASB engaged internationally from the outset.

It worked through a series of initiatives such as bilateral meetings with EU standards setters, support and briefings for the old IAS committee and regular discussions with the group of standards setters that became known as G4+1. “That got us involved with international developments in accounting thought,” he said. “We also exported our own ideas; for instance, we performed important research on leases. At the same time, we learned to be more rigorous in our analysis of problems, which provided good training for the tougher environment of the IASB.”

International relations weren’t easy. Exploring a particular topic could be blighted if one country had finished a project and didn’t want an international group to pre-empt something it was working on. But that, according to Cook, served to demonstrate the need for a stronger international regime.

Given the hostility of FDs towards the old accounting standards committee, the domestic constituency gave the ASB remarkably little trouble over the years. He attributes this partly to the contribution of the whole financial community – FDs, auditors, users – who realised how low UK GAAP had sunk. He also says that the success of the ASB owes a lot to the “quality of good FDs who brought a better understanding to the debate of the issues”.

He is stepping aside but will remain an observer at the board and a member of the European Financial Reporting Advisory Group’s Technical Expert Group.

Cook denies the ASB is winding down, insisting it has a role in contributing to the international developments. He has mixed views on the future. He believes it is important to raise the level of financial literacy to ensure an informed technical debate rather than accounting standards setting falling prey to political lobbying. And, amazingly, he says he can see that happening in Europe. But he warns that there is only a small window of opportunity in which the EC can get convergence right. If they fail, US investors will conclude that the only worthwhile standards are US-made and the cost of capital for European-listed companies will remain higher than for their US peers.

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