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Shifting standards at the ASB

Mary Keegan is to swap her desk at the Accounting Standards Board in July for a presumably grander one at HM Treasury. As she steps down as ASB chair, she could be forgiven for thinking the role she is leaving behind is a world away from the job she signed up to in late 2000.

Ironically, it is HM Treasury which has highlighted the radically different role that ASB is now playing. As well as its watching brief and work on the international scene, the ASB has been handed two pieces of work by the government – sorting out the complicated Operating and Financial Review (OFR) and trying to find a patch for pension reporting after the Equitable Life debacle.

Those tasks show just how far the ASB has moved from its self-appointed agenda of the early 1990s. The work on the OFR – a statement first created by the ASB – has been taken over by the government with its decision to make it a legislative requirement and its intention to put much of the detailed requirement into primary legislation. So the ongoing role the ASB has in the OFR appears to be translating and making practical sense of the government’s requirement for the business community.

A greater indication that the government sees the ASB as a body to do its bidding is the extraordinary enquiry into insurance accounting. This was sprung upon the ASB following the release of the Penrose report into the near-collapse of Equitable Life. Financial secretary Ruth Kelly told MPs she had asked the standard setter to initiate a study into the accounting for with-profits business by life insurers. According to Kelly, “The study will have particular emphasis on identifying ways of improving the transparency of reporting.”

The ASB complied with the request by announcing a hastily assembled Advisory Panel, while noting the Treasury had given it a very challenging remit.

It seems likely the ASB will issue an Exposure Draft at some point this year, with the intention of having guidance in place in time for the insurance industry when it reports its 2004 figures. Such a timescale suggests the change will be one of disclosure rather than measurement, as companies would need to know about anything that affected profits. A project on pensions is on the to-do list of the IASB so there is little point in the ASB cutting across that work.

You would hardly expect Keegan to attack her future employers over the call for action. However, Keegan’s predecessor Sir David Tweedie, now chairman of the IASB, was less circumspect. He claimed the ASB had in the past too few resources to devote to particular industries and that an accounting standard was not necessary in order to help Equitable Life work out if it was paying out too much to policyholders. The inference is clear – Tweedie didn’t see his role as taking orders from anyone – whether it is the government or finance directors. It will be interesting to see if the next chair of the ASB is more relaxed about such political interference, and will be content to be at the beck and call of the government and the IASB.

Ask Tweedie about the role of national standard setters and he will tell you they do have an important ongoing role in helping his IASB shape the standards, carry out the research and work jointly on projects with other national standard setters. Perhaps the national standard setters are there as a two-way communication mechanism. They can represent the views of the standard setters to the preparers and the view of the FDs to the IASB so that it does not become too isolated from its international constituency.

At the moment, the ASB could argue that as well as offering support, it – and other national standard setters – provide resource, people and thinking to help the IASB work out the issues. This does provide national standard setters with influence, although that should never be mistaken for power. Whether the IASB will be happy with such an outsourced solution over the long term remains to be seen. Maybe the IASB will never get sufficient direct funding to bring such work in-house.

Tweedie might be right and such a role is sufficient for the ASB long term. But it’s not as important as actually setting the standards. The IASB is doing that. Big corporates are learning to lobby the IASB directly.

Maybe the ASB’s supervisory body, the Financial Reporting Council, should re-examine the terms of reference of the ASB openly admitting it is no longer an independent body. Maybe the FRC should acknowledge the ASB’s work is now dictated by others. We all, especially the ASB, must now learn to live with that loss of power and status.

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