Friday, June 3, 2011

IASB Caves for Now on IAS 37 Changes

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Yet another accounting standard proposal has run into a buzz saw of constituent criticism, and so the International Accounting Standards Board has beat a retreat to the status quo in its International Accounting Standard 37, Provisions, Contingent Liabilities and Contingent Assets.

The International Accounting Standards Board since 2005 had sought to change the recognition criteria of when a liability would be measured, shifting it to the point when a contractor would be ready to take over the liability. Instead, the IASB decided Nov. 16 to stick with its current criteria in IAS 37, in which an entity would recognize a liability if the entity “is more likely than not” to face a present obligation at the end of a financial reporting period. It, too, is controversial, and was one of the reasons that the IASB had been seeking a change.

Setting out the logic behind the staff recommendation, IASB staff project manager Joan Brown said, “The proposed recognition criteria are continuing to cause some concerns, particularly how they would be applied to liabilities arising in legal proceedings.” As a result, she said, “We have recommended reversing this proposal, in other words keeping the explicit threshold that is in IAS 37 at present.”

“My intention would be to consult informally on the decisions just to check that we are heading in the right direction before you make further decisions,” Brown told the board.

The Nov. 16 decision means the IASB will not be ready to press ahead with any major changes to IAS 37 until after June 30, 2011, when it intends to have completed with the Financial Accounting Standards Board its top priority projects for financial convergence.

The FASB and the IASB have also run into sharp criticisms on their joint revenue-recognition project—among others—which is one of their top priorities for completion by the 2011 self-imposed convergence deadline.

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By Steven Marcy

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