Panel Calls for IASB to Further Gauge Impacts of International Standards

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By David R. Jones

Nov. 28 — Users of financial information should gain a clearer understanding of how the International Accounting Standards Board sets its standards and the effects of its rules under the recommendations an IASB advisory panel issued Nov. 28.

In a 76-page report to the IFRS Foundation, IASB's parent group, the Effects Analysis Consultative Group urged IASB to enhance how it assesses and reports the likely impacts of proposed International Financial Reporting Standards by further incorporating effects analyses into its due process.

The board intends “to implement the recommendations in full,” IASB Chairman Hans Hoogervorst said in a statement, and the IFRS Foundation Trustees will work with IASB in putting the report's findings into practice.

Explaining Probable Costs

“The IASB should assess and explain how general purpose financial reports are likely to change because of the new requirements, and why those changes will improve the quality of general purpose financial reports,” the report said.

In addition, the consultative group recommended that the IASB show how it determines the probable direct costs of new standards for preparers and for users. “Change rarely comes without a cost,” the group said.

Strengthening Financial Reporting

IASB's assessments of costs, according to the report, should emphasize how a proposed financial reporting change can meet the goal of strengthening financial reporting—supplying financial information about an entity that proves useful to “existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity.”

Determining a standard's potential broad economic effects, however, is beyond IASB's scope, it said.

Effects of Leasing Proposal

The report cited the board's current project on leasing as an example of the distinction between the economic impacts of standards—which the consultative group acknowledged are important—and the effects on financial reporting.

Though IASB said the proposed leasing standard would improve financial reporting, it received comment letters on its proposal warning that some companies might balk at signing leases as a result, and that thousands of jobs could be lost.

“The IASB is not required by its due process to factor into its assessment the possibility that the leasing industry might employ fewer people because of these changes,” the report said.

Testing in the Field

The consultative group also advised the board to continue to work with outside groups in gauging the impacts of its proposed standards, such as involving other standard setters in field testing that IASB undertakes in evaluating its proposals.

This collaboration should include creating partnerships with local standards-setting organizations in conducting field testing of proposed standards and reporting the results.

Fieldwork—IASB's overall process of gathering evidence and opinions from external sources—can include:

• giving stakeholders the opportunity to assess how the proposals would apply to actual transactions or contracts;

• having financial-information preparers and users draft case studies; and

• running experiments to assess how users process information.

Evaluating Standards' Implications

Many jurisdictions are required to assess the likely effects of new standards as part of their endorsement processes, Michel Prada, Chairman of the IFRS Foundation Trustees, noted in a statement.

“At present, much of this work is undertaken by the IASB during the development of new Standards, and then often duplicated at a jurisdictional level as part of an endorsement process once the IASB has issued the Standard,” he said.

Avoiding Duplication

Other standards setters can assist IASB by supplying the board with analysis and information on the potential impacts of proposals in their jurisdictions, the consultative group pointed out, “rather than jurisdictions having to duplicate work undertaken by the IASB.”

Drawing on fieldwork that other accounting standard setters have conducted also could reduce IASB's workload and could offer the board primary sources of evidence.

Under this approach, IASB would expand its efforts to gather and mull the results of fieldwork from its network of standard setters.

Global Perspective

Still, in setting standards IASB must make its assessments “from a global perspective, to determine whether new financial reporting requirements are justifiable on a global basis, rather than from the perspective of any individual jurisdiction,” the report said.

This could include situations in which a standard generates only minimal benefits for entities in a particular jurisdiction —or even creates a net burden.

Working With FSB

In addition to teaming up with local standard setters, the consultative group recommended that IASB maintain its working relationship with the Financial Stability Board (FSB), an international body set up in 2009 that monitors and makes recommendations about the global financial system.

“The IASB should, without compromising its own objectives, continue to engage with the FSB to ensure that the FSB is aware of proposed changes to financial reporting and that the FSB has sufficient time to assess and address how changed financial reporting information should be incorporated into the FSB's own monitoring systems,” the report said.

No Set Procedures

Publication of the report culminates more than a year of work by the consultative group, which the IFRS Foundation established in 2013 as an international panel of stakeholders with IASB Vice-Chairman Ian Mackintosh as chairman.

Though the consultative group offered recommendations, it didn't specify a particular set of steps or tasks for IASB to follow, the report said, noting that individual group members evaluated differently various types of evidence and analyses involved in assessing proposed standard.

“The Consultative Group expects that the IASB will need to weigh the factors according to the nature of the project and the sources of evidence available to it,” the report said.

To contact the reporter on this story: David R. Jones in London at

To contact the editor responsible for this story: Laura Tieger Salisbury at

The Effects Analysis report is available at


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