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Friday, 19th April 2024
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IAS 39 is a ‘bad standard’ Back  
Sir David Tweedie, chairman of the International Accounting Standards Board (IASB), highlighted the cultural difficulties the body faces when setting International Financial Reporting Standards (IFRS) at a recent speech when he said, ‘In Ireland everything is permitted unless prohibited. In Germany everything is prohibited unless permitted’.

Tweedie was speaking at the 29th Annual Congress of the European Accounting Association (EAA 2006), hosted by UCD Schools of Business.

Referring to current problems with the standards, Tweedie said that IAS 39, the derivatives standard, ‘is a bad standard. We inherited it. We have to replace it with something much simpler’.

Tweedie was similarly disapproving of the pensions standard, which he called ‘an absolute shambles of a standard’. ‘If you’ve got a pension scheme with €40 million of assets and €40 million of liabilities, and the assets fall by 10 million… you have a deficit of €10 million. But not in America you haven’t. Not under some of the options that we’ve been landed with,’ he explained.

Looking to the future, Tweedie said, ‘Accounting is changing. There is going to be more and more – as we really get down to standard setting in this our second term – of actually changing standards as opposed to fixing them. There’s going to be more volatility. We have to explain what happens and that’s going to be difficult. But remember what it’s about. It’s about cutting costs…cutting the cost of capital. Increasing growth. Increasing world trade. That’s the prize. And that’s why it’s going ahead. This is our best chance in a lifetime’.
He also explained that when the IASB has finished, ‘we won’t have totally identical statements with the US in the short term. There will be aligning as we get ever nearer. We think we can get rid of reconciliation by the beginning of 2008 and we will have pretty well identical accounts as far as results are concerned by 2010-2011’.

Referring to the use of the standards, Tweedie said that although there are only 100 countries using these standards, ‘Japan wants to converge with us, China has announced that its listed companies will be using international standards next year, Canada has announced it is switching and dropping Canadian standards, India is talking about coming in, and Israel’s coming. Chile’s coming… it’s spreading’.

He added, ‘We reckon 150 countries will be using this in five years time. There’s only just over 200 countries in the world and you’re going to have a problem explaining what you are doing if you are one of the other 50’.

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