Will accounting for consolidated financial statements get any easier?

Post-implementation reviews of the consolidation package of standards begins this year

Seven years ago, in May 2011, the International Accounting Standards Board (IASB) released a whole package of international financial reporting standards (IFRSs) to update the accounting rules regarding consolidation matters and other related topics. These were:

•         IFRS 10 Consolidated Financial Statements
•          IFRS 11 Joint Arrangements
•          IFRS 12 Disclosures of Interests in Other Entities.

At the same time, in line with the new standards, the following standards were revised: IAS 27 Separate Financial Statements, and IAS 28 Investments in Associates and Joint Ventures.

Suffice to say that the release and implementation of these Standards were not without dispute and controversy. Among the issues that have been raised are:

•         The definition of potential voting rights in IFRS 10 no longer being aligned with that in IAS 28
•          The lack of clear definition on agency relationships
•          The elimination of proportionate consolidation
•          Accounting for interest in joint operations structured through a separate vehicle in separate financial statements

Complex and troublesome to implement

Added to the above list the overall complexity, the difficulty in practical implementation and insufficient guidance of the standards as a whole, it becomes no wonder that the planned Post Implementation Reviews (PIRs) of the above-mentioned standards itself has been the subject of much debate, even before they have started.

A PIR typically kicks off after an IFRS has been implemented about 3 years after the IFRS’s effective date. IASB would do an initial assessment, and issue a public consultation / request for information document. One would surely expect that the IASB will receive a tsunami wave of feedback this time around.

With such turmoil, one of the subsequent amendment documents, together with a related IASB project covering the equity method, have also been postponed until after the PIRs are done. The rationale for the postponements is that it is pointless to implement the amendments or continue with the project if the findings of the PIRs force IASB to redo them all over again.

Change appears inevitable

The reality of the situation is that the PIRs are quite likely to bring about significant changes to the IFRSs in question, but as is always the case, companies will have plenty of time to prepare. The hope of course is that whatever the form the future incarnation of the IFRSs take, it will be simpler and more cost-effective to implement.

In the meantime, accountants will just have to buckle down, implement the current accounting standards on consolidation as best they can, and make use of whatever guidance they can get.

Azmin Mohd Khalib

Senior Editor

Wolters Kluwer Malaysia