Vulcan Logic

I write a monthly article on accounting standard setting, often using baseball analogies to prove my nerd credentials. This time, I'm taking my nerdiness to a new level by comparing accounting standard setting to Spock’s iconic line from Star Trek II: The Wrath of Khan: “The needs of the many outweigh the needs of the few, or the one.”

And just to be clear, I choose Trek over Wars every day of the week!

When setting standards, we must consider the needs of many different interested and affected parties, each with unique challenges and requirements. I recently discussed how the Accounting Standards Board (AcSB) is addressing the challenges faced by smaller entities (in "Applying ASPE can be Complex") and the diverse views we encountered during outreach for our Contributions project (in "Contributions"). Evaluating the needs of various Canadian interested and affected parties is complex. This challenge is even greater for the International Accounting Standards Board (IASB) , which sets standards applied across approximately 150 jurisdictions, each with its own legal, tax, and regulatory frameworks, as well as language and cultural differences. These variations lead to differing needs and challenges, resulting in a wide range of views on the IASB's proposals.

This diversity of opinion is evident in the responses to the IASB’s recent exposure drafts on Financial Instruments with Characteristics of Equity (FICE), Business Combinations – Disclosures, Goodwill and Impairment (BCDGI), and Contracts for Renewable Energy (CRE). The IASB received a significant number of comment letters, and on nearly all major issues, there were both agreements and disagreements. Additionally, there was limited consistency in which aspects of the proposals respondents supported or opposed. The AcSB disagreed with many aspects of all three of these exposure drafts. I wrote an article comparing BCDGI to a foul ball and have been vocal at international standard-setting events about our disagreements with the measurement proposals in FICE, even referencing a rift in the space-time continuum at one event (did I mention that I’m a nerd).

The IASB now faces the task of considering this feedback and making difficult decisions. I am confident in the IASB’s ability to navigate these challenges. They will carefully consider all input, adhere to their rigorous and transparent due process, and arrive at a conclusion. I believe the IASB is at their best in doing this when they stick to principles. Meeting the diverse needs of the many different jurisdictions with rules can be quite challenging.

The final standard may not satisfy everyone, as the needs of the many will inevitably outweigh the needs of the few or the one. For example, feedback on CRE was discussed at an IASB meeting in August. Although no decisions were made at that time, it appears the IASB is moving forward with aspects of the proposals with which we disagreed.

You might wonder how the AcSB will handle a situation where we disagree with a finalized IASB proposal. This is where Spock-like logic comes into play. We believe that globally comparable financial reporting is crucial, and in international standard setting you can’t always get your way. There must be compromise to achieve global comparability. To meet the needs of the many, the needs of the few—or even the one, as in our case—might need to take a backseat to the goal of global comparability.

While we retain the legal ability to modify either the content or effective date of any IFRS Standard included in Part I of the CPA Canada Accounting Handbook, the AcSB is committed to common global adoption practices. We consistently strive to support the IASB’s goals before taking any jurisdictional actions. To date, our policy has been to adopt IFRS Accounting Standards as issued by the IASB, without modifications or carve-outs, and we remain committed to this policy as long as it does not adversely impact our interested and affected parties.

I’d love to hear your thoughts on whether you feel both the AcSB and IASB are meeting the needs of the many in accounting standard setting. And I’m sure some of you will also have something to say about my Star Trek vs. Star Wars comment. Bring it on!