Any student of accounting will have been told about the various users of accounts but I think this is where the deception begins. If we take a second to think we see that management use management accounts because it's important that they know what's going on in their business and the tax-man has his own rules because he wants to get the right money out of it. So creditors and investors are left to use the things as per IFRS and invariably have to spend a lot of effort (not to mention the tertiary education required) interpreting them, fiddling with them and then some guesswork to get anything valuable out.
Lets focus on investors.
All these guys want is information that represents the economic substance of the business in question. Instead the IASB (and FASB) have decided it's more fun to torment people by leaving the economic substance at the end of an unpleasant maze. I am not even talking about the controversial issue of fair value of financial instruments (don't get me started on this) but I will list some other heinous examples of "The Board's" tomfoolery.
Share Based Payments (IFRS 2 I think) : Put simply I can issue shares to the value of $1billion to buy a single can of Coke and it'll show up on my balance sheet as an asset worth whatever Cokes normally sell for. The Board will say "ah but it will show up in the notes and there'll be hints in the Statement of Changes in Equity" but I don't want to have to read a book to find every answer. This approach is much like a newspaper publishing a defamatory article boldly on the front page and then printing the retraction somewhere amongst the adverts for adult entertainment that no-one wants to be seen lingering on. Leases are now getting the same treatment as the Board attempts to plug the holes in the accounting system using an axe.
Even consolidation is flawed in the way it ignores separate legal personality (especially obvious with liabilities). I won't go on because most readers haven't made it to this point without getting bored.
My solution is toss the lot out and start from scratch. that's not really possible but the IASB have decided that a good step is to change the framework (the principles upon which the standards are built). This was the good bit and now that the cockamamie system is falling apart they seem to want to make the whole thing cockamamie.
Anyway if you're reading this and want to develop a new set of standards just comment and we can get in touch. I hope your holiday season is treating you well! I may elaborate on this with a discussion on the role of auditors but probably not.
Cheers
Edna
