In a recently-published article, Sir
David Tweedie notes that: “Forty-odd years ago, as a CA apprentice, I
didn't have to study accounting standards because there weren’t any! There was
one major standard – the true and fair view – augmented by accepted practice.” According
to Tweedie, two disputed takeover bids soon changed that. The President of the
Institute of Chartered Accountants in England and Wales (ICAEW), Sir Ronald
Leach, senior partner of Peat Marwick & Co., and Professor
Edward Stamp of Edinburgh University became embroiled in a public argument
in the pages of The Times over the
state of British financial reporting.
“Professor Stamp argued that for any major company, there
would be a million ways which you could show a true and fair view, and that
this was totally unacceptable. Sir Ronald reacted with alacrity, and together
with the other Institutes (including a rather reluctant ICAS), agreed to form
the Accounting Standards Steering Committee in 1969. Pressured by the
Government, the Committee looked for a quick win and came upon a research paper
of the ICAEW dealing with Associated Companies. This was rapidly turned into
the Statement of Standard Accounting Practice 1. While to accountants such a
topic would be a bizarre choice for the first standard, rather than what became
SSAP2 – Accounting Policies – the profession needed to show it.”
“The argument continues over whether standards in financial
reporting can best be governed by clear and detailed rules, or by principles
and judgement could act quickly in a time of crisis. Since then, we have seen
the SSAPs gradually replaced with Financial Reporting Standards and latterly by
International Financial Reporting Standards (IFRS). These standards have become
more and more complex.”
“Accounting is not rocket science. Writing a standard to
deal with 80 per cent of the problems takes only a few pages, yet if our
profession requires every avenue to be explored, then it can run into hundreds.
ICAS is just completing a
judgement framework to assist professionals who are unsure what exactly
judgement involves. If you have been trained in what I term ‘search-engine’
accounting – looking up the answer in a massive book of rules –judgement can be
scary.”
“The profession is at a crossroads, and the more we head
down the rules route the harder it will be to pull back to simpler, more
clearly expressed principle-based standards.” Read the article “Should
Accounting Standards be Principles or Rules?” by Sir David Tweedie, President
of the Institute of Chartered Accountants of Scotland (ICAS), as well as
previous postings regarding the Principles
versus Rules debate.
