The International Accounting Standards Board (IASB) started work 25 years ago this month (in April 2001). In this post, I highlight: Work plan The IASB’s work plan from 2001 to 2021 was dominated by the following main themes: I won’t try to summarise here the IASB’s projects (large and small) that don’t fit neatly into… Continue reading The IASB’s first 25 years
Category: Language
Defining contingent liabilities
IAS 37 Provisions, Contingent Liabilities and Contingent Assets contains an unusual definition of contingent liabilities. The definition covers 3 different items that do not form a natural class, and it also differs from how people (other than people applying IAS 37) commonly think about contingent liabilities. This post explains how IAS 37 ended up having… Continue reading Defining contingent liabilities
Booking a provision does not ‘set money aside’
A story this morning in The Times commits a serious and misleading wording error that is surprisingly common in the UK. Here are the headline and the first two and a half paragraphs: Santander puts £295 million aside for car loan claimsThe brewing controversy over mis-sold car loans has forced Santander UK to set… Continue reading Booking a provision does not ‘set money aside’
‘Reserves’: things we don’t know how to account for?
The word ‘reserve’ has sometimes been used to describe two items on opposite sides of the balance sheet. The first item is oil or gas reserves, which are assets. The second item is insurance ‘reserves’, which are liabilities. Coincidentally, accounting standard setters have found both items hard to deal with. I think the label ‘reserve’… Continue reading ‘Reserves’: things we don’t know how to account for?
Does future tense help keep goodwill alive?
When a verb refers to the future, some languages require explicit marking of that fact. A recent paper presents evidence that companies in countries using those languages are slow in reporting goodwill as impaired. The paper suggests that this is because speakers of those languages perceive the future as more distant than speakers of other… Continue reading Does future tense help keep goodwill alive?
Assumptions are not just a throw-away
The term ‘assumption’ figures prominently in some accounting standards, but can give the wrong impression. Where accounting standards refer to ‘assumptions’ The term appears in contexts where a preparer needs to make an accounting estimate. IAS defines accounting estimates as ‘monetary amounts in financial statements that are subject to measurement uncertainty’. Some IFRS standards use… Continue reading Assumptions are not just a throw-away
Accounting is not a language
It has become a cliché to say that accounting is the language of business. That metaphor is helpful because it emphasises that accounting conveys vital information about business. But the metaphor can be unhelpful because, although accounting is a system for conveying information, accounting lacks most features of real human languages, such as Arabic, Chinese,… Continue reading Accounting is not a language
Myths about deferred tax
There are many myths about what deferred tax is. As a result, many companies do not understand what information about deferred tax can tell investors. Thus, companies typically present that information in a technical way that investors find difficult to understand. Consequently, most investors dismiss that information as an uninteresting technicality and they ignore it.… Continue reading Myths about deferred tax
Language Barriers to commenting on IASB proposals
A recent paper looked at whether language barriers deter people from responding to IASB exposure drafts. It also discussed whether the IASB pays too little attention to comment letters from countries where the main language is very different from English. The paper “No Comment”: Language Barriers and the IASB’s Comment Letter Process, by Eduardo Flores,… Continue reading Language Barriers to commenting on IASB proposals
The ‘cash component of revenue’: a dangerous myth?
Some academics and investors often talk about ‘the cash component of revenue’. I understand why they use this shorthand label, but it risks causing misunderstanding. In this post, I examine the following: what is the ‘cash component of revenue’? an accounting identity linking revenue and cash receipts judgement in measuring trade receivables the ‘cash component… Continue reading The ‘cash component of revenue’: a dangerous myth?