Five standards to deal with consolidation and related matters
In response to the global financial crisis, the International Accounting Standards Board (IASB) committed to address as a matter of urgency perceived inadequacies with the consolidation model, most notably the consolidation of so-called special purpose entities. Almost three years later, the IASB has finally delivered on that commitment by issuing the ‘package of five’ standards to deal with consolidation and related matters. Glenn Gillard and Goind Ram Khatri ask whether the new standards really change the game or just create new rules for bending.
First published in Accountancy Ireland.
Back in 2008, amidst the sense of impending financial doom, we were all cheered up by the lay man explanations of the financial crisis. Even today many a lecturer can’t resist logging on to YouTube to play the Bird and Fortune sketch for an eager set of business students to liven up their class. However, a fundamental question lay beneath many of these analyses of the subprime crisis – how did the banks manage
to get the loans off their balance sheet? The same fundamental question was asked of the IASB and the Financial Accounting Standards Board (FASB) by the G20 leaders and the Financial Stability Board. One of the
commitments in 2008 of the IASB, as part of the one hundred day response, was to address the question of consolidation. It has taken much more than 100 days (you can actually add on a zero), but in reaction to these calls for answers, the IASB in May 2011 issued the ‘package of five standards’ on consolidation. Each of the standards in the ‘package of five’ has an effective date for annual periods beginning on or after 1 January 2013, with earlier application permitted, subject to EU endorsement, so long as each of the standards in the package is adopted early.