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.
