If you think you understand IAS 39, "Financial Instruments: Recognition. and Measurement," then you haven’t read it, according to Sir David Tweedie, chairman of the International Accounting Standards Board.
Tweedie said that the convergence of accounting standards around the world is necessary for the free flow of capital and the development of “strong, stable, and deep financial markets which encourage investment and growth,” but could not be implemented under a detailed rules-driven approach.
Tweedie spoke at a conference of the Institute of Chartered Accountants of Scotland in cooperation with the American Institute of CPAs. He urged that a principles-based standard be the basis for convergence of accounting standards. Both Tweedie and Bob Herz, chairman of the Financial Accounting Standards Board, stressed that principles-based accounting standards would best serve the public interest.
A principles-based standard would contain no exceptions, but would be based on clearly stated core principles, would contain no inconsistencies, would be tied to a conceptual framework and rely on judgment and minimum guidance, with no second guessing of regulators.
“If people keep coming to me for clarification on the principles-based standards that are issued, then the game is up,” said Tweedie. “Principles will then become rules. This is one of he last chances we’ve got to get this right. If the United States fails to accept principles-based standards, then the IASB may have to consider a ‘Plan B’ on convergence.”
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