The International Accounting Standards Board on September 6 issued a revised version of IAS 1, which for the most part tweaks the presentation of financial statements to get them looking a little more like those produced by U.S. GAAP. IAS 1 also changes the titles of the financial statements, ostensibly to more clearly reflect the function of those statements. The term balance sheet, for example, has been renamed "statement of financial position."
I don't know about you, but that high falutin title can't fool me! It's a fact that no balance sheet prepared in accordance with IFRS (or GAAP for that matter) ccould be legitimately considered a 'statement of financial position.' Here's just a few reasons why:
- Operating assets such as inventory, plant, equipment and land are measured at historic cost. As past costs, they are no indicator of current 'position.' They merely communicate an expectation that old investments will cover those costs that have not yet been expensed.
- Some assets are measured in terms of their current 'position' to generate future cash flows, but total assets is nothing more than a summation of apples and other things so dissimilar (see my earlier post on FAS 52) it would be a kindness to call them oranges. The rulemakers' euphemism for a little of this and a little of that is 'multi-attribute approach'–e.g., historic cost for inventory and PP&E, net realizable value for receivables, present value for some investments, fair value for other investments, random numbers for 'hedged items', and more (or less, depending on your point of view).
- A statement of financial position should be reasonably complete, but far too many assets and liabilities are excluded by extant accounting rules. What could you learn about a consulting firm's most critical asset–its collective brain power and experience–from its 'statement of financial position' prepared in accordance with IFRS? Answer: nada, nichts, bubkes.
A balance sheet by any other name still smells the same–and nothing like a rose. The IASB's all-too-obvious concern with pretension reveals far too little sense of urgency for resolving issues that really matter to investors.