The International Accounting Standards Board (IASB) has over the last two months published a number of new and revised International Financial Reporting Standards on consolidated accounts, fair values and pensions. The standards are required to be applied for years beginning on or after 1 January 2013 but are still subject to EU endorsement.

If endorsed UK companies are likely to be particularly affected by the changes to the calculation of pension costs. Instead of crediting the expected return on pension plan assets separately and charging the calculated interest cost on the pension provision, the amended standard requires a charge or credit to be calculated by applying a AA rated bond interest rate to the net pension deficit or surplus. This is likely to reduce profit for many companies.

The new consolidation standard, IFRS 10, applies a single (revised) definition of control to all entities in determining whether they should be consolidated. Whilst many groups will be unaffected the ASB considers that all parent companies will need to consider the possible implications arising from the standard, particularly where the original decision as to whether to consolidate a company was not clear cut.

Although initial indications are that fund managers may be particularly impacted by the new standard, if endorsed, the effect cannot be fully evaluated until the IASB release an exposure draft addressing whether an investment entity should not consolidate investments in entities that it controls, but to measure those investments at fair value, with changes in fair value recognised in profit or loss. The ED is expected to be issued in the near future.

Whilst it was originally intended that IFRS 10 be a converged standard between the IASB and the FASB the latter have decided not to implement it. This will leave important consolidation principles unconverged.

The intention of the new fair value standard, IFRS 13, is not to bring increased fair values into accounts but to bring about consistency of fair value across IFRSs. However, there are likely to be some costs associated with clarification and alteration of current practice and there is a risk of diversity in application.