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I founded and co-founded a couple of companies: Redington and mallowstreet; now I have launched a global initiative, Partnership for Change, which is working to improve healthcare, long term care, pensions & savings and technology for a rapidly ageing population. I write about issues of the day that touch me and make me think. Mostly about how to make things better.

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Waleed and the Accounting Standards Board

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Here’s a blog I wrote on 17 October 2005. Even then, the writing was on the wall:

Last Friday, I had occasion to spend an afternoon in Frankfurt and after my meeting I hailed a passing cab. “I need to get to the airport sharpish, bitte,” I said to the driver. “Kein Problem!”, he replied, “Mein Name ist Waleed und ich komme aus Afghanistan” before achieving the doubly impressive feat of driving at 200kph whilst simultaneously chatting to his father on his mobile phone.

 

In fact, it took less time for Waleed to drive from the centre of the city to the airport than it did for me to get through customs and security. These days, Frankfurt Main’s security is seriously tight – you walk through a metal detector, your belt and shoes get X-rayed, then they scan you with a handheld device and finally they pat you down in a decidedly Teutonic, no-nonsense, kind of way.

 

A hundred yards further on and they do the whole thing again. Some might say this level of scrutiny is a serious inconvenience. And at one level they’d be right. By the time you’ve jumped through all the hoops, you stand every chance of missing your flight. But on balance, most people would rather jump hoops than have the wrong guys slip on board the flight with them.

 

And so to the Accounting Standards Board’s announcement last week that it is carefully considering whether FRS 17 needs to be adjusted in any way.  The reason seems to be that the ASB realises how incredibly important FRS 17 has become and wants to be sure this exacting accounting standard is neither too stringent nor too lax.

 

But the ASB is giving little away and the industry is desperate to know which way it’s going to lean. No doubt some are hoping FRS 17 will be consigned to the dustbin – it’s the CFO’s equivalent of Frankfurt security and very inconvenient; first you get X-rayed as you discount your pension liabilities using a bond yield and apply a true market level for long term inflation.

 

Then, as if that’s not enough, the Pensions Regulator pats you down and if he finds any spare cash, firmly suggests you put it into the pension scheme.

 

Several companies are finding that the unrelenting scrutiny is delaying their strategic plans. If your scheme has got a big deficit, then before you IPO, buy back shares or sell off assets, you need to think about the pensions regulator, because he’s watching.

With some companies missing their flights, they’re fervently praying the ASB will scrap the 17th financial reporting standard. Don’t bet on it. Mark to market is now the global norm and besides, for trustees, FRS17 and the the pensions regulator are the two best things that have happened – because they have encouraged corporate sponsors to hedge risk and start making material additional contributions to the scheme.

You see, despite FTSE’s storming rise in the last couple of years (faster than Waleed on his way to the airport), the deficit has still got bigger.

And it’s only at the FRS 17 X-ray machine that it shows up.

 

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2 comment on “Waleed and the Accounting Standards Board

  • Simon Carne
    December 12, 2011 | 10:47 pm

    If you're comparing the X-ray machines at Frankfurt Airport to FRS 17, I guess that means you're saying they don't work properly, cause people to take the wrong things with them on the airplanes, to the point where whole flights get cancelled based on misleading information.

    Thanks for the heads-up, Dawid.

  • Patrick Lee
    December 21, 2012 | 10:55 am

    Not to detract from your valid points about pension plan risk, Dawid, but the airport security analogy may be flawed.

    Unfortunately, the pat-downs and metal scanners at airports probably only provide the illusion of security. As a serving policeman recently pointed out, terrorists and other criminals can hide ceramic knives (undetectable by metal scanners) in places that are rarely patted down at airports (armpits, groin area, not to mention body cavities). It seems that airport security is unfortunately like a lot of the regulation of professions and banks: still largely cosmetic…

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