Commentary: Standards that bite

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The Independent Online
Recent months have seen so many outpourings from the various accounting bodies that anybody trying to take it all in is in danger of collapsing beneath the weight.

Indeed, proposals on two aspects of financial statements - draft chapters of the Accounting Standards Board's planned Statement of Principles - published earlier this month have left many venerable members of the profession as dazed as most of their clients.

The board's latest offering, the Financial Reporting Standard on accounting for subsidiary undertakings, is basically a revision of the 14th Statement of Standard Accounting Practice on Group Acounts. This was introduced by its predecessor, the Accounting Standards Committee, to take account of the 1989 Companies Act implementing the European Community's seventh company law directive.

The board is anxious to prevent companies with a number of different businesses giving the impression that they are separate when it is possible that the performance of one could have a significant effect on another.

To this end, this second statement - the first, relating to cash flow, was issued in September 1991 - introduces new definitions of the concepts of 'parent undertaking' and 'subsidiary undertaking'. In a sensible - though unusual - move, it follows the legislation to adopt a test based on control rather than ownership.

But it also departs from the legislation to become tougher in one notable area. The board does not accept the European argument that financial services groups should be largely exempt because of the different reporting requirements for the various parts of their businesses. It says the answer is to provide more information in the segmented statements, rather than to ignore the principle.

Such a rigorous approach is to be applauded - and almost makes up for the fact that we will have to wait some months for the board's revised views on the treatment of one increasingly important part of the old SSAP14, that dealing with associates and joint ventures.