The introduction of international financial reporting standards to Europe in 2005, has been broadly successful. However, standard-setters have given too much priority to philosophical issues – such as probing the limits of fair value – at the expense of removing flaws in existing standards. The latest consultation on pensions from the International Accounting Standards Board, the guardian of international financial reporting standards, is, therefore, a welcome initiative. There are still big debates on pensions such as on what interest rate to use to discount liabilities. But the IASB has taken the opportunity to tie up two loose ends.

First it wants to remove a fudge. In principle, under IFRS, companies show on their balance sheet the latest market value of pension scheme assets and liabilities, discounted at a bond-type rate. Companies may, however, opt for a “corridor” approach, allowing them to defer recognition of big valuation swings in a scheme. Use of the corridor is popular in continental Europe, less so in the UK. It is also a nonsense. The IASB is rightly pushing for immediate recognition. Since most pension schemes have enjoyed years of rising equities, and thus have deferred gains, the IASB will likely get its way.