Members of the European Parliament’s Committee on Economic and Monetary Affairs (ECON) have launched a stinging attack on the International Financial Reporting Standards (IFRS) and the London-based International Accounting Standards Board (IASB).

A neutrally worded draft of the now explosive report emerged in January.

It hinted that the Parliament had softened the tone of its rhetoric against IFRSs.

But a series of draft amendments to that report, obtained by IPE, reveal that the Parliament is on a collision course with the more IFRS-friendly European Commission.

Following publication of the January draft, German Green MEP Sven Giegold, a noted IFRS sceptic at the parliament, issued a public call for comments.

In response to that request, the Local Authority Pension Fund Forum (LAPFF) slammed both the IASB’s accounting rules and the Foundation’s governance.

IPE has also obtained a copy of the LAPFF submission to the MEPs, in which LAPFF chairman Cllr Kieran Quinn argues: “There should be no risk or perception that accounting standard setting is a collusive activity between auditors and management.”

But, he continued, “the governance and funding structure of the International Accounting Standards Board makes that a serious possibility”.

He adds: “The draft report overstates the benefits of IFRS. In evidence to the UK Parliament Treasury Committee on 15 December 2015, the Bank of England confirmed the removal of expected losses (prudence) from the accounting standards caused the assumptions on which the Basle Regime was based to fail.”

The move reignites a row between the London-based accounting rulemaker and politicians in Europe that has been on the backburner since 2014.

In March 2014, members of the European Parliament warned the IFRS Foundation that it must address investor concerns about prudence in accounting.

They also said the Foundation must clean up its corporate governance act after evidence of misdeeds ranging from perjury to waste of public funds emerged.

The IASB and its Delaware-based parent, the IFRS Foundation, are responsible for the accounting rulebook that listed companies, including banks, must follow across the European Union.

Back in 2014, MEPs voted to stump up €43m of public money over six years to fund the activities of the London-based IASB, the Public Interest Oversight Board, and the EU’s own accounting adviser, the European Financial Reporting Advisory Group.

Release of the funds was conditional on the Foundation’s meeting the demands of an increasingly militant Parliament.

At the heart of the current furore is the IASB’s new financial instruments standard IFRS 9.

Although it contains a more forward-looking assessment of bank loan losses than its predecessor, many investors argue that it is defective and could mask a brewing crisis.

In September 2015, the LAPFF wrote to the European Commission arguing that EFRAG’s endorsement on IFRS 9 to the Commission was defective.

Since 2008, the LAPFF has lobbied IFRS sceptic politicians in Europe such as Gielgold and UK Conservative MEP Syed Kamall.

Kemall has long questioned whether it is “right for the EU to outsource standard-setting to what is in effect a private sector body, funded by taxpayers’ money.”

Among the proposed amendments to the ECON report is one that slams the IASB’s proposed treatment of prudence.

It reads: “The IASB’s interpretation of ‘prudence’ only means ‘prudent treatment of discretion’.”

The MEPs go on to demand that the notion of ‘reliability’ accompany prudence.

Long-term investors such as the LAPFF and a wider investor coalition claim that prudence or caution in accounting is an important safeguard against fantasy accounting profits.

Meanwhile, away from the accounting framework, the Parliament also lined up to attack the IFRS Foundation over waste of public funds.

In a further set of amendments, the MEPs call on the Commission “to urge the IFRS Foundation to base its financing entirely on fees or public sources and to eliminate excessive remuneration to Board members”.

According to the amendment, the IASB chairman, Hans Hoogervorst, received a total of £554,000 for the role of IASB chair; the IASB vice-chairman Ian Mackintosh a total of £488,500; and other full-time IASB members an average of £455,700.

As a result of the Delaware-incorporated foundation’s charitable status for US tax purposes, the IFRS Foundation is required to file tax information in a Form 990.

IPE has established that this information was supplied to the European Parliament in both 2014 and more recently.

The MEPs have also called for the IASB to be “transformed into a public standard-setting mechanism under the aegis of an international treaty”.