Accounting roundup: IFRS questions EU plans to modify rules
The International Financial Reporting Standards (IFRS) Foundation has questioned a push from the EU to make changes to its accounting rules.
The Foundation has issued a call for stakeholders to respond to a European Commission consultation on a possible power to allow the bloc to adapt IFRS for the EU.
It warned that any bid to develop a localised version of IFRS could undermine the G20’s objective of creating a single set of global accounting standards.
In a statement posted on its website , it said: “It is not clear why the EU would consider departing from this goal at a time when the EU is rightly concerned about global economic standards being under tremendous pressure more generally.”
Under existing legislation governing the use of IFRS in the EU, although the Commission can carve out provisions, it is unable to add requirements.
On 21 March the Commission published a questionnaire seeking feedback on a possible ‘carve in’ power along with other measures.
The Commission described the move as a “fitness check” intended to assess the relevance of the EU’s public reporting framework.
Question 19 of the survey asked whether it was “still appropriate that the [International Accounting Standards] regulation prevents the Commission from modifying [IFRS] given the different levels of commitment” to it across jurisdictions.
Critics of plans to diverge from IFRS have argued that it could also harm the ability of EU companies listed in the US to file IFRS-compliant financial statements without the need to reconcile those accounts with US generally accepted accounting principles (GAAP).
A carve-in could, however, allow the EU to make provision in its financial reporting framework for transactions covered poorly by existing IFRS rules, such as pension plans of the type popular in the Netherlands, Belgium and Switzerland.
Prior to a rule change in 2007, IFRS-compliant foreign issuers were required to show the difference between their accounts and local GAAP in a number of key areas – among them pensions.
Interested parties have until 21 July to comment on the measures.
New IASB framework reintroduces prudence concept
The International Accounting Standards Board (IASB) has announced the release of its revised conceptual framework .
In it, the IASB has reintroduced a reference to prudence, describing it as enhancing characteristics of the concept of accounting neutrality.
The project to revise the framework has been keenly followed by the Local Authority Pension Fund Forum (LAPFF), which represents public sector funds in the UK.
The LAPFF lobbied the board to reintroduce the concept of prudence into the framework after it was removed in 2010, in part to align the IFRS with US standards.
Critics of the move argued that its removal from the framework could lead the board to develop accounting standards that were inherently imprudent in their nature.
Opponents of the concept, however, claim that it creates secret reserves in the accounts that are unavailable to shareholders.
FRC rebuts LAPFF criticism
Meanwhile, the UK’s Financial Reporting Council (FRC) has hit back at a call from the LAPFF for it to be scrapped .
Sir Win Bischoff, chair of the accounting watchdog, wrote in a letter to the forum : “We are concerned… that there are a number of inaccuracies and errors in your published introductory remarks and are anxious to dispel these so that others have a more informed understanding.”
The publication of the rebuttal statement follows the release of the FRC’s latest three-year strategy document .
Among its plans for the next three years, the FRC said it would focus on directors’ obligations under section 172 of the Companies Act 2006 to promote the long-term success of their businesses.
It planned to involve its Financial Reporting Lab in climate-change reporting, and said it wanted to “consider the longer term development of corporate reporting”, which was described as covering “the role, purpose and relevance of the annual report in its current form”.