Dissidents call for ‘rethink’ on IFRS

Posted by John Stokdyk PM | on Wed, 28/07/2010 - 15:47 2810 2 comments

Eight politicians, financiers and accountants this week published a letter in The Times calling for the government to repeal the UK’s commitment to International Financial Reporting Standards (IFRS).

The accounting dissidents include Bournemouth university accounting professor Stella Fearnley, Tory MP and Future of Banking Commission David Davis MP, accountant and technical trainer Emile Woolf and financial analyst Timothy Bush, a member of the Accounting Standards Board’s Urgent Issues Task Force.

Responding to deputy prime minister Nick Clegg’s call to nominate red tape that could be abolished, the letter suggests that IFRS would be “a good place to start”.

The letter argues that IFRS was a major factor in the 2007-08 credit crunch because the standards allowed banks to overstate their profits and overlook mispriced credit. As the financial storm set in, IFRS accelerated and exaggerated losses. While regulators recently criticised auditors of UK banks for a lack of diligence in the run-up to the crisis, the Times letter argues that they were required to audit “in compliance with a flawed accounting model”.

Calling for a return to parliamentary oversight, the letter concludes, “IFRS conflicts with the UK's traditional ‘true and fair’ view, and in practical terms has had adverse consequences. In our view it is time for a significant rethink.”

Professor Fearnley, who has been critical of the ASB and IASB in the past, explained that the letter came about as a way of drawing attention to the underlying problems with IFRS. “The fact that the letter has many signatories shows that disquiet with the accounting model goes beyond a few academics,” she told AccountingWEB.co.uk.

Continued...

Respond to the ASB Questionnaire on use of IFRS in the UK

Edward Beale | Fri, 30/07/2010 - 13:01 | Permalink

The letter correctly points out some of the problems with IFRS, however politicians are not the right people to set accounting standards.

The ASB is reviewing the future of GAAP and is developing proposals based on the IFRS for SMEs. There is a very short questionnaire on its web site seeking evidence of the impact of its proposals - see the ASB page on The Future of UK GAAP.

Please respond to this questionnaire as the more evidence the ASB has, the more likely it is that it will produce sensible proposals.

Respondents may wish to consider

whether the ASB's proposed solution is an improvement on existing requirements
whether the ASB has sufficient information to enable it to put forward a targeted and proportionate solution (the recent consultation only had 1 response from a user of SME accounts),
whether the volatility of reported profits in holding company, subsidiary and group accounts will be acceptable,
whether a variant on the IFRS for SMEs, with simplified accounting for financial instruments and deferred tax, and reduced use of fair value, would be more suitable for all companies applying UK GAAP that are too large for the FRSSE,
whether medium sized companies should be able to apply the FRSSE, and if so whether there are additional issues that the FRSSE would need to cover,
whether the ASB should accept without enquiry the IASB's unsubstantiated assertion that the IFRS for SMEs is unsuitable for publicly accountable entities,
whether accounting standards will have any impact on the availability of investment finance or cost of capital,
the cost of transition bearing in mind that the cost of transition to full IFRS was often greater than anticipated,
how training can sensibly be provided to users of accounts to help them understand an IFRS based approach, and
whether now is the right time to change

Credit Crunch and IFRS

fami1sa | Fri, 06/08/2010 - 11:05 | Permalink

The following are extracted from the below mentioned article:-

" IFRS was a major factor in the 2007-08 credit crunch because the standards allowed banks to overstate their profits and overlook mis-priced credit.

“IFRS conflicts with the UK's traditional ‘true and fair’ view

I am a ACCA student and would be grateful if one or more of your readers could providing me with some specific examples which would lend support to the above assertions.

Thank you in anticipation

Puzzled