Accountancy Magazine
Call to repeal requirements to use IFRS in UK accounts
IFRS in conflict with true and fair view - experts
27 July 2010
A group of influential business experts and politicians have called on the coalition government to repeal the legal requirement to apply international accounting rules to British accounts, calling them ‘irrelevant’.
In a letter to The Times today, the group of eight business leaders - including David Davis MP, Stella Fearnley, professor at the University of Bournemouth Business School and Timothy Bush at the UK Accounting Standards Board – wrote: ‘The deputy prime minister is seeking views on repealing burdensome regulation. A good place to start is the International Financial Reporting Standards (IFRS).’
It added that ‘neither boards nor regulators have been successful in working with it’, adding that the government ‘should fight to overturn it’.
Fearnley has long been a critic of the set of cross border accounting rules and has argued fervently against the use of fair value instead of historical value in financial accounts.
Read the letter in full below:
Sir
The deputy prime minister is seeking views on repealing burdensome regulation. A good place to start is the International Financial Reporting Standards, (IFRS). Before IFRS, the accounting ground rules were set down by parliament, and their interpretation was delegated to the UK Accounting Standards Board, with the objective that accounts gave a true and fair view. IFRS introduced in 2005 via EU regulations undid that and is recognised to have been a major factor in mispriced credit going unchecked, leading to the financial crisis. Neither boards nor regulators have been successful in working with it.
In its commencement phase, the 'fair weather' model significantly overstated bank profits, resulting in excessive dividends. It also obscured true gearing and capital destructive business models. In “storm” mode it accelerated and exaggerated losses, resulting in taxpayer funded recapitalisations in the US and the UK. Other IFRS outputs are irrelevant to how businesses are run and make it difficult to understand the accounts of a business. The Financial Services Authority and Financial Reporting Council have recently criticised the auditors of the UK banks for a lack of scepticism but auditors have been required to audit in compliance with a flawed accounting model.
As the UK is locked into this system because the EU requires it, the government should fight to overturn it. Despite the damage IFRS has already done, the UK's own accounting standard setter is still proposing to extend the burden of IFRS onto all companies, including small businesses, by lobbying for it in Europe.
It is time that accounting standards were subject, once again, to scrutiny by a wider peer group than of late, and if necessary by Parliament. 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.
Yours sincerely
Jeremy Hosking – Director, Marathon Asset Management
Rt Hon David Davis MP – Chairman, Future of Banking Commission
Howard Flight – Shadow Chief Secretary to the Treasury 2001-2004
Patrick Evershed – fund manager and President, Cities of London and Westminster Conservatives
Shyam Sunder, Professor of Accounting, Economics and Finance, Yale, USA
Professor Stella Fearnley, University of Bournemouth Business School
Emile Woolf, forensic accountant
Timothy Bush, UK Accounting Standards Board
In a letter to The Times today, the group of eight business leaders - including David Davis MP, Stella Fearnley, professor at the University of Bournemouth Business School and Timothy Bush at the UK Accounting Standards Board – wrote: ‘The deputy prime minister is seeking views on repealing burdensome regulation. A good place to start is the International Financial Reporting Standards (IFRS).’
It added that ‘neither boards nor regulators have been successful in working with it’, adding that the government ‘should fight to overturn it’.
Fearnley has long been a critic of the set of cross border accounting rules and has argued fervently against the use of fair value instead of historical value in financial accounts.
Read the letter in full below:
Sir
The deputy prime minister is seeking views on repealing burdensome regulation. A good place to start is the International Financial Reporting Standards, (IFRS). Before IFRS, the accounting ground rules were set down by parliament, and their interpretation was delegated to the UK Accounting Standards Board, with the objective that accounts gave a true and fair view. IFRS introduced in 2005 via EU regulations undid that and is recognised to have been a major factor in mispriced credit going unchecked, leading to the financial crisis. Neither boards nor regulators have been successful in working with it.
In its commencement phase, the 'fair weather' model significantly overstated bank profits, resulting in excessive dividends. It also obscured true gearing and capital destructive business models. In “storm” mode it accelerated and exaggerated losses, resulting in taxpayer funded recapitalisations in the US and the UK. Other IFRS outputs are irrelevant to how businesses are run and make it difficult to understand the accounts of a business. The Financial Services Authority and Financial Reporting Council have recently criticised the auditors of the UK banks for a lack of scepticism but auditors have been required to audit in compliance with a flawed accounting model.
As the UK is locked into this system because the EU requires it, the government should fight to overturn it. Despite the damage IFRS has already done, the UK's own accounting standard setter is still proposing to extend the burden of IFRS onto all companies, including small businesses, by lobbying for it in Europe.
It is time that accounting standards were subject, once again, to scrutiny by a wider peer group than of late, and if necessary by Parliament. 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.
Yours sincerely
Jeremy Hosking – Director, Marathon Asset Management
Rt Hon David Davis MP – Chairman, Future of Banking Commission
Howard Flight – Shadow Chief Secretary to the Treasury 2001-2004
Patrick Evershed – fund manager and President, Cities of London and Westminster Conservatives
Shyam Sunder, Professor of Accounting, Economics and Finance, Yale, USA
Professor Stella Fearnley, University of Bournemouth Business School
Emile Woolf, forensic accountant
Timothy Bush, UK Accounting Standards Board
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