01 Sep 2013
The review of the International Financial Reporting Standards Board’s conceptual framework, says Hans Hoogervorst, chairman of the body, “gives people the opportunity to help shape the future of financial reporting” and will eventually affect all the IFRSs developed. But with one influential group of investors calling IFRS illegal in Europe, and PwC UK’s technical accounting lead Peter Hogarth describing it as “rather detailed”, the review appears to be garnering attention beyond standard responses to the issues it raises.
The paper itself addresses a number of fundamental accounting matters and merely re-opening the debate has already stimulated conversations about previously excluded concepts including stewardship – a casualty of the 2010 phase of the IASB’s work. Matters now open for consideration include:
Peter Hogarth revisited PwC’s view from a June World Watch article, in which his predecessor encouraged responses “in order to be able to ignore it for the next 20 years”. Calling it “simultaneously important and inconsequential” Mr. Hogarth added that the IASB’s target should be “a short framework of key principles, which might be more useful, without being less influential. Other important frameworks that have stood the test of time have managed to be brief, including the US constitution (about 4,400 words) and the Ten Commandments (about 300 words).”
As for the notion of IFRS’ illegality, the group of vocal investors has had their concerns backed by a legal opinion from trial lawyer George Bompas and submitted to the Parliamentary Commission on Banking Standards. Although the Financial Reporting Council in the UK has refuted any suggestion that IFRS might be illegal, the group, headed by the Local Authority Pension Fund Forum, has persuaded the European Commission to investigate their concerns. The findings document alleged ‘substantial legal flaws criticise the framework’s neutrality and suggest that IFRS is not compatible with EU Company Law, that demands accounting be prudent.
The discussion paper will be open for comment until January 2014. Following closure of the consultation, the next stage will be an exposure draft.