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14 Mar 2011
International financial reporting standards (IFRS) are flawed, according to former accounting heavyweight Peter Wyman.
Wyman, the former PwC partner who championed the industry and IFRS and received an OBE for his services to the accountancy profession, said the standards are too academic, complicated and unintuitive, The Daily Telegraph reports.
Further reading
His comments were made as part of new research criticising British reporting standards, due to be published this week.
Wyman said many leading accountants - including himself - "were not wrong" to push IFRS, but admits the new research is "compelling in demonstrating that significant further work is necessary before IFRS can be said to be totally fit for purpose".
He said: "The rules allowed banks to pay dividends and bonuses out of unrealised profits - from profits that were anything but certain. The system is still in place now - we can't tell if similar problems are building up because there is no requirement to separate realised from unrealised profits."
Wyman is currently University of Bath treasurer, chairman of the Somerset Community Foundation and Settled Estates, senior adviser to Albright Stonebridge and director of City of London Sinfonia.
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Visitor comments Add your comment
IFRS - not fit for purpose
IFRS rules are far too complex and too rule-based. Yet, it is very alarming when IFRS rules allow banks to distribute dividends from unrealised profits. Also, convergence with US generally accepted accounting principles should be a secondary focus. To put this into context, despite so many rules being written, the US has the highest rate of corporate fraud and corruption cases in comparison in their European counterparts. Creating complex rules will not stop those who are determined to commit fraud.
Posted by: Sinead Mullan, 14 Mar 2011 | 14:19
IFRSs are principles not rules
Surely Peter Wyman, more than most, should know the difference between principles and rules.
It is not the job of accounting standards to act as prudential regulators of financial institutions.
In the case of banks, the regulator (e.g. the FSA) should set the rules for bank dividend payments to be made from realised profits.
Posted by: Stephen Muncaster, 14 Mar 2011 | 15:09
Agreed: IFRS not fit for purpose
IFRS is inherently unstable and the ability of banks to pay dividends out of unrealised profits is the key reason why. How can this possibly be in the public interest and how was it in the UK's national interest to destroy the competitive advantage it had in UK GAAP? Fair value is need in some cases. A variation of Prof William T Baxter's "Fully Stabilised Accounting" might provide a way forward.
Posted by: Bruce Garnham-Smith, 15 Mar 2011 | 00:14
Agreed: IFRS not fit for purpose
IFRS is inherently unstable and the ability of banks to distribute unrealised profits is among its principal flaws. How can this possibly be in the public interest and how was it in the UK’s national interest to surrender the competitive advantage it had in UK GAAP? Perhaps a variation of Prof William T Baxter’s Fully Stabilised Accounting could provide a way forward. It is accepted fair values are needed in rare cases.
Posted by: Bruce Garnham-Smith, 15 Mar 2011 | 09:31
IFRS - Fit For The Purpose
With due respects, in my humble opinion, distribution policies are legal / business matters that are to be framed by the regulators of respective countries and the management of indiviual companies. These rules are similar to the ones where the Corporate Law places restrictions on board remuneration, buy back of own shares, etc. IFRS gives very high level principles for accounting and it may even be outside IASB's authority to dictate what consititutes distributable profits.
Posted by: Sriram Gopalakrishnan, 15 Mar 2011 | 10:29
Agreed: IFRS not fit for purpose
It's not may but it is that IFRS are not fit for purpose.
Posted by: cheap taxi in Mountain View, 16 Mar 2011 | 01:39
No common sense
I agree that IFRS has lost touch with reality in pursuit of some academic model, and allowing banks to recognise profits on unrealised mark-to-market gains, often on obscure financial instruments that cannot be valued reliably, is a very good example. The IASB need to rediscover the concept of common sense that would cause such silly ideas to be dismissed immediately.
Posted by: David James, 30 Mar 2011 | 13:26