A CONTROVERSIAL project that would allow rate-regulated entities to continue using their previous accounting policies on adopting international accounting standards has been heavily criticised by the FRC.
The UK reporting watchdog said it is against an interim standard on rate-regulated companies issued by global standard setter the IASB because it could be "disadvantageous to those jurisdictions that already use IFRS", such as the UK.
Under the proposed interim standard, entities with rate-regulated assets and liabilities - such as utility companies - would continue recognising these accounts upon adopting IFRS.
Designed to provide relief to first-time adopters of IFRS, the interim standard is part of a long-term project investigating whether rate-regulation creates assets or liabilities in addition to those already recognised under IFRS for non-rate-regulated activities.
In a letter sent to Hans Hoogervorst, chairman of the IASB, Roger Marshall, chair of the FRC's accounting council [pictured], criticised the interim standard for not being principles based, and that the IASB should first determine whether regulatory deferral account balances are assets and liabilities in accordance with the conceptual framework that underpins its standards.
"If it is found they are not then the IASB should be wary of including them in financial statements," Marshall said.
The FRC also warned that the objective of a single set of global rules would "no longer be obtainable" because different jurisdictions would be allowed to continue previous practices. "This will result in there being tow or mover versions of IASB sanctioned IFRS," Marshall added.
Last week, the FRC published a legal opinion from Martin Moore QC that appeared to quash concerns that IFRS conflicts with UK law. The opinion found that IFRS is legally binding and achieves a true and fair view in financial statements and could, in most instances, be achieved by complying with the rules.
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