THE CHAIRMAN of the IASB's oversight body has warned Europe against amending IFRS for its own purposes as the global standard setter's relationship with the EU becomes more fractious.
In a speech at the DCRS - the German standard setter - Michael Prada, chairman of the IFRS Foundation, yesterday warned against attempts to "tweak" IFRS for use in Europe.
"It would be easy to inadvertently cross the Rubicon. A tweak here, a failure to endorse there and very quickly you can have standards that are once again incompatible with other parts of the world," Prada said.
"The gains of IFRS in Europe must be protected. Processes can be improved and endorsement systems can be streamlined, but the fundamental premise of Europe's commitment to IFRS as global standards has to remain intact and undiluted."
The IASB's relationship with Europe has become increasingly tense in recent weeks. European parliament wants to make EU contributions to the IASB - which represents about a third of the body's total funding - contingent on the IASB updating the way it sets international reporting standards.
As part of a series of amendments that will have payments made annually, and be renewable under conditions set by parliament, the IASB is being urged to include a specific reference to the concept of prudence in the framework that underpins the way it sets IFRS.
The clamour for prudence to be re-inserted into the IASB's conceptual framework is growing from quarters outside of the EU. The FRC, which recently issued a robust defence of the legality of IFRS believes prudence should be explicitly acknowledged in the framework.
A specific reference to the concept of prudence was dropped by the IASB in 2010 in favour of the concept of neutrality. Hans Hoogervorst, chairman of the IASB, has so far resisted pressure to re-insert prudence into the framework, and has argued that the basic tenets of the concept remain intact and visible throughout IFRS.
The standard setter is currently reviewing the framework and according to its consultation paper, "it remains open to question, however, whether the framework should specifically refer to prudence and what precisely prudence means".
Nevertheless, Hoogervorst has said that Europe's attempt to influence the IASB is "highly worrisome".
"This is something we cannot accept," he told a meeting of his body's advisory council on Monday, Reuters reported.
"If Europe is going to do this, other parts of the world might be encouraged to do so. It's a threat to our independence," he added.
The UK should support Europe in its call for the prudence concept to be expressly stated in IFRS.
What we have at present are standards allegedly drawn up to inform stated investor user groups. This tends to induce volatility. What we need are standards that aim to serve the wider public interest by delivering financial stability. It is principally for that reason that we had the fundamental accounting concept of prudence until the IASB chose to dispense with it.
Various accountancy bodies have recently found it necessary to consult on the meaning of the phrase "public interest ". This not only suggests that key players in the convergence process could not have had a public-interest objective in mind, it also suggests they are unsure of their own overriding objective.
The focus should be taken back to accounts prepared for companies and their existing members to inform the decisions the collective membership is required to take concerning their company. Other user groups and individual shareholders might well be interested in the accounts but the focus should be on the company and its controlling members collectively if the statutory reporting function is to help deliver deliver financial stability.
No matter how up to date the valuations are, accounts will always be out of date for the purposes of short-term decision taking by the time they are published.
Accordingly, IFRS should not stray beyond the legal duties of directors and auditors to report to the company and its collective membership as a whole.
When the prudence concept was removed from UK GAAP upon the introduction of FRS 18, well-informed commentators said at the time that prudence would be reinstated after convergence. It seems we cannot await full convergence.
Posted by: Ian Sunderland, 19 Oct 2013 | 23:17
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