European opt-outs could leave UK companies stranded from the international accounting standards system and facing higher capital costs, if the EU frustrates International Accounting Standards Board plans, a financial watchdog has warned.

In its Plan & Budget 2008/09 report the Financial Reporting Council pinpointed a number of ‘major risks’ it faces in the future. One of them included the scenario that the European Commission could ‘carve out’ certain aspects of future standards set by the IASB.

‘The EU might adopt standards that prohibit UK companies from complying with IFRS as published by the IASB, thus making their financial reports not comparable with their peers and increase their cost of capital,’ the FRC report said.

Two years ago, after a sustained outcry by financial institutions, the commission carved out crucial rules from IAS39, resulting in two different rules within Europe and incomparability among companies.