Vodafone attacks ‘costly and burdensome’ code change

The UK’s biggest companies have attacked prop­osed changes to the UK accounting code as potentially costly, pointless and painstaking for large business.

The companies have together urged the Account­ing Standards Board (ASB) to rethink plans to replace the current UK accounting rule book, known as UK GAAP, in favour of new international standards for small and med­ium-sized businesses (SMEs).

Their concerns focus on whether the rules may affect the thousands of listed subsidiaries of UK companies.

Intel have called the plans “costly and time consuming”. Deutsche Bank want special exemptions. BP believes the rules could result in a “continuous burden of reconciliation”.

Their voices joined Shell, Hilton Hotels and Vodafone in opposition to elements of the ASB’s proposals.

The new international standards, originally released by the International Accounting Standards Board last year, were designed for non-listed companies which make up an estimated 99% of the world’s businesses.

In the UK these businesses use UK GAAP, widely acknowledged to be cumbersome and in need of replacement. However, the proposed rules would also apply to subsidiaries of large, listed companies.

Vodafone said in its submission it feared it could increase the accounting burden for these subsidiaries which will have to choose whether to use either the new international ­standards for SMEs or the more burdensome accounting codes of their parent ­companies.

Paul Stephenson, director of financial reporting at Vodafone, said the ASB’s plans will be costly and burdensome when calculated across all its subsidiaries.

“The vast majority of our entities are either dormant or are entities holding direct or indirect investments in other group companies...these entities rarely have external creditors and, typically, the only external users of these financial statements are the tax authorities,” he said.

The effect will not be limited to Vodafone. Listed companies rout­inely keep a store of dormant subsid­iaries, which require minimal accounting treatment under current rules. Stephenson would prefer subsidiaries be permitted to disclose less or continue under current rules.

“We do not believe that the proposal to replace UK GAAP for UK subsidiaries of listed companies is beneficial to users, or to us as preparers,” he said.
“We believe that the costs of compliance will exceed any perceived benefits, particularly when extrapolated across a large number of subsidiaries.”

Within the ASB there are fears a subsidiary-specific exemption may prove unwieldy, forcing the board to examine each new accounting rule
and decide whether it should apply to subsidiaries.

Ian Mackintosh, chairman of the ASB, said he was aware of the issue and believed it was likely to be discussed after submissions were read.
“I’m sure it will be one of the issues on the table,” he said.

The issue is one a raft surrounding the ASB’s proposed changes.

The standards will also need European approval to come into effect. Debate in Brussels has centered on whether to mandate use of the SME standards across all EU member states or allow voluntary adoption by each nation.

France is among the nations resisting efforts to man­date use of the SME standards, owing partly to the evolution of their account­ing and taxation systems, which dates back to Napoleon.

A possible third option is whether to create a Europe-only accounting rule book – a move which would severely hamper ASB plans.

Mackintosh said he was discussing the issues with Europe.

“It is going to be critical for us to work through this with Europe and come to a sensible offer,” he said.

Further reading:

IASB's workplan for IFRS: IFRS for SMEs