EU warned off piecing together own interpretation

The willingness of auditors to exercise their judgement when applying
international financial reporting standards could be severely damaged by
European proposals to issue additional guidance on the new rules, the ICAEW has
warned.

In a letter to the European Financial Reporting Advisory Group, the institute
argued that the creation of an EU IFRS interpretations group could produce reams
of additional guidance and result in auditors adopting ‘rigid and unresponsive’
practices.

EFRAG, which strongly influences EC decisions on accounting standards,
recently proposed the creation of such an interpretations group alongside the
International Accounting Standards Board’s own interpretations committee, IFRIC,
as a way of ensuring IFRS is applied consistently in the EU.

But concerns have emerged that the existence of such a committee would remove
judgement from the auditor’s role and turn the audit process into little more
than a box-ticking exercise.

‘Companies and their auditors need to apply IFRS to unusual and complex
transactions and to problems identified at a late stage through the exercise of
professional judgement, without frequent requests to standard setters to
elaborate additional rules and implementation guidance,’ said ICAEW chief
executive Eric Anstee.

‘Good practice emerges over time, through discussions between auditor and
client, between companies in the same sector and between and within audit firms
and their technical groups. A rush by European regulators to issue formal
interpretations of IFRS would stymie this evolutionary process,’ he added.

Deloitte has also expressed its opposition to the creation of a European
interpretations group. Ingebert Hisdal, chairman of Deloitte’s IFRS strategy
board, said even an urgent issues group, another suggestion from EFRAG, would
not be welcome as ‘it would not be possible to apply due process to the urgent
resolution of accounting matters’.