Activists launch EC law attack on segmental reporting

The holiday season means business life is on hold for many, but it hasn’t
stopped the Tax Justice Network, which has again asked the EC to reconsider
adopting the controversial segmental reporting standard, IFRS8.

Tax activist Richard Murphy has several new arguments. He claims that the
standard fails to reflect two EU legal requirements and that while the basis of
the conceptual framework – a joint effort of the IASB and its US counterpart the
Financial Accounting Standards Board – is being questioned, the EC should hold
off adopting standards, such as IFRS8, produced by the body.

The IASB has gone on record, explaining that the reason for adopting IFRS8 –
which is equivalent to an existing US standard, word for word – was essentially
a show of political goodwill, in exchange for the US regulator’s willingness to
speedily remove the requirement for non-US companies to reconcile their accounts
to US GAAP when filing there.

Murphy joins international investors and others – such as Christian Aid and
Oxfam – in saying IFRS8 gives management too much authority in choosing which
aspects to present in financial reports.

Murphy has argued in his submission that in the first instance, the fourth
directive’s article 43 (8) requires reported figures ‘to be broken down by
categories of activity and into geographical markets in so far as, taking
account of the manner in which the sale of products and the provision of
services falling within the company’s ordinary activities are organised, these
categories and markets differ substantially from one another’.

The standard would run against EU rules, he suggests. IFRS8 only requires
geographic disclosure to be split between the country of incorporation and the
rest of the world.

In the second instance, the seventh directive requires issues pertaining to
social and environmental reporting to be considered when accounts are issued,
which IFRS8 does not and which several not-for-profit organisations are
campaigning for.

Murphy’s third point is that the UK’s Accounting Standards Board and the
European Financial Reporting Advisory Group are questioning the IASB/FASB’s
endorsement of the idea that the purpose of financial reports is ‘resource
allocation decision-usefulness’.

If the EC is convinced of Murphy’s points, they could refer the standard back
to the IASB to deliberate on further.

The IASB could cave in somewhat and review IFRS8, which could amount to an
admission that it allowed the adoption of a flawed standard.

However, it’s more likely to stick to its guns and defend the standard and
its processes vigorously.

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