The first accounting standard to be written by the International Accounting
Standards Board and the US Financial Accounting Standards Board has come under
intense criticism from European industry accountants, analysts and regulators.
The proposed standard on M&A transactions known as IFRS3 has been roundly
criticised for being a step towards full ‘fair value’ accounting, under which
all assets and liabilities are shown at market or equivalent prices.
The European Financial Reporting Advisory Group (Efrag) has drafted a letter
to the IASB expressing ‘major concerns’ over ammendments to IFRS3. It says the
new standard would introduce unreliable fair value measurements, and claims that
standard-setters are changing their approach without prior discussion.
Efrag’s concern is that the IASB and FASB are seeking to reinvent financial
reporting with new rules rather than harmonise the existing standards.
The new standard would have major effect on post-transaction earnings per
share as a result of M&A activity. This is a key measure of a deal’s
success, and would lead to drastic changes in the balance sheet of acquirers.
The IASB and the FASB hailed the draft as evidence that the two boards are
working as a team when it was launched in June, and a consultation period on the
new standard closes this Friday.
The EU’s internal market commissioner, Charlie McCreevy alluded to the new
standard in a speech last week when he said: ‘I will not take on board any
revolutionary new standards’.
IFRS3 already appears more unpopular in Europe than the widely criticised
IAS39 standard on financial instruments.
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