BusinessCorporate FinanceCritics hit out at ‘get out of jail card’ for companies

Critics hit out at 'get out of jail card' for companies

Tax campaigners hoping to force greater disclosure of tax arrangements on a country-by-country basis have backed condemnations of a new standard that critics say hands too much control over figures to company management

Richard Murphy, of the Tax Justice Network, said the IFRS8 standard allows
for companies to change the segments on which they report, leading to
‘incomparability’ of the accounts from year to year. His criticisms see him line
up alongside UK investors opposing the new standard.

‘According to the standard, the data doesn’t have to reconcile with the
auditor’s accounts, which is staggering. And they don’t have to use the same
process of accounting for segments as they do for the rest of the accounts.
Therefore the accounts are totally and utterly open to manipulation,’ said
Murphy.

His comments come on the back of criticism by investors through the
Investment Management Association – responsible for the management of £3trillion
in funds in the UK and abroad.

The standard states that segment reports are based on internal reports
reviewed by a ‘chief operating decision maker’ who must also decide which
segments to report on.

‘There is no guidance as to who the chief operating decision maker is – is it
the board, executive management or a member of senior management?…The amount of
detail reported will differ according to the seniority of the chief operating
decision maker and may not necessarily result in the disclosure of useful
information,’ the letter said.

An investor from IMA said this week: ‘The more that you read into the
standard, the more scope there is for this being a “get out of jail card” for
the unscrupulous, e.g. setting budgetary structures to suit opaque financial
reporting.’

Australian academic, Mark Hughes commented: ‘The report should be based on
standards that are designed to produce an image more like an impressionist
painting in the style of Van Gogh, rather than something from Picasso’s
experimental period.’

Deloitte partner and IFRS expert Ken Wild said he was surprised the investors
were coming out with their reservations ‘so late’.

‘I wouldn’t have gone down this route without more research and argument,’
said Wild.

‘But having gone the route, the European rejection is too much of a blunt
tool for the purpose of stopping it. And it would be very unfortunate to use a
blunt tool which will prevent the standard being used in Europe when it has been
agreed in the rest of the world… it could produce a chasm between Europe and the
rest of the world again.’

For more information see www.iasb.co.uk

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