Big Five firm fears over ‘appropriate’ accounting policies

The firm said a seemingly well-intentioned proposal that companies should select the accounting policies that are ‘most appropriate’ may confuse individuals who are directors of more than one company and induce a state of ‘schizophrenia’.

Commenting on the Accounting Standards Board’s proposals on ‘accounting policies'(FRED 21), the firm thinks that the ASB is being too ambitious.

Peter Holgate, partner, PricewaterhouseCoopers said:’It clearly makes sense for companies to use appropriate accounting policies – and we would not want them to use those that are only marginally acceptable.

‘But there are a number of examples in accounting where two or more policies are regarded as perfectly good. In some cases both are specifically permitted by the Board’s standards.

‘For example, it is permissible to capitalise interest into cost of construction, and also permissible not to. A director who is on the board of two companies might well first have to believe that one thing is most appropriate and then have to believe the following day that the opposite is the case. This spells trouble.’

Overall, however, PwC said it welcomed the fact that FRED 21 updates the accounting standard to reflect the ASB’s recent Statement of Principles.

Accounting – Hello FRED, goodbye prudence; or, it’s not the money, it’s the principle

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