Ignore FRS13 at your peril
The UK's senior financial reporting watchdog has issued a warning to auditors and companies about ignoring accounting rules on derivatives and other financial instruments.
The Financial Reporting Review Panel broke from its tradition of only publishing press releases to penalise companies for breaking accounting rules and last week issued a general warning on FRS13 – ‘Derivatives and other Financial Instruments’.
The statement sends a message to auditors and accountants to be on their guard and carefully consider whether disclosure is needed. The panel warned it has already had to take to task companies about their failure to abide by it.
The standard – the subject of a controversial consultation – forces companies to provide information on the impact of financial instruments on their profits, how risks arising could affect their finances, and how the risks are managed.
Among the companies so far rebuked for failing to follow the rules of FRS13 is Wiggins, the airport and property management company forced by the panel to restate its accounts from 1996 to 2000 earlier this year.
Other offenders made public by the panel include Ensor Holdings, the builders merchant, and Artisan, the property management company. The FRRP statement said: ‘The panel is concerned that a number of companies have not provided the disclosures required by the standard, partly on the grounds they have not issued or held any derivatives or other financial instruments during the year when, in fact, they have.’
A spokesman for the panel said: ‘It’s a general reminder to people who haven’t appreciated that the companies they are auditing could be subject to this standard and we want to make sure we get that message through.’
The Accounting Standards Board is considering proposals to change the standard to force companies to calculate financial instruments, shares, bonds, and other derivative contracts, using market values, not historical cost.
The proposals are supported by the Bank of England, however, the banks and their trade association, the British Bankers’ Association, fiercely oppose them. This week, French banks – including BNP-Paribas, Societe Generale and Credit Lyonnais – began a high-profile campaign against international standard setters introducing the same standard.
The FRRP’s website is at www.frrp.org.uk
For the proposed changes to FRS13