RegulationCorporate GovernanceVodafone attacks ‘costly and burdensome’ code change

Vodafone attacks ‘costly and burdensome’ code change

Shell, Hilton Hotels and Vodafone among companies urging ASB to rethink accounting rule changes

The UK’s biggest companies have attacked prop­osed changes to the UK
accounting code as potentially costly, pointless and painstaking for large
business.

The companies have together urged the Account­ing Standards Board (ASB) to
rethink plans to replace the current UK accounting rule book, known as UK GAAP,
in favour of new international standards for small and med­ium-sized businesses
(SMEs).

Their concerns focus on whether the rules may affect the thousands of listed
subsidiaries of UK companies.

Intel have called the plans “costly and time consuming”. Deutsche Bank want
special exemptions. BP believes the rules could result in a “continuous burden
of reconciliation”.

Their voices joined Shell, Hilton Hotels and Vodafone in opposition to
elements of the ASB’s proposals.

The new international standards, originally released by the International
Accounting Standards Board last year, were designed for non-listed companies
which make up an estimated 99% of the world’s businesses.

In the UK these businesses use UK GAAP, widely acknowledged to be cumbersome
and in need of replacement. However, the proposed rules would also apply to
subsidiaries of large, listed companies.

Vodafone said in its submission it feared it could increase the accounting
burden for these subsidiaries which will have to choose whether to use either
the new international ­standards for SMEs or the more burdensome accounting
codes of their parent ­companies.

Paul Stephenson, director of financial reporting at Vodafone, said the ASB’s
plans will be costly and burdensome when calculated across all its subsidiaries.

“The vast majority of our entities are either dormant or are entities holding
direct or indirect investments in other group companies…these entities rarely
have external creditors and, typically, the only external users of these
financial statements are the tax authorities,” he said.

The effect will not be limited to Vodafone. Listed companies rout­inely keep
a store of dormant subsid­iaries, which require minimal accounting treatment
under current rules. Stephenson would prefer subsidiaries be permitted to
disclose less or continue under current rules.

“We do not believe that the proposal to replace UK GAAP for UK subsidiaries
of listed companies is beneficial to users, or to us as preparers,” he said.

“We believe that the costs of compliance will exceed any perceived benefits,
particularly when extrapolated across a large number of subsidiaries.”

Vodaphone-quotes

Within the ASB there are fears a subsidiary-specific exemption may prove
unwieldy, forcing the board to examine each new accounting rule
and decide whether it should apply to subsidiaries.

Ian Mackintosh, chairman of the ASB, said he was aware of the issue and
believed it was likely to be discussed after submissions were read.
“I’m sure it will be one of the issues on the table,” he said.

The issue is one a raft surrounding the ASB’s proposed changes.

The standards will also need European approval to come into effect. Debate in
Brussels has centered on whether to mandate use of the SME standards across all
EU member states or allow voluntary adoption by each nation.

France is among the nations resisting efforts to man­date use of the SME
standards, owing partly to the evolution of their account­ing and taxation
systems, which dates back to Napoleon.

A possible third option is whether to create a Europe-only accounting rule
book – a move which would severely hamper ASB plans.

Mackintosh said he was discussing the issues with Europe.

“It is going to be critical for us to work through this with Europe and come
to a sensible offer,” he said.

Further reading:

IASB’s
workplan for IFRS: IFRS for SMEs

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