Changing IFRS for European purposes could lead to incompatible standards, warns Michael Prada
THE CHAIRMAN of the IASB’s oversight body has warned Europe against amending IFRS for its own purposes as the global standard setter’s relationship with the EU becomes more fractious.
In a speech at the DCRS – the German standard setter – Michael Prada, chairman of the IFRS Foundation, yesterday warned against attempts to “tweak” IFRS for use in Europe.
“It would be easy to inadvertently cross the Rubicon. A tweak here, a failure to endorse there and very quickly you can have standards that are once again incompatible with other parts of the world,” Prada said.
“The gains of IFRS in Europe must be protected. Processes can be improved and endorsement systems can be streamlined, but the fundamental premise of Europe’s commitment to IFRS as global standards has to remain intact and undiluted.”
The IASB’s relationship with Europe has become increasingly tense in recent weeks. European parliament wants to make EU contributions to the IASB – which represents about a third of the body’s total funding – contingent on the IASB updating the way it sets international reporting standards.
As part of a series of amendments that will have payments made annually, and be renewable under conditions set by parliament, the IASB is being urged to include a specific reference to the concept of prudence in the framework that underpins the way it sets IFRS.
The clamour for prudence to be re-inserted into the IASB’s conceptual framework is growing from quarters outside of the EU. The FRC, which recently issued a robust defence of the legality of IFRS believes prudence should be explicitly acknowledged in the framework.
A specific reference to the concept of prudence was dropped by the IASB in 2010 in favour of the concept of neutrality. Hans Hoogervorst, chairman of the IASB, has so far resisted pressure to re-insert prudence into the framework, and has argued that the basic tenets of the concept remain intact and visible throughout IFRS.
The standard setter is currently reviewing the framework and according to its consultation paper, “it remains open to question, however, whether the framework should specifically refer to prudence and what precisely prudence means”.
Nevertheless, Hoogervorst has said that Europe’s attempt to influence the IASB is “highly worrisome”.
“This is something we cannot accept,” he told a meeting of his body’s advisory council on Monday, Reuters reported.
“If Europe is going to do this, other parts of the world might be encouraged to do so. It’s a threat to our independence,” he added.