THE IASB appears ready to bow to pressure and reinsert a specific reference to the concept of prudence into the framework that underpins international accounting rules.
In an interview with Accountancy Age, Michel Prada, chair of the IFRS Foundation, the organisation that oversees the work of the IASB but does not influence the technical aspects of its work, said prudence should be reinserted into the global standard setter’s conceptual framework if it makes investors and preparers “comfortable”.
“I am a little bit uncomfortable that these philosophical issues are instated for other issues. People think true and fair view is a prudent approach, and if it is easier to make people comfortable by reintroducing a philosophical concept, then why not,” Prada said.
The IASB is currently revising and updating its conceptual framework so that it provides more guidance on measurement, presentation and disclosure. A finalised framework is expected in 2015, although the board is “not very far” from reaching a decision on the thorny issue of prudence, according to Prada.
Policymakers and investors have repeatedly urged the IASB to reintroduce prudence at the “highest level” after a specific reference to the concept was controversially dropped from its conceptual framework in 2010 in favour of the concept of neutrality.
Hans Hoogervorst, chairman of the IASB, has so far resisted pressure to reinsert prudence into the framework, and has argued that the basic tenets of the concept remain intact and visible throughout IFRS.
However, Prada has indicated the board may be willing to revise its position in light of the criticism its removal has received from regulators, investors and politicians.
According to the IASB’s May board meeting update, which took place after Accountancy Age spoke with Prada, the standard setter has tentatively decided to reintroduce prudence into the conceptual framework.
The IASB has issued amendments to its existing insurance contracts accounting standard, IFRS 4
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