Earth tremors for IFRS

The world of accountancy was jolted by something of an earth tremor today as the UK’s chief supervisor of financial reporting, the FRC, revealed that it was considering a different set of accounting measures for banks.
The move will encourage those who have argued - in a debate growing increasingly vociferous - that banks should not have been using International Financial Reporting Standards (IFRS).
The FRC’s chief executive Stephen Haddrill (left) made the concession at a conference today staged by the accountancy firm Ernst & Young.
He is reported by Reuters to have said: “To what extent, for the purposes of our work, should banks be regarded differently?" He added: “"Should they have a separate code and their own accounting standards?" While not going so far as to emphatically say they should, Haddrill now has a working party examining the issue.
Haddrill is not the first to point at the growing disquiet with IFRS. Earlier this year Andy Haldane, a member of the board of the Bank of England, the new regulator of banks in the UK, said separate accounting standards were required for them.
The claim is that the current accounting precepts embodied in IFRS allow banks to indicate they are more healthy than they really are.
With the Bank of England is banging the drum, the FRC probably came to conclude it had little choice but to join in. It’s unlikely that its leadership could have seriously believed it could set itself in opposition. Things just don’t happen like that in the City.
Haddrill’s declaration was immediately welcomed in some quarters. PIRC, a lobby group for shareholders issued this uncompromising statement through a spokesman: “IFRS has been a fiasco since introduction. The French were consistently critical and warned of the implications for banking stability. The ability of IFRS to make any insolvent company appear solvent is deeply embedded in the philosophy of the IASB. Now is the time to ask, how on earth could it happen when these people were supposed to be experts. The IASB is about to embark on insurance, having so far left that sector to UK GAAP, heaven help what problems will lay in store there.”
The news will be a blow to the International Accounting Standards Board (IASB). Intriguingly its chairman, former Dutch finance minister Hans Hoogervorst, will be speaking tonight at the London School of Economics. His comments should attract much attention from the accounting world. He will certainly not concede that IFRS have been a fiasco (though he has been concerned about the body’s current work schedule). But could he even hint that bank’s may be a special case for accounting rules? There is some added pressure because the IASB is still working to converge its standards with the US. The FRC’s move may just give ammunition to those across the Atlantic who argue the country is fine with its own national rules.


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