The Local Authority Pension Fund Forum (LAPFF) said this week that IFRS9, an accounting standard for banks’ treatment of financial instruments written by the International Accounting Standards Board, fails to meet core legal standards.
The LAPFF sought legal opinion from QC George Bompas who concluded that international standards do not require an obligation to give a “true and fair view” in accounts.
Bompas also concluded that international standards have not been drafted to calculate “distributable profits”, a central aim of accounts in law. His opinion states that if distributable profits are not at the heart of the accounting, then they cannot give a “true and fair view”.
Cllr Kieran Quinn, chair of LAPFF, said: “LAPFF’s independent approach has far reaching consequences. Because the ‘true and fair view’ requirement of European law has its origins in UK law, any defective legal position taken by the FRC [Financial Reporting Council] will not only have compromised the FRC’s position in the UK and Republic of Ireland, but it will also have misinformed the position of EFRAG [European Financial Reporting Advisory Group], as well as the Commission, for the whole EU.”
The LAPFF attacks the FRC, the UK’s accounting regulator, for supporting IFRS9, and for relying on advice it received from the Institute for Chartered Accountants in England and Wales (ICAEW), one of the UK’s professional bodies for accountants.
LAPFF also called for an independent review of the process for endorsing international financial reporting standards.
An FRC response said the issue was “extensively” examined by legal advisers to the department for business, innovation and skills (BIS), and in an FRC statement in 2013 as well as updated guidance in June 2014.
“The June 2014 statement reconfirmed [that] the presentation of a true and fair view remains a fundamental requirement of financial reporting and covered the application of the requirement under IFRS and updated a previous statement from 2011,” the FRC told Board Agenda.
“In October 2013 BIS and the FRC confirmed [that] the legal framework requires companies to present a true and fair view following [the] QC’s opinion. This followed an earlier challenge based on an opinion by George Bompas and the LAPFF.”
IFRS9 covers issues relating to the classification and measurement of financial instruments, a new “expected loss impairment model” and a fresh approach to hedge accounting.
