LAPFF warns IASB proposals fail to satisfy UK post-Brexit legal test

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first_imgFRSs used in the UK will become known as UK-adopted International Accounting StandardsEffectively, all of the powers currently exercised by EU institutions to endorse accounting standards for use in the bloc will be repatriated back to the UK.Those powers will then be exercised by a new endorsement board which will be hosted by the Financial Reporting Council.Documents obtained recently by IPE using the Freedom of Information Act reveal that the UK business department has held talks with representatives of the IFRS Foundation to licence those standards for use in the UK.IAS 1 is arguably more important than any other international standard because it is effectively the gateway through which entities pass when they first adopt IFRSs.Among the elements of the IFRS accounting model that it regulates are the minimum format and content of financial statements and important concepts such as accruals accounting and the going concern.The issue of whether the concept of going concern and the way it is audited is sufficiently robust has caught the attention of politicians in the UK following recent high-profile corporate collapses such as Carillion and Thomas Cook.The LAPFF complained that the IAS 1 going concern assessment is flawed because it “confuses management intent with the de facto position of the company”.This, the forum goes on to argue, creates a situation where, for example, auditors could, contrary to UK law, avoid liability for fraud leaving shareholders with inadequate redress.Concerns about fraud and the role of auditors in relation to capital maintenance have arisen in at least one recent high-profile UK corporate collapse, the 2019 AssetCo High Court ruling, as well as during ongoing UK parliamentary hearings.Sources familiar with the issues have told IPE they believe it is this collision of Brexit, increased political scrutiny of accounting matters and the repatriation of laws from Brussels that LAPFF has sought to tap into.The IASB has extended the comment period on the exposure draft from 30 June 2020 to 30 September 2020.To read the digital edition of IPE’s latest magazine click here. The LAPFF also said is it necessary for proposals to satisfy UK political and parliamentary scrutiny.Sparking this latest row over the compatibility of IFRSs with UK law is the board’s Primary Financial Statements project.The board launched the effort in 2017 with the broad ambition of improving how information is communicated through an entity’s financial statements.The board’s proposals center on the income statement, although they also make limited changes to the balance sheet and the cashflow statement.They will eventually require the board to replace IAS 1 with a new standard that sets out:new requirements for presentation and disclosure; andlimited conforming amendments to IAS 1.Once the UK has formally left all of the EU’s structures, it will continue to apply international standards. However, IFRSs used in the UK will become known as UK-adopted International Accounting Standards. The Local Authority Pension Fund Forum (LAPFF) has warned that proposals from the International Accounting Standards Board (IASB) to amend its lynchpin accounting standard could fail to satisfy the UK’s endorsement criteria following the country’s departure from European Union institutions on 31 December.In a sharply worded comment letter on proposals to amend International Accounting Standard 1, Presentation of Financial Statements, the forum warned that without “further substantial changes” the new IFRS “as it stands is un-endorseable”.LAPFF chair Doug McMurdo told IPE: “The IFRS system doesn’t stand up to legislative scrutiny. The model has been engineered to avoid dealing with going concern, capital and profits.“Each depends on the other, but the IFRS system doesn’t deal with any of them properly and/or effectively.”last_img

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