IFRS Discussed at Parliamentary Hearing

Lisa Weaver, author of Managing your Transition to IFRS, reflects on the UK's Parliamentary Commission on Banking Standards focus on IFRS.

By Lisa Weaver

Last week the UK's Parliamentary Commission on Banking Standards turned its attention to IFRS. The Commission's Panel on Tax, Audit and Accounting discussed not just the accounting treatments relevant to banking institutions, but also the whole regulatory framework of IFRS, leading to criticism of the International Accounting Standards Board. Discussion at one point focussed on the alleged failings of IFRS to result in sufficiently transparent financial statements for banking institutions in financial distress.

The IASB's chairman, Hans Hoogervorst, defended the IFRS requirements, stating that IFRS showed very clearly when banks were excessively leveraged. Hoogervorst suggested that the problem is not a lack of transparency, but a lack of proper analysis and understanding of banking institutions’ financial statements, asking with reference to the financial crisis of 2007 and 2008, "Why didn't anybody pay attention?"

The Panel also criticised the IASB's overall objective of establishing high quality, globally accepted financial reporting standards. Lord Lawson, the chairman of the hearing, stated that "some would say the purpose of the IASB is to create a body that is not accountable to any government body”. This led to discussion of whether the IASB is truly independent, being financed in part by global accounting firms, and to criticism of watering down of disclosure requirements in order to encourage more countries to adopt IFRS. Academics also joined in the debate, suggesting that the true and fair view concept which underpins UK GAAP may have acted as a safeguard "to prevent what happened".

At a time when the UK is beginning a transition from UK GAAP to a more IFRS-based financial reporting regime, many will feel uncomfortable to hear such an attack on IFRS from a former Chancellor of the Exchequer.