UK FSA risk outlook includes IFRSs
22 Feb 2007
The United Kingdom Financial Services Authority has published Financial Risk Outlook 2007.
- the move to International Financial Reporting Standards
- the convergence between IFRSs and US Generally Accepted Accounting Principles
- the concentration of audit services, and international coordination.
Inconsistent application With regard to inconsistency, the true benefit of IFRS can only be realised through enabling a better comparison of similar entities across national boundaries, which, in turn, will provide enhanced transparency for markets and a more efficient global capital market. We also acknowledge that, under a principles-based accounting framework, there may be relevant economic and legal differences between countries such that similar transactions might legitimately be reported in different ways. However, should local custom or national interest operate to threaten the consistent application of IFRS, much of this anticipated benefit could be lost. IASB Framework For the development of the IFRS framework itself, there are concerns that the standards in some areas are of lesser quality than those that they have replaced. There is also a growing concern that IFRS will be interpreted and audited in a more prescriptive and rules-based way than was typically the case under UK GAAP – a risk of more 'form-over-substance' when agreeing accounting treatments. Going forward, the main areas of concern arise, in part from convergence with US GAAP and in part from the move towards 'decision usefulness' and an increasing emphasis on fair-value accounting.... Should the move towards fair value for all assets and liabilities advance significantly, many question whether the resulting information would remain sufficiently reliable to enable investors to make informed decisions about the effectiveness of the stewardship of their companies. At the same time, the ability of the audit profession to apply judgement on what constitutes a 'true and fair' view might be ever more constrained by detailed rules, resulting in a 'presents fairly in accordance with' model of financial reporting. The progress made over the next 18 to 36 months will be critical in determining whether the potential benefits of IFRS and convergence are realised, or whether the costs connected and the ultimate outcomes experienced are potentially disproportionate, or even negative, for UK stakeholders. |