The Financial Reporting Council (FRC) and the Department for Business Innovation and Skills (BIS) have confirmed that all accounts prepared in accordance with UK or International Financial Reporting Standards (IFRS) are compliant with UK and EU law.
The government and regulatory watchdog were forced to issue the rebuttal following the publication in April of a legal opinion from George Bompas QC prepared on behalf of a group of investors, which argued that the use of IFRS does not always mean a company's accounts provide a true and fair view as required under the Companies Act.
In a statement issued 3 October, Jo Swinson, minister for employment relations and consumer affairs, said the government is 'entirely satisfied that the concerns expressed are misconceived and that the existing legal framework, including international financial reporting standards, is binding under European law'.
The FRC has released a letter, signed by chairman Baroness Hogg, which states the regulator has taken independent legal advice from Martin Moore QC which accords with this view. Both the FRC and BIS state that 'in preparing financial statements, achieving a true and fair view is the overriding objective' and 'in the vast majority of cases, this will be achieved by compliance with accounting standards'.
Where this is not the case, IAS 1, Presentation of Financial Statements paragraph 19 and FRS 102 The financial reporting standard applicable in the UK and the Republic of Ireland paragraph 3.4, allows that where compliance with an accounting standard may not achieve that objective, the standard may be overridden. The FRC says it will continue to discharge its responsibilities in relation to the monitoring and enforcement of reporting on that basis.
The FRC and BIS highlight a number of areas where they would like to see improvements in international financial reporting standards and the International Accounting Standards Board's (IASB) Conceptual Framework, and the FRC says it will be working to influence future development.
For example, they want stewardship reporting included in the framework as a primary objective of financial reporting and not as a subset of the provision of decision-useful information. They also want to see the concept of 'prudence' explicitly acknowledged, and say clear principles are needed to describe when specific approaches to measurement, such as fair value, should be used so that financial reporting presents movements in fair value clearly and appropriately.
Responding to the FRC statement, Liz Murrall, director of corporate governance and reporting at the Investment Management Association, said: 'The IMA agrees that companies should over-ride accounting standards if in exceptional circumstances it is necessary for their accounts to show a true and fair view. We also support the call for improvements to IFRS such that accountability and prudence are given more recognition in the conceptual framework.'
Martin Moore's legal opinion is available on the FRC website, click HERE
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