LAPFF has sent the opinion to members of the European parliament and seeks to stop the endorsement by the EU of the proposed standard applicable to bnks, IFRS 9, Financial Instruments, the new banking standard.

At today’s European Financial Advisory Group (EFRAG) board meeting, the organisation, which is responsible for endorsing any new International Financial Reporting Standards (IFRS) standards across the EU, is likely to rubberstamp adoption of the new standard.

Cllr Kieran Quinn, LAPFF chair said: ‘LAPFF has been at forefront of showing how the financial crisis started in the banks, hidden by defective accounting standards. LAPFF is always concerned where shareholder value is at risk.

‘Once again, LAPFF has taken the unusual step of seeking Queen's Counsel opinion, from George Bompas QC, a senior advocate and judge, as LAPFF did not accept the position of the FRC and its legal counsel in making various statements about international accounting standards and the law.’

‘LAPFF has for some time been challenging the position of the FRC. LAPFF believes that the FRC should be equally concerned about protecting shareholder value, and would like the FRC to step away from a clearly flawed position and join with LAPFF to call for real improvements in accounting standards so that they are in line with the law.’

One of LAPFF’s main disputes is the FRC’s interpretation of the ‘true and fair view’ requirement, which is enacted in European law and has its origins in UK law.

Quinn said: ‘Any defective legal position taken by the FRC 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, as well as the Commission, for the whole EU.’

‘The FRC hasn’t merely got the wrong end of one stick but two,’ he added.

This is a long-running dispute dating back to 2011.

Last year, in June 2014, the FRC issued a policy document reconfirming the presentation of true and fair as a fundamental requirement in financial reporting in order to clarify the position for all company preparers.

This followed an earlier challenge based on an opinion by George Bompas and the LAPFF.

As far back as October 2013, the Department for Business, Innovations and Skills and the FRC confirmed that the legal framework requires companies to present a true and fair view following its own QC opinion.

An FRC spokesperson confirmed that 'the June 2014 True and Fair statement covered the application of the requirement under IFRS and updated a previous statement from 2011'.

In the latest opinion, Bompas takes issues with two key pillars of the accounting standards and the position of the FRC:

He states that 'international accounting standards (despite what has been purported by the FRC and its counsel) do not permit or require an overarching obligation to give a ‘true and fair view’ but something different, so-called ‘usefulness’ that does not equate to the legal standard. Furthermore, that sub-standard objective fails to relate to the precise matters required of EU law, being the assets, liabilities, financial position, profit or loss as specific numbers in the accounts. The IFRS system instead applies its vague ’usefulness’ standard to basically anything in the accounts, on the flimsy basis that words can substitute for the basic numbers'.

The secondary issue he disputes is 'that if the accounts of a company do not enable a determination of distributable profits (ie, real profits) as stated in the accounts, which is a central purpose of accounts in law, then the accounts will not give a true and fair view, furthermore international accounting standards have not been drafted with this core objective in mind. The standards mix up “paper profits” with real ones, and leave out likely losses'.

The opinion also attacks the FRC counsel’s reliance on ‘defective advice’, in Bompas’ opinion, given by the ICAEW and ICAS. The ICAEW/ICAS position, he states, ‘is simply not what was provided for’ by the legislation in place then or now.

In LAPFF’s view, ‘the proposed endorsement of IFRS 9 (the proposed standard applicable to banks) would also be defective because the form of fair value accounting in IFRS 9 does not enable a determination of distributable profits because unrealised mark-to-market and mark-to-model gains are mixed up with realised profits’.

It is calling on MEPs to reject the proposals for IFRS 9 and for a full independent review of the legal processes of IFRS endorsement, to ensure the proper application of the true and fair view requirement, in terms to be set down by the European parliament.

The FRC statement on True and Fair, published in June 2014, is available here

More information is available on the LAPFF website here http://www.lapfforum.org/news/LAPFF-obtains-further-Legal-Opinion-from-George-Bompas-QC