More News » MEPs urge EC to investigate conflicts between IFRS and EU law

EU POLITICIANS have urged European policymakers to undertake a full review of the compatibility of global accounting rules with EU law after raising concerns about the legality of IFRS.

In a letter seen by Accountancy Age, MEPs Syed Kamall [pictured] and Sven Giegold have called on Lord Hill, the new EU commissioner responsible for capital markets, to “ensure IFRS is fit for purpose” by investigating “widespread concerns” about conflicts between IFRS and EU law.

Last year, members of the European parliament’s influential Economic and Monetary Affairs Committee voted to approve EU funding for the IASB, the body responsible for setting international accounting standards, with the proviso that the funding could be pulled if the standard-setter fails to meet certain conditions.

According to Kamall, MEP for London and an outspoken critic of IFRS accounting rules, a “clear signal” was sent by the committee when it approved around €50m (£42m) of funding over a six-year period for the IFRS Foundation, which oversees the work of the IASB, and advisory group EFRAG, that a full review of the compatibility of IFRS with European company law is required because of “widespread concerns that certain IFRS have become decoupled from certain key concepts embedded within European law.”

The letter also claims that the EC, which is currently evaluating international accounting standards regulation, has so far failed to deliver on what was promised during the funding negotiations because it has evaluated, rather than reviewed, “the concerns expressed by the European Parliament about the loss of prudence from the accounting framework and the misrepresentation of the meaning of true and fair view”.

The concept of true and fair – whereby directors must consider whether, taken in the round, the financial statements that they approve are appropriate – has proved a thorny issue for UK and global standard setters.

In August last year, a group of institutional investors claimed that accounting standards are riven by fault-lines and disconnected from the requirements for true and fair accounts as set out in EU company law.

The group of investors – which included Threadneedle Investments, Royal London Asset Management and the London Pensions Fund Authority – raised “grave concerns” that the adoption of IFRS – with its emphasis on neutrality over prudence – has “dangerously weakened” the true and fair accounting concept.

The group, which has been urging the government to clarify the consistency between IFRS and company law since 2012, claimed that as long as IFRS does not require companies to disclose underlying capital reserves – and which part is available for distribution – businesses are at risk of paying dividends out of capital.

The IASB declined to comment.