UK backs global accounting rules, wants 'prudence' back

LONDON Fri Oct 4, 2013 1:15am IST

The Canary Wharf financial district is seen in east London February 28, 2013. REUTERS/Stefan Wermuth

The Canary Wharf financial district is seen in east London February 28, 2013.

Credit: Reuters/Stefan Wermuth

LONDON (Reuters) - Britain still believes a specific reference to "prudence" would improve international accounting standards, but reasserted on Thursday the rules as they stand are legally binding, hoping to end any uncertainty over the matter.

Rules on how companies are audited, drawn up by the International Accounting Standards Board (IASB), are mandatory in Britain and elsewhere in the European Union, but a decision in 2010 to drop a specific reference to prudence has been questioned by some investors.

Prudence requires accountants to err on the side of caution when treating something not covered by a specific IASB rule and the investors said its omission from the foundation for the IASB's rules, known as the conceptual framework, was inconsistent with some EU and British laws.

They argued it could help banks mask any problems they were suffering, a particular concern given banks were given a clean bill of health just before taxpayers had to rescue them in the 2008 financial crisis.

One of the critics, Tim Bush of shareholder pressure group Pirc, challenged the IASB rules in a 24-page letter in 2010 in his role as member of a UK Accounting Standards Board committee.

Britain's government is "entirely satisfied that the concerns expressed are misconceived", consumer affairs minister Jo Swinson said in a statement on Thursday.

Melanie McLaren, a director at the Financial Reporting Council (FRC), which regulates accounting in Britain, said the government statement, backed by a legal opinion for the FRC, ended the uncertainty over accounting practices.

"We felt we needed to listen to the investors and give the matter due consideration. Having done that we needed to make sure we were quite firm to close that uncertainty down as we approach the financial year-end," McLaren told Reuters.

Bush said the debate over IASB rules could continue.

He told Reuters it was difficult to see how the matter is conclusively settled if there is a situation where the latest legal opinion seemed to be disagreeing with an earlier opinion and also with other judges and a Law Lord.

The IASB is reviewing its conceptual framework and the UK government and FRC maintain a reference to prudence should be reinserted.

"It's not as if there is no concept of exercising caution in the conceptual framework, but we feel it has been de-emphasized," McLaren said.

IASB Chairman Hans Hoogervorst has so far resisted such calls, saying prudence was there "in spirit".

A 2011 report from Britain's upper legislative chamber, the House of Lords, said the IASB rules led to a "culture of box-ticking and 'neutrality' at the expense of prudence", especially for auditing banks.

"The government should reassert the vital role of prudence in audit in the UK, whatever the accounting standard," it said.

The IASB had no comment on Thursday.

(Editing by David Holmes and David Evans)

Reuters Showcase

GDP Growth

GDP Growth

India revises up 2013/14 GDP growth to 6.9 percent.  Full Article 

Pharma Deal

Pharma Deal

Sun Pharmaceutical wins U.S. approval to buy Ranbaxy  Full Article 

Adani Restructuring

Adani Restructuring

Adani hives off power, ports businesses to boost growth.  Full Article 

Bank of Baroda

Bank of Baroda

Q3 net profit down 69 pct on higher provisions  Full Article 

Trading Fees

Trading Fees

BSE slashes fees in FX derivatives battle with NSE  Full Article 

SpiceJet Turnaround

SpiceJet Turnaround

SpiceJet board approves up to $243 mln share sale plan  Full Article 

Currency Market

Currency Market

RBI urges companies to hedge FX exposure  Full Article 

Banking Sector

Banking Sector

Banks say no room to cut lending rates, thwarting RBI easing  Full Article 

Reuters Poll

Reuters Poll

RBI seen holding rates steady on Tuesday, minority of analysts expect cut  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage