IASB » Tax Research UK

UK bank accounting rules ‘fatally flawed’

Aug 262010

There’s a long article in the Telegraph this morning under the above title.

The article refers to the work of UK chartered accountant Tim Bush who has massive concerns about the credibility, and even legality of International Financial Reporting Standards. bevasue I have spent many hours working with Tim on this issue I rake the liberty of reproducing the article in full:

An influential watchdog has written to the Department of Business listing a catalogue of staggering regulatory errors that allegedly contributed to the collapse of several banks in 2008 – and still threatens the system today.

While reviewing the proposed expansion of the International Financial Reporting Standards for accounting, Tim Bush, a member of the “Urgent Issues Task Force” that scrutinises the work of the Accounting Standards Board (ASB), claims to have uncovered “fatal” and “dangerous” flaws in the system.

The City veteran has argued that applied to banks, the standards “produced false profits and overstated capital” which have “misled creditors, misled shareholders, the Bank of England, FSA and others”.

In a devastating assessment, Mr Bush alleges the regulations, and specifically the way they have been implemented in the UK and Ireland, have led to “mistakes [being made] of such severity that it is difficult to overstate”.

His letter, written on August 19 and sent to the BIS as well as the ASB and other accounting bodies, claims:

* The ASB has “not fully understood” the IFRS accounting standards and implemented them in a way that even contravenes the Companies Act. As a result, UK and Irish banks have wrongly relied on a different – and flawed – financial reporting system from the rest of Europe.

* The application distorted bank’s company accounts, giving “false assurances”, and hampered the directors and regulators from seeing the build-up of leverage and other risks.

* The system is still “causing direct business risk” in the banks and will do the same if applied to other companies too.

* The dangers are set to spread to small and medium-sized businesses under proposals to roll-out the accounting system further.

According to Mr Bush, who was formerly a fund manager at Hermes, the root of the “fatal flaw” lies in the adoption of the new IFRS accounting system to work alongside the Companies Act, whose rules had applied to financial reporting in Britain since 1879.

Although the IFRS system was introduced in the wake of the Enron scandal to combat accounting fraud, it has been widely criticised by accounting experts across Europe.

Mr Bush has argued that the standards preclude the principle of “prudence”, or the likelihood of money being repaid, disguising, for instance, a bad loan until it actually fails. But Mr Bush has claimed that while European banks applied the standard at group level, Britain’s ASB said that all bank units and subsidiaries should use the same measures, too.

The standards also applied to the Republic of Ireland, where the ASB is one of the last remaining British bodies to have any jurisdiction.

In his letter, Mr Bush wrote: “Although IFRS had been rolled out across the EU, the UK and Ireland implemented it so extensively that the impact was different. It has been a ‚Äòdouble dose’ to the extent of being a deadly dose, by removing what had underpinned banking solvency for over 120 years.”

He said the system produced figures that hid instability in banks, so that directors and regulators of the banks could look at the audited figures and conclude that banks were not just solvent but had excess cash.

As for banks in the lead-up to the financial crisis: “They did not have the capital that they presented, and they were not going concerns. The true situation was that business models were loss-making and actually consuming capital.”

Mr Bush wrote: “In engineering terms it was like a signalman sending a train down the wrong track. The UK had the first failing bank, Northern Rock, which only the month earlier appeared to have so much capital it applied to reduce it. IFRS merely reports the train crash rather than prevents it.”

He said the system is still flawed and urged the Government to scrap plans to extend the standards. “In my view, the direction that the ASB took, and is still taking, is‚Ä¶ causing direct business risk.”

He added: “The proposed further roll-out of full IFRS and the IFRS for SMEs has the same fundamental flaws as what has gone so badly wrong in the banks, a level of apparent compliance that undershoots what the law requires. It is difficult in the extreme to envisage Parliament knowingly assenting to a model of company accounts that dilutes the responsibilities of auditors at the same time as offering less for directors, creditors and the wider public interest.”

The ASB could not be reached for comment.

I’ve read Tim’s letter – and his submissions to the forthcoming House of Lords review of auditing and the banking crisis and think they’re a wholly appropriate analysis of the situation – and the misunderstandings on the part of regulators and auditors as to what their duties were and are.

And if Tim is right – and I think he is – the case against bank auditors is compelling, and cannot be avoided by claiming they relied on IFSR alone. UK company law has priority – and I think they ignored it.

Is the IFRS for SMEs fit for purpose in the UK?

Accounting, IASB 5 Responses »

Aug 122010

I note there is a debate going on at AccountingWEB on the suitability of IFRS for use in the UK, and especially with regard to small and medium sized enterprises (SMEs). This is an entirely appropriate discussion, but I’m not sure that the proper reasons have been noted.

Let’s be candid about why small businesses need statutory format accounts, in law. there are, fundamentally, three such reasons. The first is to satisfy the tax authorities that they are declaring the right amount of taxable income.

The second is to ensure that if a dividend is paid it is legal – because there are serious ramifications if they are not, for both tax purposes and in company law.

Third, and not so obviously clear, but a fact none the less, is that is accounts prepared under the requirements of company law are true and fair – as they should be – then they show if the company is trading solvently or not, and that protects the directors from allegations of wrongful trading if anything then goes wrong and the company goes into liquidation. This happens to be related to the objective related to the payment of dividends – because of the company is solvent enough to pay a dividend it is also solvent enough to pay its creditors, which makes this a pretty big deal.

It is then astonishing that the International Accounting Standards Board ignores these issues when it comes to the proposed International Financial Reporting Standards for smaller entities – the so called International FRSSE. When deciding on the objectives for this standard they said:

The Board decided that determination of taxable and distributable income should not be added to the objectives of financial statements of private entities.

To put it another way – the accounts they’re suggesting be prepared by smaller enterprises under the rules of their FRSSE will not be suitable as a basis for determining tax liabilities and give no clue as to whether the company is solvent or not.

The very reasonable questions can hen be asked:

– what use have they?

and

- why does small business want these accounts?

and

- would these accounts be legal under UK company law?

Perhaps Sir David Tweedie would like to comment.

Or any member of the UK Accounting Standards Board who seem sold on this project, come to that.

G20 demands more involvement from stakeholders in the IASB – but will they listen?

Country-by-country, G20, IASB Comments Off

Jun 072010

The G20 finance minister’s communiqu?© says:

We expressed the importance we place in achieving a single set of high quality, global accounting standards and urged the International Accounting Standards Board and the Financial Accounting Standards Board to redouble their efforts to that end. We encouraged the International Accounting Standards Board to further improve involvement of stakeholders.

This is, of course, totally appropriate. Stakeholders are probably the biggest users of accounts. And they come in a wide variety of forms – as I have documented in this briefing sheet.

More importantly, this is happening at the time that the IASB has published a response to the biggest ever demand to the IASB that it consider stakeholder needs. This is, of course, the demand that it supply country-by-country reporting for the extractive industries. My full response to that IASB proposal is published here.

The most telling feature of that IASB response is, however, the refusal of the IASB to consider the needs of stakeholders when setting accounting standards. As they say in their report (6.11):

In Chapter 1 the project team proposed that, for the purposes of this discussion paper, financial reporting should be regarded as including information that:
(a) helps users of financial reports to make decisions;
(b) can reasonably be viewed as being within the scope of a complete set of financial statements; and
(c) meets a cost-benefit test.

The IASB, however, notes (6.10):

the Framework indicates that financial reporting is primarily directed to meet the needs of existing and potential equity investors, lenders and other creditors (ie capital providers). Information that is useful to capital providers for making decisions may also be useful to other users of financial reporting. These other users include suppliers, customers and employees (when not acting as capital providers), as well as governments and their agencies and members of the public.

In other words, the IASB explicitly rejects the notion that stakeholders have any interest in financial statements and refuse to recognise their needs because they deny they exist.

In that case what chance is there that the IASB will do as the G20 asks?

Without an explicit response – or without explicit movement on the issue of country-by-country reporting – which is now the biggest campaign for accounting information ever mounted by civil society – there is no chance of thinking that they will meet the G20’s reasonable demand.

That leaves the G20 with one option: the IASB will have to be taken under international control.

New briefing – the benefits of country-by-country reporting

Accounting, Country-by-country, IASB Comments Off

May 272010

When in Norway earlier this week I was asked what the benefits of country-by-country reporting are.

It was a good question. It deserved a full answer.

As a result a new briefing sheet on his issue has been published today. It’s available here. Comments are welcome.

The benefits are summarised in this table:

Data to be disclosed under country-by-country reporting	Information need met
1. The name of each country or jurisdiction in which a multinational corporation operates;	¬? Discloses geographic spread of the multinational corporation ¬? Advises host communities of the presence of the multinational corporation in their jurisdiction ¬? Indicates presence in locations likely to be subject to geo-political risk ¬? Indicates exposure to local regulatory and tax regimes.
2. The names of all its companies trading in each country or jurisdiction in which it operates;	¬? Identifies completely and accurately the full groups structure of a multinational corporation, a feat rarely possible at present ¬? Lets a multinational corporation be properly identified in the host communities that facilitate its activities ¬? Allows those engaging with a multinational corporation locally to identify ultimate responsibility for the entity with which they are trading ¬? Ends the corporate culture of secrecy about activities in many jurisdictions, whether they are secrecy jurisdictions or not ¬? Means a multinational corporation is accountable for all its actions – a pre-condition of corporate social responsibility.
3. Sales, both third party and with other group companies. Sales information will also require additional analysis. If sales to any state are more than 10% different from the figure from any state then data should be declared on both bases so that there is clear understanding of both the source and destination of the sales a multinational group makes	¬? The extent and direction of sales flows by multinational corporations will be documented ¬? The full extent of intra-group sales will be understood for the first time ¬? The use of tax havens / secrecy jurisdictions as locations for the routing of intra-group transactions will be properly understood ¬? The splitting of sales from the location in which a service is received from the jurisdictions from which they are billed will be capable of identification, an issue of particular significance in services where limited data on sales flows is currently available ¬? The relocation of sales for tax purposes will be identifiable ¬? The risk inherent in internal supply chains will become apparent
4. Purchases, split between third parties and intra-group transactions	¬? This data is requested to complement that on sales: when the sales of a multinational corporation from a jurisdiction are largely matched by intra-group purchases it is likely the jurisdiction is being used for re-invoicing purposes and transfer mispricing may be taking place: a cause of concern to almost all tax authorities ¬? The extent of outsourcing in source jurisdictions likely to be at the start of supply chains can be identified, especially when compared to labour data (see below) ¬? The vulnerability of supply chains can be identified ¬? By comparing intra-group purchases and intra-group sales likely intra-group supply chains can be established ¬? Sourcing from locations with high geo-political risk should be identifiable
5. Labour costs and employee numbers	¬? The organisation of labour by jurisdiction within multinational corporations can be identified ¬? Unusual incidence of value added in proportion to labour cost can be identified ¬? The likelihood of outsourcing can be identified ¬? Average reward per employee by jurisdiction can be calculated ¬? Trends in labour relationships over time can be monitored
6. Financing costs split between those paid to third parties and to other group members	¬? Financial flows indicate where financial assets and liabilities are located within and beyond multinational corporations: disclosure of income and payments, especially on an intra-group basis will indicate the extent to which profits are relocated through the use of debt that creates internal and external financial risk within the multinational corporation
7. Pre-tax profit;	¬? Pre-tax profit is, without exception, the principle starting point for determining: o The location of retained reserves o The ability to finance activity without recourse to third parties o The likelihood of ongoing financial stability of the entity o The potential for making payment of taxation liability on income arising ¬? Pre-tax profits located in many countries where there is considerable corporate secrecy are currently wholly unascertainable ¬? The presence of significant profit in locations where most purchases and / or sales are intra-group might indicate artificial relocation of profits ¬? The absence of profits in locations where it would be expected there should be considerable value added e.g. in source locations for extractive industry supply chains, might indicate transfer pricing issues ¬? Persistent losses in a jurisdiction might indicate the misallocation of resources by a multinational corporation, as might strongly differing profit rates between jurisdictions ¬? Significant profits arising in politically sensitive jurisdictions might indicate vulnerable future earnings ¬? Significant earnings in tax havens / secrecy jurisdictions might indicate high tax risk or unsustainably low tax charges indicating a likely change in future after tax earnings ratios ¬? Significant profits arising outside a parent company location where corporate taxation is assessed on a remittance basis might indicate limited access to funds for dividend distribution purposes
8. The tax charge for the year split between current and deferred tax;	¬? The extent to which a tax charge is expected to arise when compared to headline tax rates indicates the effectiveness of a tax regime in capturing income for tax assessment purposes ¬? The degree to which corporate tax liabilities can be deferred indicates the existence of incentive allowances out of alignment with economic costs incurred, and indicates future potential reversal and erratic cash flows ¬? The ratio of tax paid to profitability across jurisdictions is at present unknown: country-by-country reporting would provide it and indicate the extent and nature of cross border tax planning and international tax arbitrage ¬? If a declared tax rate appears aberrant it may indicate unsustainability
9. The actual tax payments made to the government of the country or jurisdiction in the period;	¬? It is not accruals made for tax that allow governments to meet their obligations – it is cash in its bank accounts that allows it to do that: cash paid is the ultimate proof of tax settled. This data is currently entirely unavailable and as such the contribution of multinational corporations to individual national economies is very hard to assess ¬? It is cash that is the subject to corruption: it is cash for which governments have to be held to account. This data is vital for that purpose ¬? Cash settlements of less than liabilities declared in earlier years suggest the presence of undetected tax planning or corruption. In either case the effectiveness of the tax regime of the jurisdiction is in question.
10. The liabilities (and assets, if relevant) owing for tax and equivalent charges at the beginning and end of each accounting period	¬? This data is required to undertake an overall tax reconciliation for a jurisdiction: tax due at the beginning of the period plus the current tax charge for the period less tax paid should equal the closing liability. If it does not there is indication of irregularity in accounting or in the statement of taxes due, in either case worthy of investigation ¬? The failure of a jurisdiction to collect tax owing to it is indicated by this data: if tax outstanding relates to more than one year prime facie there is a tax collection problem within the jurisdiction or the entity is declaring liabilities in its accounts that are inconsistent with those declared to tax. In either case problems are indicated
11. Deferred taxation liabilities for the country or jurisdiction at the start and close of each accounting period.	¬? Deferred taxation indicates any of these things: o Excessive allowances offered by he jurisdiction o The existence of significant tax avoidance o A non-alignment of taxation with underlying economic reality ¬? In each case there is cause for concern
12. Details of the cost and net book value of its physical fixed assets located in each country or jurisdiction and 13. Details of its gross and net assets in total for each country or jurisdiction in which operates.	¬? Without indication of the capital dedicated by a multinational corporation to a jurisdiction it is not possible to calculate: o Rate of return on capital employed in the jurisdiction and to compare these o To determine whether capital invested justifies the level of profit reported o To determine whether capital assets are being appropriately allocated to support labour productivity, or not o To determine where assets and liabilities are likely to be within a group and whether they are as a consequence available a) to shareholders and b) to creditors
14. A full breakdown of all those benefits paid to the government of each country in which a multinational corporation operates broken down between the categories of reporting required in the Extractive Industries Transparency Initiative if the multinational corporation is engaged in extractive industry activities	¬? Required for all the reasons noted by the Extractive Industries Transparency Initiative

As noted: these benefits from the data noted are indicative and should not be considered complete.

In combination it is suggested that this data would contribute to the benefits users of the financial statements of multinational corporations would secure from the transparency created by country-by-country reporting.

In summary, country-by-country reporting would:

Provide a stakeholder view of accounting;
Create reporting of results by country, without exception, which has previously been unknown;
Provide a new view of corporate structures;
Impart a new understanding of what the business of a corporation is, and where it is;
Opens up a new perspective on world trade because intra-group transactions would be reported for the first time in multinational company accounts;
Give a new view of world labour markets;
Create an entirely new tool for geo-political risk profiling of companies;
Permit better appraisal of corporate contributions to the governments that host their activities and in the process contribute to constraining corruption on the part of some recipient governments;
Provide better awareness of the true extent of tax haven activity;
Allow measurement of tax lost through tax planning by corporations through the relocation of profit;
Provide a better understanding of the physical resource allocation of the corporate world.

It is for these reasons that the data it can supply is requested by those campaigning for its introduction.

New briefing sheet – who are the users of accounts?

Accounting, Country-by-country, IASB Comments Off

May 262010

A new briefing sheet on who might be considered the users of accounts has been published by Tax Research LLP today. It’s available here.

The briefing is, of course, produced in response to the International Accounting Standards Board claim that only capital providers can be considered proper uses of financial statements – all other users having to make do with the information capital providers need, as decided upon by the IASB.

The paper argues that the IASB is wrong – and goes on to show that their claim is in conflict with their own constitution and long held views by accounting standards setters.

There’s no doubt the IASB is going to have change its position on his issue or its whole project will come to an end as legislators realise that the IASB is refusing to act in the public interest. In which case the time for change is soon.

Accountancy is political – and owes a duty of care to governments

Accounting, Country-by-country, IASB 1 Response »

May 262010

I took part in a fascinating debate in Oslo yesterday. Unfortunately as the discussion was under Chatham House rules (for all bar me – I made clear that I was on the record) I cannot attribute comments. Suffice to say that the debate included informed commentators from standard setting bodies, governments, unions, the investment community and more besides, all having an interest in country-by-country reporting. The meeting was excellently organised by Publish What You Pay in Norway and investors with a passionate interest in country-by-country reporting coming to fruition.

As my presentation made clear – I am highly critical of the discussion paper on the adoption of PWYP’s request for country-by-country reporting in the extractive industries. I can safely say I was not alone in holding this opinion, but what also became clear was that there was enormous sympathy from some present for the major propositions that I developed in debate.

The first such proposition was that he IASB was being disingenuous in suggesting that the adoption of country-by-country reporting was dependent on a cost benefit analysis when at the same time they said all the benefits PWYP expects to flow from its adoption cannot be taken into account in that appraisal. In other words they have ruled all costs of country-by-country reporting eligible for consideration and just about all benefits arising from it being ineligible for consideration. That really does look to me like the IASB are rigging the outcome in advance of the decision being made. I am not alone in thinking so. I think this profoundly unacceptable.

Second, there was considerable sympathy for my argument that the IASB have made a profound error of judgement by suggesting, particular in the context of this issue, that the only users of financial statements are capital providers – shareholders, loan creditors and maybe (at a push) other creditors in other words, but only in the context of creditors being owed money. In addition there was widespread agreement amongst the non-accountants present that users of accounts use them for a much wider range of purposes than appraising the future likely cash flows that might arise from the reporting entity in the future.

In support of my argument I drew attention to the 1975 report from the UK Accounting Standards Steering Committee, which pretty much got the whole accounting standards setting process under way outside the USA. In that seminal, and still invaluable report entitled The Corporate Report they defined seven user groups for accounts, who they said were:

¬? The equity investor group (shareholders)

¬? The loan creditor group (banks and bondholders)

¬? The analyst-adviser group who advise the above groups

¬? Employees

¬? The business contact group

¬? The government

¬? The public.

And they identified fifteen uses for accounts, which included:

The compliance of the entity with taxation regulations, company law, contractual and other legal obligations and requirements (particularly when independently identified);

As I pointed out, 35 years after that report was published the IASB has eliminated the vast majority of users from consideration in their work whilst we have no better information on the legal compliance of a reporting entity than we did in 1975.

The surprising reaction to this from an accounting standard setter present (and I stress, I do not say who, or with which standard setting authority) was that accounting standards authorities owe no duty to governments because they do not consider governments to be users of accounts.

In front of an audience including senior representatives of governments that was a shocking thing to say. It should, I think, shock all accountants. But maybe it won’t, for he continued by claiming he could see no reason why accounts information should be provided for the benefit of anyone but capital providers.

I made the observation that what had been said was a profoundly political statement. There could be and was no evidence base for his claim bar political prejudice: indeed the fact that hundreds of civil society organisations around the world were demanding accounting data for their use was evidence that the claim had to be wrong. And the fact that the vast majority of governments – and almost all those of populous democratic states – were dependent on the truth and fairness of accounts as the basis for charging taxes – proved that prima facie that the claim made was completely incorrect.

Indeed, worse than that – I suggested the claim made was contemptuous of democracy. Standard setters now expect their standards to be incorporated in law and yet at the same time are contemptuous of government that enacts that law and think they have no duty to government.

This is a fundamentally dangerous attitude. And because it is implicit in the International Accounting Standards Board accounting framework – and in the repeated calls from accountants for the de-politicisation of accounting standard setting – meaning in reality that they do not want to be held to account by democratic governments who have devolved responsibility to them – these comments suggest a fundamental failure in the IASB process that believes it has the right to set law – but considers itself to be beyond the rule of law and unaccountable to those who set the law.

This attitude threatens the whole IASB process.

It suggests that bringing the IASB under regulatory control is essential if it is to act in the public interest.

And it suggests that accounting standards setters have not learned – or refuse to recognise – that the decisions they make are fundamentally political. So, for example, when they say only the providers of capital matter they make a political statement: they say labour does not matter. They say states do not matter. They say ordinary people do not matter. They say externalities such as the environment do not matter. And in every case they are wrong: profoundly wrong. All these people matter.

When the people of the world are about to bear a quite extraordinary cost imposed upon them in part by the failure of accounting to expose the risk inherent in banking the arrogane and folly of this claim is even more marked.

The battle for country-by-country reporting is massively important, The battle to ensure the worlds corporations may be more important still, and the last people to be entrusted with the future of that issue would appear to be accountants.

Which as a chartered accountant I find profoundly shocking and disappointing.

For GAAP read CRAP

Accounting, Auditing, Big 4, Ernst & Young, Ethics, IASB 6 Responses »

Mar 142010

There’s much discussion today about whether the alleged professional negligence by Ernst & Young with regard to the audit of Lehman Brothers – where it appears they turned a blind eye to the rigging of the balance sheet – might be their Enron and lead to the demise of the firm.

I’m on record as saying I think the end of at least one of the Big 4 is nigh – and with it the whole audit market.

But let’s be clear – Ernst & Youngs’ defence – that their audit complied with US GAAP (Generally Accepted Accounting Principles – pronounced ‘gap’) may be true. But that’s not the point. The point is US GAAP is crap and the Big 4 engineered that their audits do not need to report either truth or fairness.

As the rules of the IAASB (International Auditing and Assurance Standards Board), which sets auditing standards says, an audit is:

The purpose of an audit is to enhance the degree of confidence of intended users in the financial statements. This is achieved by the expression of an opinion by the auditor on whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework. In the case of most general purpose frameworks, that opinion is on whether the financial statements are presented fairly, in all material respects, or give a true and fair view in accordance with the framework. An audit conducted in accordance with ISAs and relevant ethical requirements enables the auditor to form that opinion.

The wording is not a chance: the emphasis is on compliance with the financial reporting framework first; the consequence of being true and fair is assumed to follow, but is consequential, not the goal.

So, E & Y influence the International Accounting Standards Board that sets the framework.

And they influence the IAASB which limits the scope of the audit to the point it’s useless.

And although financial statements are meant to be produced for the benefit of the providers of capital to a business (in itself far too narrow a requirement) the auditors in the UK (by reason of the Caparo decision) and in the US under Delaware law basically can’t be sued by those providers of capital.

In other words the auditors charge a lot for doing a job badly for which they know they have almost no liability. It’s not surprising they don’t really care.

It’s not E & Y who have erred here – it’s all those who let this situation develop that have erred. The accounting structures we use are rotten to the core and so is auditing. Unless both are reformed we are heading for collapse after collapse after collapse as the prevailing mood of society to promote expedient short term greed will destroy entity after entity without any check or balance in place to stop it happening.

This can be tackled.

It needs to be tackled.

Without the political will to tackle it just watch society collapse like a pack of dominos as big business begins to fail all round us.

And I think I’m underselling the melodrama in saying that.

What is true and fair?

Accounting, IASB Comments Off

Feb 172010

John Kay discusses this issue in the FT and concludes when comparing historic cost and mark to market accounting:

We are dealing with questions to which there are no right or wrong answers. The true and fair view is subjective, and no accounting principles, however extensive, can cover all conceivable situations. The appropriate measure always depends on the purpose for which accounts are properly to be used. The only certainty, however, is that these proper purposes do not include flattering the egos of corporate executives or enabling banks to take deposits on false pretences.

The reality is both simple and obvious: the one view of the corporation that does not matter to the third party is the corporation’s view of itself. This is what we’re given, but that’s the spin. The reality is we want to know the risk it poses on us by engaging with it. That’s the bottom line.

If that’s the case then the International Accounting Standards Board argument on the whole issue of standard setting is wrong.

back to the drawing board then.

Accounts are political!

Accounting, IASB Comments Off

Feb 162010

FT Alphaville ¬ª IASB softens on convergence.

The International Accounting Standards Board would no longer pursue convergence with its US peer as “an objective in itself”, its oversight body said on Monday, in a fresh sign of waning consensus on accounting rules. The IASB, which sets standards for most of the world outside the US, was nominated by the G20 to oversee development of a single accounting standard by mid-2011. But regulators and accounts say that politicisation of the accounting process will make it hard to achieve convergence of US and international standards.

So notes the FT. But it fails to note a lot in the process.

Most importantly, what it fails to note is that accounts are always political statements. No one can pretend otherwise. Capital is treated as meritorious, for example; labour is a cost to be minimised. Spending on replacing labour with plant and machinery is treated as creating an asset of value – the labour is just a loss offset. The whole process is value laden – as is the absurd claim by the International Accounting Standards Board that the only significant users of accounts are the suppliers of capital – a category that, as far as they are concerned includes labour until paid hereafter they have no interest in their employer at all.

So let’s stop the nonsense about politicisation – you could not get more political organisations that the International Accounting Standards Board, PWC, Deloitte, Ernst & Young and KPMG, let lone the Institute of Chartered Accountants in England and Wales.

The reality is we need this process politicised: we need accounting disclosure back under democratic political control where it does belong undertaken in the public interest. And if the professions can’t deliver they need to step aside and let the process be done properly.