Giving a lie to profit maximisation

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Companies are, according to many of their directors, meant to profit maximise. Indeed, some claim that is their legal duty (although there is no such obligation imposed by UK law in such bold terms). Many of them use this as their justification for tax minimisation.

So it’s therefore amusing to read in Accountancy Age that most CEOs and board directors do not understand International Financial Reporting Standards. Since these lay down the rules which now define profit for all the largest companies in the UK and many other places it’s a little strange to say the least to find that those charged with profit maximising do not understand the rules by which they’re meant to do so.

But it does help explain my long held theory that in practice no board, and no FD knows how to profit maximise (as is quite reasonable since the term is borrowed from economics and relates to future returns, not the past performance which accountancy measures) and so tax minimise instead, simply because that’s something they can get their head round.

But it’s a pretty poor excuse for doing so.

And if IFRSs were written along the lines I have recommended (see comment lettr 1 on the link page) they’d be clear, comprehensible and of benefit to companies, their investors and stakeholders alike. Which makes it all the greater shame that the IASB are still delaying having a meeting to discuss this proposal even though more than 80 originations have written in support of it.