Those of us who campaigned on segment reporting and IFRS 8 have long complained that the governance structures of the International Accounting Standards Board are not good enough. We know; we tried to engage with it and all we got was rebuff after rebuff. That's one reason why the European Parliament was so critical of the IASB this week.
Now Charlie McCreevy, the European Commissioner with responsibility for accountancy matters has waded in and, according to Forbes has said:
As IFRS are becoming the global standard the time is ripe to address the issue of the governance and the accountability of the International Accounting Standards Board.
Funny how it took a campaign by a small group of NGOs to make him realise that.
These are, though, just words. The IASB issued fine words to us last September. Nothing happened. I hope McCreevy and the EC do better. One thing they should know: we're not going away.
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Your work on segment reporting is no doubt worthy but, surely, investors have greater concerns with other IASB proposals?
Take the question of “own credit default”, for example. Under this concept —outlined in detail in US accounting standard SFAS 157- the IASB, increasingly converging with US accounting standards, considers debts should be accounted for at a reduced current value to reflect the possibility that a company could not afford to pay them in future. For example, if a company owed an amount of 1,000 (under an insurance policy or under a loan, say) it would report a reduced debt of 800 if it estimates there is a 20% chance it won’t be able to pay in the end and, as a result, show an immediate profit of 200!
Such practices, to which insured people—for example- would no doubt object if consulted, will obviously boost share values to the detriment of insurance policies or loans. However, shareholders investing at a “boosted price” might also have grounds for complaint as future earnings will necessarily go towards paying back the full amount of 1,000 —and not towards dividends- if the company remains a going concern!
Is there anything in European Law that prevents accounting for “own credit default” or will the investment community have to sue companies for such irresponsible accounting?
Perhaps your committee/community would care to comment on this.