Peston picks up on the possibility that IFRS are illegal

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Robert Peston has picked up on his blog the argument made by chartered accountant Tin Bush that International Financial Reporting Standards are illegal when applied to banks because as Bush argues and Peston notes:

In simple terms, what went wrong - Bush says - is that in the UK and Ireland from 2005 onwards banks stopped making any general provisions against the risk that their loans could go bad. In that sense, they stopped the long and tested practice of factoring into the cost of a loan the probability that it might not be repaid.

British and Irish banks stopped making these provisions for possible non-repayment of loans at both the level of published accounts and at the lower level of the operating units.

This was not their choice, Bush says. They were forced to do it by the way that the Accounting Standards Board implemented the international accounting standard IAS 39 as Financial Reporting Standard 26, or FRS 26.

Bush argues that the implementation of FRS26 magically made lending seem less risky and cheaper for British banks - so (guess what?) they did much more of it.

Peston’s not quite convinced, but adds:

Here's what gets Mr Bush really excited.

He thinks that FRS 26 may actually contravene the requirement of company law that banks operate in a prudent manner consistent with the protection of their depositors and creditors.

Which carries the intriguing and resonant implication that shareholders might be able to claim that they were gulled by FRS26 into believing that Britain's banks were made of bricks when they were in fact made of sand.

And that was true.

As much as it was for Ireland.

And as we were just about alone in adopting IFRS in this form why it it that we had such spectacular failures if not, at last in part, for this reason?