It is time to replace the IFRS Foundation

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Just occasionally a public interest defence has to be used for quoting a significant part of an article in the newspaper. This article from The  Telegraph yesterday is one such situation:

The International Financial Reporting Standards (IFRS) Foundation’s role in governing global accounting rules is under threat after European politicians said they were questioning whether the authority was “best suited” to the position.

The London-based authority, responsible for setting standards in 100 countries, has been severely criticised by MEPs for poor governance structures, a lack of transparency and its “close links to the accounting industry”.

Last week the European Parliament approved a new £50m five-year funding programme for the IFRS’s standard setting arm, the International Accounting Standards Board (IASB).

However, MEPs attached a series of conditions to the deal and warned if they are not met, the funding could be stopped in a year’s time.

Sharon Bowles, chairman of the influential European economic affairs committee and a Liberal Democrat MEP, said: “Questions have been raised by the European Parliament about the governance structures and lack of transparency of these bodies, as well as their close links to the accounting industry.

"The release of these EU funding streams will therefore only be forthcoming upon sufficient reform to prevent conflicts of interest, which will bring about much-needed trust and scrutiny on how these highly influential public bodies operate.”

I warmly  welcome this move by the EU Parliament. It is long overdue that the IFRS  Foundation  was brought under proper public scrutiny.  It is, in my opinion, quite absurd that  most significant decisions on accounting disclosure by major multinational companies have been made by a private sector body largely under the control of and  subject  to significant influence by the accounting profession.  The result is that we have accounting standards that do not, quite expressly, meet the public purpose, and which are not, in the opinion of the IFRS Foundation suitable for use by taxation authorities, even though that body  knows that they will have to be used for that purpose because there will be  no other data on which they can assess corporation tax.

The sooner that the IFRS Foundation is replaced with a body set up to promote the public interest, that is accountable to democratic institutions and  which is specifically tasked to provide information for all users of financial statements, including stakeholders and tax authorities, the better.