I was amused by this comment on the blog this morning:
You call yourself an accountant, right?
If that was so, you would know that accounts are NOT “highly subjective”.
So, let's start with a fact or two. I am a chartered accountant, a member of the ICAEW and I do have a current practicing certificate issued by it. So I guess I can call myself an accountant.
And then let's get to opinion, based on fact. Accounts are, as a matter of fact, deeply subjective. It's not just me who says so. John Kay wrote in the FT recently:
There is no “right” answer to the problem of accounting for these kinds of uncertainty; only a need to acknowledge that there is never such a thing as a single true and fair view, only a range of possible outcomes. When a business has many long-term contracts, or teeters on the verge of bankruptcy, that range may be very wide.
He added:
I can see the difficulty a bank chief financial officer will encounter if they tell depositors, shareholders and regulators that annual earnings are something between a loss of $5bn and a profit of $10bn; but such a statement may be the only view of the company's affairs that is genuinely true and fair.
John Kay was right: there is no one view in a set of accounts. Even, I suggest the year end date is subjective. First, it is chosen, and we need on occasion to ask why. More important, delineation of trading into periods is itself arbitrary; the world does not really work that way. And so, thirdly, deciding on which side of that line the impact of a transaction may fall is also arbitrary. It is a matter of judgement and the impact on profit can be substantial. In that case the cut off date - the year end for the accounting period - is itself just another subjective variable in this equation.
Then there is the question of value, which is linked to the capital maintenance concept in a set of accounts. Is the company preserving physical or financial capital as its priority? And if financial, is that in nominal or current terms? What if the two are mixed, as IFRS allow? These decisions have enormous implications on profit.
And this is before we get to any issues such as cost allocation, where the range of answers is as long as a piece of string.
Even on basic issues accounts are inconsistent. In the USA inventory (stock) has to be valued on a LIFO basis and here on a FIFO basis. In a time of inflation the impact is significant. But do either really reflect the cost of what is being valued? And in that case is either right? The issue is of importance if only because it is a major stumbling block to accounting convergence. Whilst it remains it is yet more evidence that accounting data is arbitrary.
I often argue that there is no such thing as objectivity. Accounts are one of the best examples of that. They are inherently subjective and are, in the case of larger companies at least, always the subject of an opinion - that of the auditor. I was one of them for 15 years. And that opinion, for the record, is subjective - and I welcome the fact that recently that is being made much more apparent.
Which brings us back to the nature of opinion. There is good and bad opinion. By and large expertise differentiates the two - although it always. Like it or not I have the qualifications to say I am an accounting expert. You may not like my opinion. But you can't say it is wrong on an issue such as whether or not accounts are subjective when they so obviously are that they need an opinion formed on them. You can only say you disagree with my opinion. That's your right. But if the facts don't support you then it is for others to decide whose opinion carries the greater weight.
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I think another problem is that the allocation of profits/costs to different countries is also kind of arbitrary – especially when you’re dealing with the allocation of costs derived from intangibles (brands, patents, software, know-how etc).
From the Probation Blog yesterday (Not posted by me), this service has been brought to its knees.
http://probationmatters.blogspot.co.uk
“NAPO!! UNISION!! Get hold of this expert accountant Richard Murphy NOW, he understands the metrics and the future and could prepare an expert briefing paper. C’mon use your heads and start talking to this expert now! Let’s publicly prove Grayling is a liar and misled Parliament by producing the figures to prove it. We are really great at probation work, accountants likewise with figures…Let’s start to work smart, if this is all about the figures let’s disprove them maybe even collect some data relevant for JR…now there is a thought.”
I’m happy to work with them, of course
I do with Unite and PCS
And the RMT and UCU in the past
Richard
I’ve just spent some time reading through the probationmatters blog that Tony_B put a link to, Richard. Absolutely full of examples of what I referred to in the East Coast mainline case as ‘neoliberal public administration.’ That is, the civil service being used to engineer the sale/transfer of public goods and services to the private sector regardless of evidence that this will be at a negative cost to the state and likely detrimental to the service.
As a student of public administration since the early 1990s (and a former practitioner), I cannot think of another government since the 2nd WW that has been prepared to use the civil service in such an ideological partisan and deeply damaging way. If truth be known I suspect there are multiple cases of what would in the past (and may in future) be regarded as maladministration being undertaken in the mad dash to complete the neoliberal project to smash as much of public service and state enterprise as possible before May 2015. And what’s even more scandalous is that the cost – in both human and financial terms – of clearing up the mess left by this “project” will blight future governments, and more importantly, the citizens of this country for years to come.
Depressingly true, I fear
I posted that comment on the other blog.
Whilst I am no longer an accountant, I can tell you that accounting is not subjective. There are various rules or laws which much be followed, and the accounts presented in a certain way. There is no “subjectivity” in this. I know you are rather fond of the “making it up as you go along” schools of accounting (and economics), but in the real world we have these little rulebooks called accounting standards.
Where the “subjectivity” appears is the interpretation of those accounts. Auditors are asked if that the accounts presented in the proper fashion are a true and fair view of the accounts of the company. Bank analysts will objectively appraise the accounts of a company and analyse their business to make subjective recommendations.
You yourself make some very large, sweeping statements on the affairs and accounts of various companies (Circle, Barclays) and make subjective statements. Indeed, often manifestly false statements. You have simply no information on the affairs of those companies that can allow you to positively identify or support the claims you are making.
For example, in the post about Circle, you state that Hinchingbroke hospital is losing 15m a year. This is not true. The accounts show that the loss is significantly smaller, and Circle the company is losing that amount in total. Not just the hospital. When this was pointed out to you what you did was simply allege (with no proof) that Circle must be somehow shifting losses around to avoid tax.
You have no evidence for this. Indeed, the evidence suggests that this is not happening. Leave alone the ludicrous position you have found yourself in – attacking a “privatised” hospital for losing money, when you regularly attack the very idea of privatisation as the private sector could potentially be making money out of healthcare.
You did the same thing for Barclays. As some commentators pointed out, they are paying a higher average corporation tax rate than would be if paid in the UK. Losses in the UK mean very low corporation tax payments in the UK. You then make the assertion that Barclays are avoiding tax.
That is a pretty bold statement to make with only a very small amount of information to make. Logically it is also absurd – these smart bankers would actually make sure that the average tax paid would be lower than if in the UK if there was large volume tax avoidance going on.
You have subjectively looked at the prepared accounts and inferred wrongdoing (which seems to be your default position for everything). When someone pointed the above out to you, you rambled on incoherently about how Barclays must have somehow cheated (despite paying overall a higher corporation tax rate) and must have cheated in the UK – as it was the UK that was losing out. There was also some garbage about the right amount of tax in the right place at the same time – something impossible to determine with the information you had at hand.
Your argument is purely subjective. Accounts as prepared are objective.
Taking Barclays, you subjectively say they must be avoiding tax and cheating somehow, purely because they operate in some tax havens. Objectively, looking at the accounts, the simplest answer as to why they didn’t pay much corporation tax in the UK is that they lost money in the UK.
It is very hard to see how to reply to this, it is so ludicrous
The idea that accounting standards might be rulebooks suggests you either never read or understood them, especially IFRS
Your claims about what I say are just wrong. I said Circle has lost whilst running Hinchingbrooke: as a matter of fact it has
I said it almost impossible to believe Barclays employees in Luxembourg make £99 million each for the company, in Jersey £3.4 million each and in the UK £191,000. It is. And you ignore the fact that right now the OECD is looking at the whole problem of profit shifting to low tax jurisdictions, which they suggest may not reflect economic reality. You may think otherwise; I have a lot of people who seem to agree with me that such shifting does occur. Barclays may disagree – but if they do their figures look might odd. Over £2 billion of their £2.8 billion profit (from memory) is in those two tax havens.
But if you want to believe that accounting standards and the law (which simply says books and records that can deliver accounts showing a true and fair view must be available) guarantee objectivity please feel free to believe what you want. But it will convince very few who known anything at all about accounting, wherever they are on the political spectrum
Unfortunately I used to have to deal with US GAAP and IAS/IFRS every day of my working life.
They are rules to standardise the preparation and handling of accounts. IFRS itself is implemented near enough globally now. They are a standardised set of rules for the preparation of accounts. Different types of company may be subject to different parts of IFRS/GAAP but they are rules, set either by local governments (GAAP) or international bodies (IFRS) which are meant to be followed in terms of best practice. Let’s not even get started with the variety of professional qualifications and accreditations one needs to be part of the accounting industry.
“Even on basic issues accounts are inconsistent. In the USA inventory (stock) has to be valued on a LIFO basis and here on a FIFO basis.”
I am a bit concerned by your lack of knowledge. You can use LIFO or FIFO under U.S. GAAP for the valuation of inventories. LIFO is more common as it normally is more tax efficient.
Your statement above regarding Barclays is conjecture. You have no information, no hard evidence to show one way or the other. All we do have is that Barclay’s overall corporation tax rate is HIGHER than the UK corporation tax rate. So, on the balance of probabilities, one would argue that Barclay’s is not engaging in aggressive tax avoidance. Certainly, you have no more convincing evidence to the contrary – just a lot of conjecture and conspiracy theory.
“Your claims about what I say are just wrong. I said Circle has lost whilst running Hinchingbrooke: as a matter of fact it has”
This isn’t all you said. Let’s take a few of your choice quotes:
“It is a complete failure Circle are losing £15 million a year running it”
“Politely, I call that fantasy accounting. Circle does so little else that it is ahrd to credit those figures as right”
“The allocation of costs in any set of accounts is a deeply subjective issue”
You, as an accountant, I would hope you understand that false accounting is a statutory offence under section 17 of the Theft act 1968.
This is what you have accused Circle of doing, as well as the accountants who prepared those accounts and the auditors who signed them off.
I assume then, that you have hard evidence to prove your assertions. If so, you should really be reporting them to the relevant authorities – after all the various bodies I assume you belong to have “honesty and integrity” clauses in their statutes, which would mandate you as duty-bound to report wrongdoing.
Somehow I feel that you don’t have this evidence and were simply making things up to suit your viewpoint or score cheap points. As a self-appointed tax justice campaigner I would assume that had you found real wrongdoing you would have quickly made hay and reported it – scoring a real victory for your cause. The fact is you have never done this, instead preferring to write flowery, ill-informed polemics based on assertion and your own slanted beliefs.
So, as I say, if you have the information and evidence, do the tax justice campaign a favour and take it up with HMRC or the police, or whoever it requires to get something done. I’m sure Barclays and Circle are trembling in their boots. if not, I suggest you stop making sweeping, libellous judgements about subjects you clearly don’t understand very well.
First, let’s be clear: I offered opinion on accounts. I did not accuse anyone of falsehood, per se. You can say I did, I deny it. I said the accounts in question appeared to reflect subjective opinion I would not have made and may not agree with – it is you who thinks such subjective judgement does not happen and so offers and false interpretation
Re LIFO – you can account using FIFO in the States but not for tax, I think. So LIFO is common
As for the rest of your comment – all you are offering is opinion, including a claim that there are hard and fast rules when there is just guidance. I cannot be bothered to reiterate my point again
I can happily say that you are, in my opinion, quite clearly wrong
I know you think I am
You will have to add something considerable to debate to waste my time again
Richard there are two statements which really do jump out at me here:
1. “It is a complete failure Circle are losing £15 million a year running it”
2. “I said Circle has lost WHILST running Hinchingbrooke” (my capitals)
Your later insertion of ‘whilst’ completely changes the sense of your claim. Do you not see that this undermines the trust readers can place in you?
This is a blog, and a comment on a blog piece, not a comment within the main blog post
Yes, I have added the word whilst
I candidly think it can be read into the original with ease – I said Circle did other things, but I also think the inference could have been clearer, I agree
But does that undermine trust? You decide. Id you did not trust me anyway, then of course it does. If you think it a nuance amongst 3,200,000 other words then it doesn’t
The decision is subjective.
I think my commentary stands, not least because, as I argued, Circle is unambiguously losing money running it – and most people do not know that
You can object, but I have an impression you would whatever I say
The two sentences have such vastly different meanings, as anyone with accountancy training should know. There really is no ambiguity to “are losing £15 million a year ruñing iy”; I’m sorry, there isn’t. I am also not impressed with the defence that “it’s a blog”. If you are describing the performance of a hospital and aiming to influence centre opinion via your blog then you have a duty to say what you men or to correct the error when you realise you have made one. Remember, Circle has form with your friend Dr Clarke.
Now the threats are out, I note. That’s a very ugly side of this neoliberal process.
I did not blog on Circle. Others raised comments
I correctly made clear Circle gave last money running Hinchingbrooke, that they have required refunding, and remaking their ‘partnership’ business model. All are true.
And it’s also absolutely true that accounts are deeply subjective.
And I have made clear the word ‘whilst’ may have added a little clarity; an apology if you wish, but a clarification actually which I think very few would have needed.
If Circle wish to contact me, I am sure they can, but I am not sure what they would have to say when I have offered entirely fair comment
In the meantime I notice that you think threats appropriate
Please do not call again
I have looked again at Circle’s accounts
They say:
Owing to the complexity of delivering NHS-funded services, there is inherent contractual risk arising from the Group’s existing NHS contracts. Default and termination of these contracts could occur as a result of clinical or operational failures. Furthermore, the contract
with Hinchingbrooke Health Care NHS Trust allows either party to terminate if Hinchingbrooke incurs more than £5.0 million in aggregate deficits, at which point the Group would be required to
pay a further £2.0 million in termination/ transition costs to Hinchingbrooke (which amount is currently held in cash escrow). The Group aims to mitigate these risks by focusing on its business model of delivering high-quality care at the best value.
That does not say Circle need only lose £5 million (or the £3.7 million they have paid to date)
It says Hinchingbrooke must, which is very different indeed
The reading put on this my commentators on this blog looks to be wrong to me
Circle have said they made a profit on its NHS activities – bit these are not just Hinchingbrooke
It also had substantial unallocated items – that subjective bit. In 2012 these amounted to £18.6 million and the NHS profit was £2.7 million and the other hospitals loss £13.3 million. When the NHS work was by far the biggest bit of the business does anyone really think that all those unallocated costs had nothing to do with it?
How much has really been made when unallocated costs to segments are very high is hard for anyone to say – and Circle clearly aren’t
I think my point on subjectivity is proved
But I accept that Circle’s entire loss was not down to Hinchingbrooke because we do not know the answer to how much was.
This debate is closed
I have no more desire to get on the wrong side of Circle than you would. The debate is indeed closed.
I see you have now reverted to the “Richard Murphy” defence when asked questions you have no real answer to, or someone proves more than your equal in debate. You assert you are correct then start deleting their further posts, censoring and shutting down debate.
I will re-post what I said earlier.
You are making statements which amount to accusing these companies of avoiding tax (at best) or false accounting. Quite clearly, in the case of Circle, you have called it fantasy accounting. You have little or no evidence to support the claims you make — if anything is subjective it is your statements. You are hardly an unbiased commentator. Certainly in the case of Barclays the accounts have been drawn up to comply with IFRS.
“I did not accuse anyone of falsehood, per se.”
This is a particularly mealy-mouthed excuse. You accused them, but you didn’t really. If your moral indignation extended far enough to actually do something about tax avoidance (other than getting fairly rich for writing polemics about it) you would report your findings and your suspicions. I have in my time and I don’t get paid to campaign, it was just the right thing to do in the course of my job.
You can use FIFO in the U.S. for tax purposes. LIFO tends to be more tax efficient.
I might be offering “opinion” but so are you. The main difference it seems is that in your “opinion” you are always right, and thus present your “opinion” as “fact”. Normally without any supporting evidence.
Let’s just, one last time, show how daft hour claims are
Look at page 61 and 62 here http://www.circleholdingsplc.com/uploads/document/file/52/circle_holdings_annual_report_2013_finalv.pdf
Page 62 is best, but 61 does
Circle claims it makes a profit on its MHS activities in 2012 of £2.8 million and a loss on its private hospitals of £13.3 million.
Sales are £53.3 and £19.7 million respectively
You appear to take this at face value
But in saying this they ignore over £19 million of costs – which are ‘unallocated’
So did Circle make a profit on supplying the NHS?
With all respect to them, I seriously suggest not
I think the impression given in the segment report is misleading if read at face value
And I think the decision not to allocate cost deeply subjective
But you do not agree
I am not saying Circle have breached any rules – how they present segment data is wholly up to them (so much for your ‘rules’) but I do not agree with it or the impression given
These accounts comply with IFRS but I do not think anyone could say based on them it is likely that Circle is making a profit supplying the NHS, and so, in all likelihood, Hinchingbrooke
I deleted a comment because you persisted in posting nonsense about accounting, about the basis for opinion and about me
I will do so again, repeatedly
That’s called editorial freedom. It’s a great thing
“But in saying this they ignore over £19 million of costs — which are ‘unallocated’”
Circle list these costs as “all other segments and unallocated items”. This does not mean that they are making things up. You would be wise to actually read the whole report. This column reports the rest of the groups businesses excluding their independent hospitals (Bath and Reading) and their NHS hospital (Nottingham). Hinchingbroke is not fully treated in the accounts as they had just started the management contract.
Their other businesses and the costs of such are pretty well explained in the Notes to the consolidated financial statements and the CFO’s report. I can’t see anything odd here, and certainly can’t see any evidence of your allegation that they have been shifting profits around – they’ve broken up the accounting into their three main PNL streams. It looks to me like you simply haven’t spent any serious time reading through the accounts, shortened their “all other segments and unallocated” heading to simply “unallocated” and then alleged that “unallocated” means something shifty.
“I am not saying Circle have breached any rules — how they present segment data is wholly up to them (so much for your ‘rules’) but I do not agree with it or the impression given”
You do know what the whole purpose of IFRS is, don’t you? International Financial Reporting Standards? The idea being that company accounts are prepared and presented in comparable ways across the world. How they present the data is certainly NOT up to them if they present the accounts as IFRS complaint. By definition, they comply with IFRS.
So tell me, what evidence do you have (other than your own rather inflated opinion) that the impression given is somehow false (which would definitely still fall under section 17, false accounting, as deliberately misleading)?
There are no rules on how segment data must be provided
It must be compatible with the basis used by management, and that is it
You are, quite simply wrong, yet again
The debate is closed
“There are no rules on how segment data must be provided”
Wrong. IFRS 8. Please, if you are going to make bold, incorrect statements as the above, you might want to fact check yourself first.
I know IFRS 8 very well
It provides no detailed rules
There is not even requirement that the data reconcile to the accounts
You are talking nonsense
I’m not sure you do. IFRS 8 sets out a tiresomely long list of disclosures that need to be made for segmental reporting.
“There is not even requirement that the data reconcile to the accounts”
Not sure what you mean by this. Is this another one of your accounting conspiracy theories whereby companies can make stuff up and get away with it?
In the meantime, for your and your interested readers benefit, some light reading on IFRS 8 (and the changes from IAS14).
http://www.ey.com/Publication/vwLUAssets/IFRS_8_Operating_segments_Implementation_guidance/$FILE/IFRS_8_Operating_Segments_IG.pdf
https://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/ILine-of-Business-publications/Documents/The-Application-of-IFRS-Segment-reporting-(Full-publication-2010).pdf
As you can see (more clearly in the EY document) the disclosure requirements are rather extensive. Thresholds are set by default and grouping has to be defined and explained. It certainly detailed, and in no way as arbitrary as you are making out.
E & Y say this in their intro:
Although adopting the management
approach does have benefits, in
commenting on ED 8, some, including
Ernst & Young, argued that it is inferior
to IAS 14 because segment information
does not have to be reported on the
same basis as the financial statements
(using IFRS) and that key terms such as
‘segment revenue’ and ‘segment assets’
are not defined. To counter this criticism
the final Standard requires increased
disclosure regarding the basis on which the
information has been prepared.
Overall, the IASB believes the benefits of
the management approach, together with
some expanded disclosure, will outweigh
the lack of comparability that might arise,
which is why the decision to adopt the US
GAAP approach was made.
So, things lack definition, are based on management approaches which are not consistent and not defined and so are not comparable
In other words what is reported is wholly subjective
Now please stop peddling stupidity here that reveals you know nothing about what you claim to have expertise
I’m no accountant, but I’m reasonably familiar with accounting standards.
From the IASB summary of IFRS 8:
“The IFRS requires… reconciliations of total reportable segment revenues, total profit or loss, total assets, liabilities and other amounts disclosed for reportable segments to corresponding amounts in the entity’s financial statements.”
Yes, but the segment data per se need not do so
If it did a reconciliation would not be needed, would it?
With arguing the subjective nature of Accounts and Profits are you not making a case for those who want to do away with Profits i.e. Corporation Tax in the UK ?
In your defence I don’t think Eric has been down and dirty in the Real World of commercial Accounting. I think as Standards increase it’s often the case that the True and Fair view diminishes as a checklist mentality takes hold. An it’s not your fault that you may have to estimate or even guess on issues because the relevant Accounts information is not always available.
As a continuum over time the P & L should work
Treat corporation tax as payments on account over time and it is fine
We have tax years – the compromise is always going to be inevitable
“In your defence I don’t think Eric has been down and dirty in the Real World of commercial Accounting.”
Trust me, I’ve been in the down and dirty. As I alluded to earlier, and being unable to give specifics, I have left the industry because of how dirty things can get. I flagged concerns in a company I and my team were auditing in the mid 2000’s (with the full support of the company I worked for I might add) and the case has since passed through the relevant authorities and is on its way (eventually) to court.
Whilst I am convinced I did the right thing, it is still depressing to see how many honest people have lost their jobs or investments through the actions of a small group of (alleged) wrongdoers. Had I not put forward my concerns, the company may have survived, despite the actions of a few “bad apples”, given it’s major financial backers pulled support for the company on the back of these concerns. It’s not always the guilty who get punished, unfortunately.
Likewise, years (and years) of tortuous investigation and legal argument also take a heavy toll and fairly recently I decided enough was enough.
This is a very interesting exchange of views here, Richard, and I must say that I agree with your general overview. People working in financial services vary from those with a myopic, almost autistic obsession with numerical detail to those who just casually ride roughshod over the whole system and most business is conducted somewhere in-between.
It brings to mind my discussions with the Chief Actuary and their auditors E&Y at Equitable Life in 1993 and I learned from these very capable men how figures can be presented in very divergent ways.
“With arguing the subjective nature of Accounts and Profits are you not making a case for those who want to do away with Profits i.e. Corporation Tax in the UK ?”
“As a continuum over time the P & L should work”
Not if they remain genuinely subjective, as you claim, they don’t. If they are “arbitrary” and “subjective” then they will remain so and the tax payable with them. If, however, the subjectivity is restricted to timing, well then profits will indeed flow through eventually to the tax liability.
This begs two questions:
1. To what extent do you actually see P&L accounts as being genuinely subjective?
2. Given that HMRC can and does take issue witht he timing of receipts and expenditure, doesn’t your view that “As a continuum over time the P & L should work” actually undermine the CT regime?
The subjectivity comes from artificial delineation
Over time such distortions are bound to reduce
They won’t go, but to say that is a reason not to tax is absurd. All tax bases are arbitrary to some degree. Isn’t that obvious?
So too is the fact that they are also set for time periods in many cases
These are facts of life
And neither undermines the CT regime. It just indicates obvious points of stress within it. So what? Stress is also an inevitable part of establishing any tax base. Why focus on CT?
Richard, now you’ve lost my support I’m afraid. HMRC does not see timing difference as just a “stress” that is an inevitable part of a tax base; it sees it as an incorrect return. I am genuinely surprised by your view.
Secondly, you have now equated subjectivity with the words “artificial” and “distortion”. It doesn’t mean those at all. And I’ll repeat; if this “distortion” is evened out over time then it isn’t subjective at all and Eric’)s point is proved: there are rules.
The reality is HMRC normally accept accept accounting treatment now
They accept the approximations inherent in accounts
They know the ambiguities of IFRS
But if those are exploited – and they can be of course – that is distortion and is artificial
The truth is you have completely agreed with me
The fact is we only have rules because we have to constrain the distortions and abuses that the wholly subjective delineation of recording economic flows into artificial one year periods permits
But it’s also glaringly obvious that those rules are themselves arbitrary, subjectively applied and open to interpretation
It is only be good governance, professionalism and goodwill that it works. Absent them the rules are worthless. That’s when HMRC steps in
HMRC accept accounting treatment because the accounting rules have been tightened up considerably over the last 20 years or so.
Look at provisions: back in the day we had all the questions about whether provisions were general or specific – were they calculated with enough care to be allowable?
Then FRS12 came along (plus the Herbert Smith and Jenners cases), and HMRC realised that the rules in FRS12 were rather better than the ones they’d been applying, so they adopted FRS12 rules wholesale.
In other words, they accept the accounts because they are less approximate than the tax rules.
On another topic: I think you are confusing “arbitrary” and “subjective”. An accounting date of 31 March may be arbitrary, but I think there’s little doubt or room for interpretation of what “31 March” means.
FRS 12 is ‘less approximate’
I.e. It is still approximate
And the approximation is all around a date
I rest my case
FRS is quite precise in what it permits. You need to have a past event giving a present economic obligation that can be reliably estimated. It deliberately seeks to reduce the approximation as much as possible.
That’s a long way from “arbitrary, subjectively applied and open to interpretation”. If you can’t come up with anything less approximate, then what you have is the right answer – by any useful real world definition of “right”.
The auditor’s opinion is simply that the accounts are as near as dammit to being the right answer – the need for an opinion to confirm they’re right doesn’t make them doubtful.
Go and read Prem Sikka
And then muse on how the banks’ accounts were right in 2007
Maybe you’d also like to explicitly consider the fact that the IFRS Foundation say their accounts are no suitable as a basis for tax assessment
Of course the IFRS Foundation say that – they don’t want to start asserting that their accounts match all the rules of all the tax authorities in all the world.
If they claimed the opposite, that their accounts *were* suitable for tax assessment, they’d be swamped with people complaining that the business entertaining that they’ve deducted under IFRS was being disallowed by HMRC, and so on; or that although HMRC were happy with the valuation of WIP, the IRS were objecting to it (or vice versa).
So, having explicitly considered it: it’s a complete irrelevance 🙂
I do wonder if you ever interpret anything correctly
What IFRS Foundation say is that the explicitly do not consider the needs of tax authorities when preparing IFRS
That is not just matching the rules
It is about producing potentially wholly inappropriate data, as indeed they do
I have forthcoming papers on the issue
That’s exactly what I meant about the IFRS position!
In my view, they do not consider individual tax rules because to do so would be impossible, so they come up with rules that they think are correct and then point out that tax authorities may differ.
What’s your view – they just make stuff up to be deliberately contrary?
My point is that they do not care
They know that their accounts can never form the basis for tax – many of the accounting permissions they permit are wholly incompatible with tax and they do not care and are indifferent to the complications that causes
I well remember the first open discussion of country-by-country reporting at the then IASB. a member of the Board said “this sounds like a transfer pricing issue, and we do not want to go there”.
Precisely. They do not want to help tax authorities
Given that tax authorities quite happily disregard accounting entries they don’t like, that seems to me like a perfectly reasonable attitude.
I’d rather they got a unified set of accounting standards that 200-odd tax authorities can quibble with in 200 different ways, than try to get to a position where all 200 are happy. The latter will never happen; the former hasn’t happened yet, but it seems a reasonable goal.
Andrew,
I really do not think you know what you’re talking about.
IFRS has not eliminated local GAAP anywhere. It simply added to the variations available and added opportunities for arbitrage for those large companies who wish to use it.
Relating your comments to reality would really help
Richard
My comments are perfectly related to reality: I would like to have a single set of accounting standards across the world (ideally not US GAAP, though, thank you very much); but I think it highly unlikely that all tax authorities would ever accept them for tax purposes without making some adjustments so it seems pointless to try to make them acceptable to all.
In other words: as tax authorities don’t want their help, they’re not offering it.
Requiring the production of a single set of accounts without taking into account the needs of a major user is reckless irresponsibility and negation of duty requiring a change in standard setter
That is what I accuse the IFRS Foundation of
No sorry. Subjective implies opinion, a view formed and held; artificial and distortion imply artifice. You can’t have the first as well as the latter two at the same. Each time.
This matters for this subject and for your wider use of the word ‘subjective’ in other posts.
We disagree