Supplementary memorandum by Mr Timothy
Bush (ADT 15)
1. Prudence (not overvaluing assets), loss
visibility, no hidden gearing and being alert to contingent liabilities.
These all underpin the creditor protection purpose of accounts
and the audit. These things are also essential for directors and
auditors to assess whether the business is a going concern, and
for directors to understand where their businesses are at.
These things are required for the law to function
(the capital maintenance clauses in the Companies Act) but are
not delivered by IFRS (or the erroneously copied FRS 26 which
directly clashes with Company Law). These things do form the foundation
of "UK GAAP".
2. Since Johnson Matthey (UK, and earlier
in the USA), auditing/accounting standard setters have been populated
by people with professional expertise in auditor liability defence.
The pendulum has therefore swung too far towards protecting auditors,
at the expense of directors, creditors, shareholders and the wider
3. Auditors have benefited from complexity
of accounting standards, not just their protective/scope limiting
characteristics. Bankers too benefited from the uptick in profits.
THE EU TO
4. The timescale is slow. The EU is weak
on this area, and not united, nor does it have same priorities.
Other parts of EU have "dual boards" with non-IFRS accounts
for director/creditor assurance (eg Germany). The EU Commission
seems to be a "soft touch" for Big 4 lobbying.
5. IASB in seeking to converge with the
USA is up against the full force of the liability limitation tactics
of the Big 4 USA and the pervasive power interests there. The
biggest funders of the IASB were the Big 4 and the largest US
investment banks. IAS 39 was written essentially in-house at Citigroup,
the harmful bad debt provisioning model came from Big 4 USA.
6. Britain has got itself into position
of "over adopting" IFRS (in companies and banking companies),
caught between the worst aspects of the EU and the USA.
(i) UK must halt compulsory extension of IFRS
as was proposed by (recently stepped down12 October
2010) chair of UK Accounting Standards Board.
(ii) The Department of Business must work with
Accounting Standards Board to fix the clashes: between IFRS and
the capital maintenance clauses of the Companies Act, and the
problem of FRS 26, which clashes with both the capital maintenance
clauses and the Companies Act accounting rules.
(iii) UK GAAP must be brought back to its pre-2005
condition. Each accounting and auditing standard should have a
statement that it complies with the letter and spirit of the intent
of Company Law, so as to avoid clandestine auditor liability limitation
tactics (whether omissions or commissions).
27 October 2010