IFRS 'must be brought up to scratch'

Reporting standards have been under the spotlight in recent years as businesses attempt to clean up their act and ensure they offer relevant and timely information to their investors, with international financial reporting standards (IFRS) the latest area to be criticised.

Conservative MEP Syed Kamall has penned a chapter for the Steve Tolley-edited book Banking 2020: A Vision for the Future in which he warns that globally converged accounting standards are only a good idea if they are structurally sound and logically consistent, reports Accountancy Age.

While the nature of modern business means that it is crucial standards are upheld across national borders, there are concerns that the fundamentally different models of American and European corporate reporting could prove incompatible.

According to Mr Kamall, European companies tend to deal more with corporate governance issues such as diversity and environmental awareness, while American companies prefer to focus on the bottom line.

"Convergence of these models, mandated by the G20 and encouraged by the International Accounting Standards Board, has led each to be diluted by the other, with damaging implications," he declared.

The IFRS guidelines are intended to act as a common business language allowing company reports to be understandable across different countries and cultures - while this is an admirable aim, it should not come at the expense of accountability and clear reporting.

Reforms should be put in place that ensure balance sheets are explained accurately, with appropriate levels of loan loss provisioning in place, suggested the Conservative MEP.

According to Mr Kamall, this could ensure that financial institutions (for instance) avoid the kind of crises that emerged over the last few years and led to them being bailed out, often by the taxpayer.

"If we cannot trust the numbers, knowing what is happening in a bank or any other firm under IFRS will be impossible," he concluded.

Banking 2020 is being published by the New Economic Foundation and is intended to stress that further changes need to be made to the financial services sector if it is to emerge from the doldrums it has entered over the last decade.