The Department for Business has given serious consideration to concerns raised by some stakeholders that accounts prepared over the past 30 years, in accordance with UK or international financial reporting standards, have not been properly prepared under UK and EU law.
However, it is entirely satisfied that the concerns expressed are misconceived and that the existing legal framework, including international financial reporting standards, is binding under European law.
In preparing financial statements, achieving a true and fair view is and remains the overriding objective (and legal requirement). In the vast majority of cases, compliance with accounting standards will result in a true and fair view. However, where compliance with an accounting standard may not achieve that objective, accounting standards expressly provide that that standard may be overridden*.
The Department has noted the concerns expressed by stakeholders about aspects of international accounting standards and working with the Financial Reporting Council will continue to press for improvements. It regards the development of the Conceptual Framework for international accounting standards as particularly important. It considers, for example, that:
- stewardship reporting (ie holding directors to account for their management of the company’s property) should be regarded as a primary objective of financial reporting
- prudence, ie the exercise of caution, should be explicitly acknowledged in the Conceptual Framework
- there should be clear principles to describe when specific measurement bases, such as fair value (which needs to be appropriately defined) should be used. Performance reporting should present movements in fair value clearly and appropriately
*See for International Accounting Standards, IAS1, paragraph 19; and for UK GAAP paragraph 3.4 of FRS102