From: Robert Davis [rad7@ntrs.com]
Sent: 15 January 2010 13:14
To: UK Gaap
Cc: Martin Goode; Stephen Holt; Peter Brookman
Subject: The Future of UK GAAP

Peter,

Northern Trust response to "The Future of UK GAAP"

Northern Trust currently administers approximately 10% of the UK authorised funds market, and as such, has a significant volume of funds that will be impacted by changes to generally agreed accounting principles.

Our major concern if the SORP ceases is having a local authoritative body that will oversee and advise on the definition of income (capital and revenue) in relation to what is distributable to unitholders. The FSA do not currently do this via COLL as we understand that this may cause conflict with taxable income as defined by HMRC. As HMRC do not profess to be accountants, we doubt definition will be forthcoming from them either. The SORP currently fills such a gap, and in the absence of this, we would recommend that a UK body take responsibility for this rather than an international one. The is the question of legislative and regulatory changes, which will be time consuming, and no doubt costly. I think it would be unfair if the Industry has to pick up these costs.

Secondly, suggestions to cease with the SORP will have an impact to NT with regards to costs. We currently pay the IMA a nominal annual subscription, for which the provision of the SORP makes up a small proportion. We are concerned that without a standard practice document a consultative approach will be required, employing accountancy firms to do this. We may also have to train our Quality Control and Internal Audit and Compliance teams to reassure the regulators that our staff are T&C for preparation of the accounts - this would also follow a costly consultative route.

Finally, we would like to raise the question of benefit and relevance to our ultimate clients, the unitholder, for full IFRS convergence. Whilst the majority of unitholders do not choose to receive the long form accounts, they must be made available free of charge. Increasing the volume of disclosure for something that is rarely read, whilst frustrating, is understood in order to comply with the regulations. However, we feel that some disclosures may cause greater confusion. For example, stock lending disclosure within the portfolio statement. A UK equity may lend out all of its stock and receive UK gilts as collateral. It would be the gilts that would be disclosed in the portfolio, not the equities, which will make the appearance of the portfolio very odd indeed.

Although we welcome efforts to take the Industry forward, we do not believe that full IFRS convergence and/or removal of a SORP (in what ever format) would particularly benefit the UK authorised funds Industry.

Kind regards

Rob.

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