The FRC welcomes the involvement of investors and others in the debate about the effectiveness of the financial reporting framework. On the specific issue of its legality, the Department for Business has today confirmed that the concerns expressed by some are misconceived. The FRC has taken its own independent legal advice. That advice accords with the Department’s view. That legal advice is now available on the FRC website1
The FRC also agrees with the Department, and many others who have raised the issue, that, in preparing financial statements, achieving a true and fair view is the overriding objective. In the vast majority of cases this will be achieved by compliance with accounting standards. However, where compliance with an accounting standard would result in accounts that would be so misleading that they would conflict with the objective of financial statements, the standard should be overridden. The FRC will continue to discharge its responsibilities in relation to the monitoring and enforcement of reporting on that basis.
The FRC shares the view of the Department and others that there is scope for improvements in international financial reporting standards and the IASB’s Conceptual Framework. The FRC considers, for example, that:
Stewardship reporting (holding management to account) should be included in the Conceptual Framework as a primary objective of financial reporting and not as a subset of the provision of decision-useful information.
Prudence, meaning the exercise of caution, should be explicitly acknowledged in the Conceptual Framework.
Clear principles are needed to describe when specific approaches to measurement, such as fair value, should be used. Financial reporting should present movements in fair value clearly and appropriately.
There are also other concerns amongst investors and the FRC looks forward to working with them and other stakeholders on the full range of issues.
Financial Reporting Council
3 October 2013
1The opinion of Martin Moore QC is available at: /Our-Work/Publications/FRC-Board/Martin-Moore-QC-Opinion-3-October-2013.aspx