This past week, Lord Lawson, who sits on the House of Lords Economic Affairs Committee, stated concern over the British accounting standards. Despite concerns from the House of Lords, the Department of Business, and business experts, Britain’s accounting authority is pushing ahead to release international auditing rules that will be required to be adopted by all UK businesses except those considered small businesses.
The Accounting Standards Board (ASB) plans to examine and expand to the International Financial Reporting Standards (IFRS). The new system will cost an estimated 78.9 million pounds to introduce across the business community, but the ABS insists the cost will be well worth it. Critics however see the move as potentially dangerous for shareholders of major companies as it could miss major flaws since the new system will reduce the steps in auditing. Currently the IFRS is used in more than 100 countries.
The US is being pushed to adopt the IFRS over the currently used Generally Accepted Accounting Principles which is used by publicly traded companies. The US Securities and Exchange Commission stated on Friday that they will not make a decision on transitioning companies to international accounting rules until 2011.
UK critics see the new standards as a way to make work easier for accountants. They also see the system as leaving vital issues covered and less transparent as the ASB seeks to simplify the current rules. The rule book will be reduced from 2,000 pages to 400. The scope for auditing errors will also be reduced.
The system was scrutinized and debated for almost 6 years and will be expected to be fully in place by the summer of 2013. Transition costs for companies of medium to large size are expected to average 80 million pounds.
David Loweth of the ASB denied that the accounting profession had the most to gain from the changes of the new system. In an interview with The Daily Telegraph he said: “The new standards would modernise and simplify the accounting system which would provide clearer views on financial statements for the benefit of investors and company owners.”
Andrew Davies, an Ernst & Young partner, said: “The jury is still out as to whether the proposed changes are an additional benefit to the users of all financial statements impacted by them.”
One critic called for a two year delay in the transition. “Changing accounting standards with a weak economy could prove an unwelcome distraction for private businesses, many of which will be focusing on strategies for survival,” said Phil Crooks, head of audit at Grant Thornton’s UK arm.