Brexit, the UKEB and the rubber-stamp
Most accountants don’t know (and perhaps don’t care) because of Brexit the UK no longer needs to follow new standards issued by the International Accounting Standards Board (IFRS).
The United Kingdom Endorsement Board or UKEB, as it is now known, was set up to “influence, endorse and adopt new or amended international accounting standards… ” The key word here is ‘amended’. The board has the legal power to change International Financial Reporting Standards applicable to the UK.
So what are they going to do? They don’t really come out and say anything. They have issued their ‘Regulatory Strategy’ which doesn’t mention IFRS at all. But in their introduction they use this rather odd expression that they establish themselves as “as the UK’s voice on IFRS”, which I guess implies that they will follow IFRS.
But will they follow them without change? The ICAEW are worried. They wrote in their representation letter on this same ‘Regulatory Strategy’:
…we nonetheless believe that any divergence with IFRS as issued by the IASB should be avoided wherever possible.”
And they go on using diplomacy to make their point as forcefully but politely as possible:
“Experience suggests that the full benefits of IFRS adoption can only be reaped if the standards are adopted in FULL.”
(These are my capitals for ‘full’, not the ICAEW’s. I sensed when reading the paragraph, they wanted it in capitals, in italics and in bold characters, but elegance prevailed).
While reading, I wondered what the point of the UKEB could be if their job is simply to adopt the standards in full. No point at all, you might say. As a result the board have been given the power to change them if they want. They can now influence, endorse and adopt at their will.
The UKEB’s first act was to adopt IFRS 17 Insurance Contracts in full without changes. [1] It took them 184 pages to decide, to show what they did and to explain why. Their conclusion too was interesting. According to the UKEB, IFRS 17 goes much further than the mere objectives of the standard of ‘improved financial information’. It “…meets the criteria of understandability, relevance, reliability and comparability required of the financial information needed for … assessing the stewardship of management.”
Now I am not sure what ‘stewardship of management’ means, nor what criteria management require to assess it. Perhaps I will read the report in its entirety to find out. But I digress.
I am happy however, that they came to this conclusion without making any changes. John Stokdyk, the editor at large of accountingWEB agrees with me:
“It’s probably better for everyone concerned that the UKEB pursues the rubber-stamp path rather than interfering radically with what has passed through the IFRS mechanisms.” [2]
And he concludes his article, using a wonderful phrase: the risk of ‘a mishmash of international standards’ if endorsement boards worldwide become too ‘active’. I think we have a double mishmash already with the competition and disagreement between the FASB and the IASB. We would have a triple mishmash if the UK chose not to adopt an IFRS. It would take financial reporting back to the last century.
[1] Paragraph 12, IFRS 17 Insurance Contracts, Endorsement Criteria Assessment issued by the United Kingdom Endorsement Board, May 2022. [2] Article in Accounting Web, UK Endorsement Board stirs into life, by John Stokdyk, 6th September 2022.