Opinion from George Bompas QC, commissioned by the Local Authority Pensions Forum and other investors and which in the words of the LAPF:
“… suggests that directors must override IFRS in order to comply with existent company law. The opinion also finds that directors may need to ignore the legal advice obtained by the Financial Reporting Council (FRC) on this issue.”
Opinion here. Excerpt from LAPF covering note:
“LAPFF highlights the following key points from the opinion –
- in his opinion the specified accounting outcomes required by IAS 39 (the standard particularly applicable to banks) are contrary to the true and fair view requirement of the law (para 10.1 and 11.1). These being;
- marking up to model profit taking and marking up to market,
- not accounting for likely losses,
- not dealing with the distributability of profits (i.e. whether they are realised or not and whether expected losses have been accounted for properly)
- in his opinion these defective accounting outcomes of IFRS should be overridden by invoking the overriding true and fair view requirment of the law (para 10.2 11.2),
On this basis the accounts of banks have been faulty since 2005, or even earlier, given that some IFRS measures had been incorporated early into Accounting Standards Board standards.
The opinion also raises significant questions about how the FRC has dealt with the matter:-
- Mr Bompas cannot reach the same conclusions as the legal advice obtained by the FRC. He cannot reach the same conclusion as at the time of that opinion (para 54, 55), and further the opinion is also out of date (para 7),
- Mr Bompas notes that the FRC continues to publicise its advice on its website. (para 56) He is concerned that directors may in fact not be able to rely on it in discharging their statutory obligations to not approve accounts that do not give a true and fair view (para 63),
He also raises the question of the EU’s adoption process:
- a defective accounting standard could be challenged on the grounds of “illegality….on the grounds of lack of competence and infringment of an essential proceedural requirement…the failure of the adopted standard to satisfy the threshold condition in Article 3(2) of the IAS Regulation”.
LAPFF has consistently been concerned not only with the quality and effect of IFRS, adopted in the EU in 2005, which can cause insolvent and loss making banks to appear solvent and profitable, but whether IFRS adoption by the EU was contrary to the “true and fair view test” required by EU and UK law.”
Company and Financial Law 