The International Financial Reporting Standards (IFRS) Foundation’s role in governing global accounting rules is under threat after European politicians said they were questioning whether the authority was “best suited” to the position.
The London-based authority, responsible for setting standards in 100 countries, has been severely criticised by MEPs for poor governance structures, a lack of transparency and its “close links to the accounting industry”.
Last week the European Parliament approved a new £50m five-year funding programme for the IFRS’s standard setting arm, the International Accounting Standards Board (IASB).
However, MEPs attached a series of conditions to the deal and warned if they are not met, the funding could be stopped in a year’s time.
Sharon Bowles, chairman of the influential European economic affairs committee and a Liberal Democrat MEP, said: “Questions have been raised by the European Parliament about the governance structures and lack of transparency of these bodies, as well as their close links to the accounting industry.
"The release of these EU funding streams will therefore only be forthcoming upon sufficient reform to prevent conflicts of interest, which will bring about much-needed trust and scrutiny on how these highly influential public bodies operate.”Syed Kamall, a Tory MEP for London, who has raised concerns about the IFRS rules, said: “I am not convinced that it was right for the EU to outsource standard-setting to what is, in effect, a private sector body funded by public money.”
A spokesman for the IFRS Foundation said:
“The foundation takes seriously any such concerns and has already begun planning its constitutionally-required five-year review of its structure and effectiveness, to be undertaken during 2014, and we welcome any proposals to improve aspects of our work.”
The MEPs’ concerns about the IFRS Foundation’s governance were raised after The Telegraph first highlighted errors in the authority’s filings at Companies House in February. However, the politicians are also concerned IFRS accounting standards are seriously flawed.
Last year a group of British investors wrote to Michel Barnier, the EU’s internal markets commissioner, warning him that the accounting rules were harming shareholders and destabilising the economy. They argued that the IFRS rules, introduced in the UK in 2005, had allowed companies, and banks in particular, to hide the build-up of risks on their balance sheets.
The European Commission has said it will launch a review of the IFRS rules.
By Louise Armitstead, the Telegraph