The UK Department for Business, Innovation and Skills (BIS) has said concerns about the legality of IFRS raised by a group of investors are "misconceived" and that both UK GAAP and IFRS are binding under European law.

On Thursday BIS said it has given serious consideration to the stakeholder’s concerns that accounts "prepared over the past 30 years, in accordance with UK [GAAP] or IFRS, have not been properly prepared under UK and EU law".

Earlier in the year a group of investor released the legal opinion of the barrister George Bompas QC, also known as the Bompas opinion, which maintains there is a disconnection between IFRS and the Companies Law Act 2006.

Bompas opinion contends that accounts prepared using IFRS do not give a fair and true view of a company’s financial situation and also that the international standards have moved away from prudence as a fundamental accounting principle.

The sponsors of the opinion were the Local Authority Pension Fund, the UK Shareholders Association, Threadneedle Investments and the Universities Superannuation Scheme; and it was submitted as evidence in the UK’s Parliamentary Commission on Banking Standards, set up to address the UK banking sector in light of the financial crisis.

The UK Financial Reporting Council (FRC) said it agrees with BIS’s stance on the legal issue. FRC executive director of codes and standards Melanie McLaren told The Accountant that the FRC has given the matter careful consideration and obtained its own legal opinion issued by the barrister Martin Moore QC.

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"For the FRC there is no legal flaws with IFRS provided the director of a company has prepared accounts with the overriding objective of giving a true and fair view. In the event those accounts don’t give a fair and true view, then directors need to override the standards and ensure that this fair and true view is given. That’s the same today, as it was yesterday and as it was before we implemented IFRS," McLaren said.

McLaren said she hopes it’s now possible to draw a line onto the matter after BIS’s "definitive statement" and move forward on the basis that the framework that is being used is legal.

"But having dealt with legality, that doesn’t mean that improvement can’t be made and we’d like to focus on those areas where the quality of IFRS can be improved," McLaren said.

McLaren said the immediate opportunity for that is the consultation launched by the International Accounting Standards Board on its conceptual framework, which is open for comment until 14 January 2014.

"We really want those investors who have got concerns about the direction and quality of international standards to get engaged in that debate, rather than focusing on the legality on what may have happened in the past, where we don’t think there is any uncertainty," McLauren said.

A spokesman for the Local Authority Pension Fund Forum declined to comment until its technical team examines carefully BIS’s statement.

Related link
The UK Department for Business, Innovation and Skills

The UK Financial Reporting Council

The Local Authority Pension Fund Forum