Pearson CFO casts doubt on IFRS

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IFRS reporting “doesn’t actually add very much to the view of the company,” according to Robin Freestone

The CFO of publishing giant Pearson was speaking at the ICAEW Financial Reporting Faculty’s annual IRFS conference this morning, where he raised concerns over how accurately the international standards gave a true representation of a business.

Freestone, number 16 in the economia Finance Global 50, said he had “strategic concerns” about the international standards IFRS. He went as far as to say that IFRS was “pretty unhelpful” when it came to trying to assess a company.

“I feel increasingly we are doing an awful lot of work to meet technical requirements rather than to do anything that’s helping to improve understanding about the company,” he said. “IFRS reporting, while being technically brilliant, doesn’t actually add very much to the view of the company.”

He said the accounts were “not helpful” to investors or shareholders when assessing what is going on within a company, and that he questioned the cost of having “halls of accountants doing lots of spreadsheets”.

“And then when we come out with these brilliant, technically accurate accounts, I wonder if anyone is actually using them?” he asked. “Managers aren’t using them, and investors aren’t using them.

“I’m just not convinced that all the technical accounting going on is really adding to the debate.”

Ruth Picker, global head of IFRS at Ernst & Young, defended the international standards. “I think what the IASB would say to that is, “It’s all very well to ask for simpler standards, but the truth is that business is complex and it’s hard to write simple standards for a complex business,” she told delegates.

The conference opened with an update from Bob Herz, former chair of the FASB, who said everything was going “swimmingly” in terms of convergence between US GAAP and IFRS, when the global financial crisis happened.

“In 2006 and 07, and even into 2008, there was a lot of enthusiasm about IFRS,” said Herz. “But, I think because of the financial crisis and the inability of the two boards to come to common solutions, that appetite has waned significantly in the US.”

He added that the two boards (the IASB and the FASB) had “not been able to agree on a lot lately,” and warned that delegates should not expect any solutions to be reached quickly.

Freestone said he was pleased to hear that the convergence objective was not “dead,” but raised questions over implementing the standards “without the US on board.”

Concerns were also raised over the nature of annual reports. Freestone said they were increasingly “full of stuff people don’t want to know”.

Picker said that it had been 10 years since the work began to combine the US GAAP and IFRS. “Should the US ever decide to adopt IFRS the cost will be reduced by virtue of those 10 years,” she said.

Bill Hicks, interim director of group reporting at the BBC, called for the standard setters to engage with the users of the standards, saying the prepares should be shifted up from “inform” to “consult.”

He also attacked the quality of auditors, saying, “I do not think the quality of training is good enough in this country or around the world for accountants.

“Most auditors I come across do not have the skill set, do not understand cash flow, and that is a serious problem,” said Hicks. 

From the audience, Paul Druckman CEO of the International Integrated Reporting Council, also in the economia Global Finance 50, rejected the claims for being “a little harsh”.

 

Helen Roxburgh

 

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  • Comment by Anonymous

    It is good to see a top CFO saying what many are quietly grumbling about, but getting on with the morass of compliance that adds no value! If Investors, management, lenders and taxing authorities do not accept the standards as representative of where they invest, what they are running, what businesses will lend to and on what income you will pay tax, why are they necessary?

  • Comment by Anonymous

    It is a bit rich of Christie Malry to state "I thought what Freestone said was nonsense". Robin Freestone is a FTSE 100 CFO and, as such, has an incomparably deep knowledge of the requirements of IFRS, the disclosures required, and how much use or otherwise it is to the investment community and other analysts. And this criticism comes from someone who takes their nom de plume from a fictional character in a third rate novel. Hardly a compelling reason to take "Malry" seriously.

  • Comment by Anonymous

    Well said Robin Freestone - and I might add that none of this vast acreage of IFRS reporting has had the slightest effect on preventing (a) the global downturn (b) companies suffering scandals / going bust. How utterly disingenuous of Ruth Picker - whose vested interest in maintaining this not-fit-for-purpose system is so completely evident; how much revenue have the large accounting firms made out of all the pointless extra work generated by IFRS? Furthermore, to say that "business is complex" misses the point entirely - business has always been complicated but it is only relatively recently that the accounting profession has decided to make the reporting of companies' affairs so totally impenetrable to the average person.

  • Comment by Christie Malry / FCAblog

    I thought what Freestone said was nonsense. Of course, I wasn't there, but this article gives no detail about which standards he doesn't like, or which disclosures he feels gives no value. There's nothing actually to agree with here, unless you're already in the anti-IFRS camp, in which case no amount of reason will change your mind. In my experience, IFRS has a learning curve compared to those familiar with UK GAAP. But its standards are better. The IASB should be applauded for resisting calls for change from those who have not taken the time to acquaint themselves with the requirements of IFRS but prefer to snipe in general terms from the sidelines.

  • Comment by Nigel Hughes

    Please IASB, please ASB, please FRC, please ICAEW technical directorate, please Financial Reporting Faculty, please technical departments of the big 4, listen to Mr Freestone - he is talking sense