For immediate release: Tuesday 3rd July 2007
IMA POINTS TO SOLUTION ON IFRS 8 DEBATE
The Investment Management Association has written to the European Commission to encourage convergence of accounting standards at the same time as pointing to a solution to allay the concerns that many, including IMA, have expressed on the proposed adoption of International Financial Reporting Standard 8.
The key issue that has created concern is that under IFRS 8 "segmental" reporting will be based on internal reports reviewed by the "chief operating decision-maker", a concept which has not been defined. IMA believes, however, that these concerns can be addressed if it is made clear that, within the EU at least, this role is fulfilled by the Board, who in any case have oversight under EU Company Law Directives. It is therefore calling for guidance stating that the chief operating decision-maker in Europe is the Board. In addition, IMA supports use of the "true and fair" override if it is necessary to ensure that the information reported reflects the true underlying performance.
Richard Saunders, Chief Executive of the IMA, said:
"Convergence of accounting standards globally is an important and desirable goal in the interests of transparency and consistency. While there remain misgivings about the terms of the latest standard we do not believe they should stand in the way of the broader objective. We consider that the concerns can be allayed by guidance to the effect that, consistent with European Company Law Directives, the key decision-maker in the EU is the Board. We would urge a statement to this effect alongside endorsement of the standard."
A copy of IMA's response to the EU's questionnaire on the analysis of the potential impact of the endorsement of IFRS 8, Operating Segments is attached.
For further information, please contact:
Mona Patel, Head of Communications, IMA, 020 7831 0898/ 07834 089332
Notes to Editors:
1. IMA is the trade body representing the UK asset management industry. IMA's members have an interest in accounting standards as major investors in companies whose securities are traded on regulated markets. As users of financial statements and in the interests of ensuring consistency and transparency of accounts internationally, in principle, IMA members support the convergence of accounting standards internationally.
2. IFRS 8 operating segments is based on a US standard called SFAS 131. It requires companies to report financial and descriptive information about their "reportable segments". IFRS 8 adopts the ‘management approach' to reporting operating segments as opposed to one based on an economic or geographical entity, which has been usual in UK accounts. Thus, the information to be reported is what management uses internally for evaluating segment performance and deciding how to allocate resources. Such information may be different from what is used to prepare the income statement and balance sheet. The IFRS therefore requires explanations of the basis on which the segment information is prepared and reconciliations to the amounts recognised in the income statement and balance sheet.