The European Commission has appointed the French accounting firm Mazars and the Institute of Chartered Accountants in England and Wales to team up on a report assessing the effects of using International Financial Reporting Standards in the European Union.

The project will run until the autumn of 2014. "The task of Mazars and ICAEW is to take stock after eight years of IFRS reporting in the EU and assess the impact of the switch to IFRS on the comparability and transparency of the financial reports of European companies,” said ICAEW executive director Robert Hodgkinson in a statement. “Our work is intended to help the European Commission determine whether or not the implementation of the 2002 IAS Regulation has delivered the expected benefits. ICAEW looks forward to working closely with Mazars and the European Commission on this important project in the coming months."

The ICAEW has previously worked for the European Commission on IFRS. In 2006, ICAEW was asked by the European Commission to produce a comprehensive study of the 2005 implementation of international accounting standards across the EU. The 250-page study, published in 2007, concluded that the transition to IFRS had been challenging, but successful.

Leaders of the International Accounting Standards Board have been coming under pressure in Europe to give more weight to the concept of “prudence” when drawing up International Financial Reporting Standards. The IASB used to include prudence as part of the conceptual framework that it relies on when setting IFRS, but decided in 2010 to favor neutrality instead.

Last year, several politicians in Europe said the IASB should reintroduce prudence and its funding should be contingent on that condition. Earlier this month, the United Kingdom’s Financial Reporting Council also urged the IASB to include the concepts of prudence, stewardship and reliability in the conceptual framework, according to Accountancy Age.

IASB chairman Hans Hoogervorst told Accounting Today during a press conference last November that he differed with critics of the framework (see IASB Adjusts to Changing Relationship with FASB). “In our previous conceptual framework, we had a concept of ‘prudence,’ which was basically saying if you are in doubt and there is a lot of uncertainty, be cautious and make sure you do not overstate assets and you do not understate liabilities,” he explained. “At the same time, this was not an excuse for a bias in accounting toward conservatism or a bias toward provisioning and creating hidden reserves. That’s not what we want.”

In the 2010 revision to the conceptual framework, the reference to “prudence” was struck out because the board felt at the time it was seen as an alibi for a bias toward conservatism in accounting and it stood in the way of neutrality.

“I think if I had been a member of that board, I wonder whether I would have struck that out,” said Hoogervorst. “I think the concept, as it was being described, was very clear that it was not an infringement on neutrality. It made a lot of sense. I think if you look at our standards, for example the revenue recognition standards, there are a lot of elements of prudence there, say in the collectability threshold. But there are a few investors in England, and they have found some followers of the usual critics of IFRS, which can be found in France, for example. They have basically said, ‘Since the removal of this concept, IFRS has been based too much on fair value accounting standards and subject to optimism, etc., etc.’

“I don’t believe that to be true at all,” said Hoogervorst. “Fair value accounting can actually be extremely prudent because it gives information about assets going bad very early on. The prudence concept was removed after the onset of the financial crisis and had absolutely nothing to do with it. But it has become a sort of political discussion, and we are asked by many people to reconsider it in the reconsideration of the conceptual framework. We haven’t really started debating it yet. I’m sure we will give it serious consideration. Whether it will be included or not, I don’t think it will make much difference in practice.”