Written answers

Wednesday, 15 January 2014

Department of Jobs, Enterprise and Innovation

Banking Sector Issues

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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286. To ask the Minister for Jobs, Enterprise and Innovation if his attention has been drawn to a legal opinion produced by a person (details supplied) this year which confirms that efforts by the IASB to drop prudence, the safeguard against overvaluing bank loans, from the accounting framework was not endorsed by the EU and is therefore contrary to EU company law; and if he will make a statement on the matter. [1710/14]

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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287. To ask the Minister for Jobs, Enterprise and Innovation if he is satisfied that under Irish company law banks must not overstate the value of loans in their published accounts; and his views on the practice of Irish banks which claim they are not allowed under IASB rules to recognise expected losses on certain loans. [1711/14]

Photo of Richard BrutonRichard Bruton (Dublin North Central, Fine Gael)
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I propose to take Questions Nos. 286 and 287 together.

I am aware of the legal opinion to which the Deputy refers. The application of international accounting standards is provided for in the circumstances set out in Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 (the “IAS Regulation”). The IAS Regulation which sets out the adoption procedure for these international accounting standards does not provide for any adoption procedure as regards the Conceptual Framework, and, accordingly, this does not form part of EU law. The issue, therefore, of the omission of prudence from the IASB Conceptual Framework being contrary to EU company law does not appear to arise. However, ultimately it is for the courts to determine if a matter is contrary to the law.

International Accounting Standard 39 (IAS 39) “Financial Instruments: Recognition and Measurement”, as adopted by the EU requires an “incurred loss” approach to what it terms the “impairment and uncollectability of financial assets measured at amortised cost”. Paragraph 59 includes the explicit statement that “Losses expected as a result of future events, no matter how likely, are not recognised”.

International Accounting Standards adopted under Regulation (EC) No 1606/2002 which are published as Commission Regulations, constitute EU law directly applicable to the companies concerned as regards the circumstances set out in the Regulation. The domestic law of a Member State cannot alter their content.

The IASB is in the course of developing a replacement standard, which it is understood will require the use of an “expected loss” approach.

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