Investor frustration with International Financial Reporting Standards (IFRS) and the UK accounting establishment has reignited with demands from three major institutional investors for the International Accounting Standards Board (IASB) to reintroduce an explicit reference to the notion of prudence into its conceptual framework.The move follows the release of a barrister’s opinion earlier this year by the Local Authority Pension Fund Forum and other major institutional investors in which George Bompas QC argued that there were substantial legal flaws with IFRS.In a letter obtained by IPE and addressed to senior officials at the UK Financial Reporting Council (FRC), investors also point to the true and fair view override, as well as the concept of capital maintenance, as further areas of major concern for investors.The three signatories to the 25 November letter – the Association of British Insurers, the Investment Management Association and the National Association of Pension Funds – collectively manage some £7.2trn (€8.7trn) of assets. Addressing the topic of prudence, the ABI, IMA and NAPF write: “As applied in accounting, we consider prudence to be a fundamental qualitative notion for guiding issuers (and auditors) when exercising (or assessing) aspects of accounting that require judgement, or where adherence to [IFRS] might otherwise result in outcomes that are misleading.”The letter continues: “We believe it materially correct to err on the side of caution – i.e. be prudent – in the face of uncertainty at an individual item level and view prudence as a predisposition.”The IASB removed references to prudence, or caution, from its conceptual framework in 2010. It substituted instead the concept of neutrality.The move was intended to bring the IASB’s conceptual framework closer to the US GAAP framework, which makes no reference to prudence.In a recent speech to the Federation of European Accountants, IASB chairman Hans Hoogervorst defended the board’s decision to drop prudence from the IFRS conceptual framework, arguing that IFRS already adopt a prudent approach.In an echo of the controversy sparked by the Bompas Opinion, the investors also called for the FRC to review the status of its 2011 guidance on the requirement for accounts to present a true and fair view of a business’s financial position.The letter reads: “The true and fair override in the preparation of financial statements should not be considered a circumvention of IFRS but a legitimate statutory requirement in ensuring a true and fair view is reached.“The existence of conflicting QC opinions brings urgency to this issue and, therefore, we believe it important for the FRC to review and reissue 2011 guidance document.”Under UK law, Section 393 of the Companies Act 2006 requires company directors to approve only those accounts that present a true and fair view of a business’s assets, liabilities, financial position and profit or loss. Section 495(3) of the Act imposes an equivalent obligation on auditors.The FRC published a guidance document dealing with the notion of a true and fair view in June 2011.The document confirms “the true and fair requirement remains of fundamental importance in both UK GAAP and IFRS”.But in the LAPFF Opinion, George Bompas QC said it was questionable whether statutory accounts prepared in accordance with IFRS “will always give a true and fair view.”The Universities Superannuation Scheme, Threadneedle Asset Management and the UK Shareholders Association joined LAPFF in seeking the QC’s advice on the legality of the IFRS framework within the UK.The FRC hit back on 3 October with its own legal advice: “On the specific issue of its legality, the Department for Business has today confirmed that the concerns expressed by some are misconceived.”The UK regulator agreed, however, that there was scope for improvement in financial reporting and urged the IASB to acknowledge both stewardship reporting and prudence explicitly in the IFRS framework.Finally, in relation to capital maintenance, the investors suggest the FRC conduct research into possible disclosure requirements focused on both the determination of and justification for distributions by companies.The FRC told IPE: “We agree on the importance of prudence and have often urged the IASB to include a reference to it in their Conceptual Framework.”The statement added that the FRC would repeat those calls in its forthcoming response to the IASB’s conceptual framework discussion paper.The FRC statement continues: “We are undertaking a review of our paper on the ‘true and fair’ view. We also have work in hand on reviewing disclosures about a company’s capacity to pay dividends.”Well-placed sources close to the decision to send the letter reflects growing frustration among the UK institutional investor community with the IASB and the FRC.IPE has learned that the task of challenging the accounting establishment has until now proved to be a major obstacle to any lone investor group with concerns about IFRS.The source added that, despite a difference of opinion on detail between the ABI, IMA and NAPF, the investor and practitioner voice has this time been so strong that “some of the technocrats in the FRC” have had to step back and take notice.