THE UK should not extend the use of international financial reporting standards (IFRS) beyond the largest listed companies, the Lords have urged.

In the Lords' report into audit and the banking crisis, it has recommended "continued use" of UK GAAP for other companies.

The call to retain UK GAAP will come as a blow to standard setters, who consider UK accounting rules for SMEs as out of date. The Accounting Standards Board is planning to replace UK SME standards with a lighter version of IFRS known as FRSME.

The Lords are concerned that IFRS is an "inferior system" to UK GAAP by limiting the auditors' ability to exercise prudent judgment, offering less assurance. They raise issue with IFRS' inability to account for expected losses.

"[The government] should promote a prudent interpretation of IFRS as applied to banks... We recognise that a fully satisfactory outcome depends on international negotiation and believe that the government should give a lead.

ACCA responded strongly to criticisms of IFRS, arguing that concern around the standards should not apply to its SME version.

"In terms of the Lords report, the criticisms of IFRS relating to large banks in no way should be extrapolated to cover SMEs. The 'IFRS for SMEs' standards are clearly less rules-based than full IFRS and our view is that they are fully suitable for UK businesses," said Ian Welch, head of policy at ACCA.

"Reverting to UK GAAP would be a backwards step and would simply impose additional costs on UK businesses in maintaining two systems."

(Picture: Lord MacGregor unveils the committee's report earlier today ©Iain Winfield/Incisive Media)

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