Frère Jacques and IFRS: Sonnez les matines?

Abstract

This paper in honour of Jacques Richard is framed by the well-known nursery rhyme: Frère Jacques. The theme of the paper relates to the notion of socially constructed reality, leading to inter-subjectively constructed ‘facts’ which are epistemologically objective, within a given community of like-minded thinkers. We consider the implications of that theme for IFRS. Should we, in the words of the nursery rhyme, ring out the bells in celebration? We have argued that IFRS are, and are explicitly declared by the IASB to be, designed for the purposes of only one of a variety of potential different user groups. These user groups have different purposes. They are all decision-makers, and they all require information. But they require different information, consistent with their different decisions. They are different epistemic communities. They have different ‘realities’. They therefore have different perceptions of what does and does not constitute a true and fair view or a fair presentation of their reality. IFRS are explicitly focused on the external supplier of finance. Their focus is publicly defined, and they make genuine, if not always successful, attempts to apply it. For smaller family-financed businesses, or bank-financed businesses where the bank manager sits on the Board, or plays golf with the directors, the needs are different. This is even more true as regards prudential regulators. There are a variety of different epistemic communities, with different realities and therefore requiring, in the general case, different data in financial reports, which will require different regulations. The paper explores the principles behind this thinking, and then in some detail the implications firstly of different users, and secondly of different valuation methods. The conclusion is that the bells of celebration should be small and muffled. To return to the French song, pour notre Frère Jacques on propose les clochettes étouffantes.