The Local Authority Pension Fund Forum (LAPFF) believes the European Commission has made a major concession in addressing investor concerns over International Financial Reporting Standards (IFRS).In a letter dated 17 May addressed to the European commissioner responsible for financial markets, Jonathan Hill, the LAPPF writes: “Your written answer to Syed Kamall MEP (E-106071/2015) confirms our belief on both points of law relevant to the endorsement criteria for IFRS – ‘the target’ (being a true and fair view of assets, liabilities, financial position and profit or loss) and ‘the purpose’ (being for creditor and shareholder protection).”The letter continues: “[It] represents a significant change to the landscape of accounting standard setting. Our evidence is that accounting firms, standard setters and regulators have been working on assumptions contrary to that.”This latest development in the long-running war of words follows a bid by commissioner Hill to reassure investors over the financial stability impact of IFRS, including the new financial instruments accounting standard IFRS 9. In a letter dated 10 May seen by IPE, he wrote: “We have analysed EFRAG’s advice, and we are satisfied the standard has been properly assessed against the endorsement criteria of the IAS-Regulation.“In particular, we believe the issues you previously raised in your letter to me of 23 September 2015 have been adequately addressed.”The spat over the purpose of and basis for financial reporting in the EU between some long-term UK investor interests and the wider accounting establishment dates back to the 2008 financial crisis.Since then, concerns have mounted that accounts prepared under IFRS – particularly by banks – could be defective.The LAPFF is among those long-term UK investors that have been vocal in their criticism that IFRS accounts let potentially insolvent financial institutions pay out dividends and bonuses.These investors have argued that dividends paid on the back of unrealised profits ultimately rebound on to shareholders and creditors.In December last year, the LAPFF called on the European Commission to clarify its position on IFRS 9.In particular, the LAPFF believes EFRAG has issued defective endorsement advice on the standard.The LAPFF first contacted the European Commission about the issue on 23 September.The local authority pension funds body warned that the EU Commission could in future face legal action were IFRS 9 to be endorsed.Meanwhile, this latter exchange of correspondence in the dispute leaves the LAPFF holding its line that IFRS 9 fails to meet the EU’s endorsement criteria.LAPFF chairman Cllr. Kieran Quinn wrote in the 17 May letter: “Given that, the only way IFRS 9 could ever comply with the criteria of EU law, having been designed on different premise, would be by accident.”The letter also reveals that the LAPFF continues to believe the EU’s advisory body on accounting matters, the European Financial Reporting Advisory Group (EFRAG), has misapplied the EU’s accounting endorsement criteria in its formal advice to the Commission.Cllr. Quinn said: “The EFRAG has instead operated by taking the assertions of the International Accounting Standards Board as if it defined the purpose of accounts, rather than the rule of law.”Of particular concern to the LAPFF is the EFRAG’s continued support in its 15 September 2016 advice for IFRS 9, despite the fact it could mean banks pay out dividends based on what the LAPFF calls “unreliable level 3 numbers (mark-to-model asset values)”.This means, the LAPFF argues, that the profit or loss and financial position (net assets) will not be correctly stated either.It also dismisses the EFRAG’s suggestion any deficiencies in IFRS 9 could be fixed through a footnote disclosure. “[W]ords might accompany the numbers as a note to the asset valuations,” it said, “but, whatever that note is intended to do, it does not compensate for the asset value, and the profit or loss and the financial position being wrong in the first place.”The LAPFF argues that, although the purpose of accounts is creditor and shareholder protection, commissioner Hill has, in his latest letter, applied a far looser criteria of the Capital Maintenance Directive (2012/30/EU), not the Accounting Directive (2013/34/EU).Moreover, the Capital Maintenance Directive requires shareholders to pay back illegal dividends.The European Union’s endorsement criteria for accounting standards are set out in the accounting directive.The IASB’s efforts to replace its existing financial-instruments accounting literature with IFRS 9 has proved to be controversial.In March, it emerged that the European Systemic Risk Board has not yet undertaken a study of the financial stability impact of the new standard.