[A-List] New transatlantic war on accounting

["Sabri Oncu" <soncu@xxxxxxxxxxx>]

New transatlantic war - on accounting: 
Battle over international standards threatens convergence
Financial Times, March 8, 2005

International standards should be just that - in accountancy, as in other
walks of life. They should also be drawn up by technical experts, regardless
of their country of origin. So the European Union must be rebuffed over its
demands for changes at the International Accounting Standards Board that
would politicise the process and threaten hopes of convergence between
different rules. 

The EU is calling for a radical overhaul of the Board, after resistance from
France and the European Central Bank to IAS 39, the new accounting standard
for financial instruments such as derivatives. As a result, the EU modified
the standard when implementing it this year, diluting the benefit of
adopting international rules.

More important, it led to calls for governance reforms at the foundation
that runs the Board, to make it more accountable to those who implement the
standards. In a letter sent this week, the European Commission has called
for the representation of countries that adopt IASB standards to be
strengthened, and for the majority needed to pass new rules to be raised.

Behind the diplomatic language of the letter lie cruder demands. The EU
wants more places for its representatives, since it implements IASB
standards, and fewer for those from the US, which does not implement them.
The unwritten - but not unspoken - premise is that the Board is dominated by
"Anglo-Saxons" who impose alien standards on continental European countries
with different traditions.

This should be rejected for several reasons. First, international standards
inevitably challenge national traditions - the Japanese, for example, also
object to other rule changes. Second, the foundation's constitution gives
equal representation to North America and Europe - appropriately, given the
balance of financial power. Third, every business that adopts international
standards should benefit if it increases transparency to investors and thus
reduces the cost of capital.

The reluctance of the US to sign up for the international standards is
long-standing but the Board has already agreed with US standards-setters to
promote convergence that would have much the same effect. Accountancy
scandals after the collapse of Enron had led many in the US to look more
favourably on the European approach reflected in some of the new standards.
However, reducing the representation of the US, with its undoubted reservoir
of accountancy expertise, in the IASB is more likely to slow, or even
scupper, convergence.

If that happens, the costs of competing standards will continue to fall on
those international businesses that must currently prepare accounts to two
sets of rules and reconcile them. Since they include many of Europe's
largest companies, the EU should desist from its demands. Meanwhile, Paul
Volcker, chairman of the foundation's trustees, should be robust in
defending the IASB's independence.