International Accounting Standards
Author:
Brian Walsh
[Fulltext] I remember being at a Conference in Edinburgh a few years ago, and hearing an EU Commissioner with responsibility for transport infrastructure in Europe outline his objective for a train service which would traverse Europe from East to West and North to South, as if it were one country. When he was asked from the floor as to how he was going to deal with the fact that the gauge for railways in Northern Europe tended to be different than the countries in Southern Europe, he replied "that is just a detail, we will overcome that".
He was, of course, right. Great men and women achieve great things by concentrating on high level objectives, while letting others deal with the detail. If all the detail had to be put in order before a decision, in principle, was made to achieve a high level objective, nothing would ever get done.
So what has all this got to do with International Accounting Standards? Well, can you imagine the answer a Chartered Accountant might get from the CEO if he/she were to object to the establishment of a separate company in, say, the US, because they used different accounting standards over there and it would cause all sorts of problems? I think you can. What has happened is that business has gone global without much regard for the problems which different accounting standards in different countries might cause. It has been left up to international and national accounting standard setters to sort out the problems, and it has proved to be a long and difficult task.
The main problem was the attitude and influence of the Securities & Exchange Commission in New York (SEC). It took the view, not unreasonably as far as they were concerned, that if a company wished to raise capital on the US capital markets, then it must prepare its financial statements in accordance with US GAAP. They had no problem with having common international accounting standards, provided those standards were US GAAP. This was obviously not acceptable to most of the rest of the world, and, in particular those countries where there had been a strong accountancy profession built up over very many years. Their wish was that international accounting standards developed by the International Accounting Standards Committee (IASC) should be accepted in all markets. However, the SEC held a very strong hand and inevitably a compromise had to be made. The compromise was that, in December 1999, the IASC proposed radical structural changes which required the creation of a new Board (IASB) with responsibility for the development of international accounting standards. The Board would be much smaller than the old IASC, with only fourteen members who would be selected according to technical expertise, without necessarily ensuring worldwide geographical representation. This has inevitably meant that its members come from developed capital market economies and are predominantly North American, European and Australasian experts. It is chaired by Sir David Tweedie, who was previously Chairman of the Accounting Standards Board in the UK (ASB).
Elsewhere in this magazine, you will see an article by Karel van Hulle, which sets out how international accounting standards will be dealt with in the EU. The target is that by 2005 all listed EU companies will be required to apply International Accounting Standards.
The new 'deal' has been endorsed by the EU and the International Organisation of Securities Commissions (IOSCO). The SEC has not yet given its formal endorsement, but the expectation is that it will.
So, is it a good thing? The answer has to be yes. While there may be added costs initially, there will be savings in the long term, there will be greater transparency and investors will be able to compare company performance against a common standard.
Why was it so difficult, and why did it take so long? Lots of people would have different views on that, but, personally, I believe it is because business has gone global but individuals have not. Even in this time of great change, too many people are still wedded to the past and to the belief that "their way is best" The message is that we should approach all new ideas with an open mind.
Brian Walsh, FCA
Chief Executive