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[Excerpt] The next few months will be critical for accounting standards and you will need to keep your eye on the ball if you want to influence the shape of things to come. That was the message Sir David Tweedie, Chairman of the International Accounting Standards Board (IASB) delivered to delegates at the ICAI General Practitioners' Conference.

The ASB has seven new exposure drafts as well as a consultation paper on international accounting standards and we will talk to Mary Keegan, head of the ASB about that in our next issue. Add to that another twelve exposure drafts from the independent International Accounting Standards Board (IASB) and you'll have your work cut out keeping up with the reading over the next couple of months.

The IASB's arm would seem to have been strengthened by several recent developments. The European Parliament's endorsement of the EU Commission's propsal requiring all listed companies in member states to prepare their consolidated financial statements according to IAS by 2005 would appear to be good news although Sir David Tweedie takes issue with what he describes as the 'weasel words' of that endorsement.

With the 2005 deadline only three years away, it's not going to be easy to keep abreast of changes over the coming months. The IASB will shortly begin rolling out its exposure drafts. "We're going to be issuing the changes to the standards at high speed and I would genuinely like comments", Sir David told Accountancy Ireland, adding: "Having changed 12 standards within a few months, there's probably some fatal flaw in one of them and it would be handy if someone found it before the final standard!"

While it would not be correct to say that there are no principles in the accounting standards of the US, and no rules in the Anglo-Saxon standards, the Financial Accounting Standards Board (FASB) - the standard setting body in the US - has traditionally favoured a rules-based approach.

"I don't blame the FASB - it was often the SEC saying you've got to have a rule on this or that. And the big firms were concerned about the litigation dangers so they were coming forward saying "you're leaving us exposed" - we need a rule to do this and a rule to do that", explains Sir David who believes that reliance on rules can compromise standards. People will try to find a way around a rule whereas adhering to principles requires judgement. Sometimes you may have to walk away from the rules because something is simply not right. That is rare, says Sir David. "'ve only used it once in my professional career where I really said I know this fits with the standards but it wasn't good for your particular situation - this can't be allowed to happen. It was a company that was suddenly going to double its income by just a peculiar interaction of two standards that had never met before and we just said you can't do it. If you obey these standards, we'll qualify - and they changed. That was, if you like, an auditing success. Now what would have happened if they'd gone through and collapsed? We would have said "Well they actually obeyed the standards" and suddenly the standards would have been attacked and the profession would have been attacked. So I think one of the things that people have got to realise is that there may be a lot of audit failure but there are a lot of successes too. People just don't see the arguments behind the scenes."

Europe and 2005 Although there will be a lot of change over the next three years, the shock will not be as great here as in other EU member states. The Dutch and Scandinavian countries are close to the Anglo-Saxon model, and Germany is moving in that direction, but France will have to make quite a few changes as will the Mediterranean countries. Asked to explain his reference to the "weasel words" of the European Parliament's endorsement, Sir David says he took exception to the phrase "conducive to the European public good" because "that means they can do whatever they like, frankly I think it is going to leave them open to lobbying. Let's say, for instance, that we go ahead with a share options standard. The Europeans are going to say the American's haven't got one of these, therefore we shouldn't have it. And I suspect if they said that to the Board, we'd say: "That's the standard. Don't take it then". If they came up with a reason (to change) and we thought they were right, we'd change. But if they say "I just don't like the effect of this - like with FRS 17 - well tough! If you want an independent standards board, then you'll get one. You might not like what we come up with, but it'll be independent."

Audit Committees "The real key, I think, is the audit committee. Audit committees have to be tough, very independent minded. In a way you need two types of non-executives on there. You need the guy who can help the board with the strategic decisions, but you also need the shareholders' trustee. And they are not necessarily the same person." "There are two questions every audit committee should ask an auditor ... Where does this company's accounting policies fit on a scale between highly acceptable to totally unacceptable? Secondly, they should ask "if you were doing these accounts, what differences would you make and why?" And I think they should also say to the auditor, "Now is there something we should know? Because if there is, and you haven't told us, you will be fired". They should have the power to do that".

It's also important, of course, that the Audit Committee is not made up of what Sir David describes as the 'Chairman's Chums'.

Review Panel As to companies accepting qualified audit reports, "that's where you need a Review Panel" to encourage them to change. The Review Panel in the UK has not, so far, had to take anyone to court. "The beauty about the British Review Panel is we haven't had to take anyone to court. If they change it, then we don't go to court. If they won't change it we will take them to court. If we win in court they are forced to change it. And the nice thing is the costs of the court action - if they get QCs and all that sort of thing - plus the costs of reprinting and if we are talking about a big company we're talking thousands and thousands of copies - goes on the individual directors. It's they who have to pay and not the company and I say that's splendid" â?¦ The other thing, of course, is that once you get to court they may win on a legal technicality but the press will crucify them, absolutely crucify them. Your peers have judged you guilty ..."

Asked whether the many changes that will take place over the next three years will mean that private shareholders have a better understanding of company accounts, Sir David says: "No. The world is getting more complicated. I wrote a book on private shareholders in 1977 and they didn't understand it then. We don't thelp them. There's lots of things they don't understand ... We put out a paper in the UK but it didn't get very far ... Small shareholders cannot be expected to look at complicated transactions and understand them. And they are not interested. What they want to know - and this comes from research - is profit ... dividends ... You've really got to say 'let me explain this to you' ... more narratives." "We won't have time to do that but governments can do it"

Battle-ready With so much change on the horizon, Sir David Tweedie can anticpate battles on many fronts in the coming months. Famously described as a man who would cross the road for a punch-up, he's ready for his critics and the lobbyists. "People can reject the standards but ultimately this body was chosen to be independent and tough minded and to do what it thinks is right. I think I would rather go down than cave in".

Accountancy Ireland Vol 34 No 3 June 2002

Doing research on IASB.

Hello, I´m doing a Master in Universidade de Aveiro, Instituto de Contabilidade e Admnistração, Portugal. And i´m study the aplicattion of IFRS in Ireland. So I Would like to reade all you text. Thank you very much, for your attention. Best Regards. Valter Xavier