Standards no guarantee of preventing financial crashes, warns IAS boss

Date: 28/02/02

By Peter Chapman

THE man in charge of setting the International Accounting Standards (IAS) admitted this week there was no guarantee that adopting the norms would be a cure-all for global financial disasters such as the meltdown of US energy trading giant Enron.

'We think it wouldn't happen [with IAS] but we are not certain,' Sir David Tweedie, chairman of the London-based IAS Board, said. 'We don't actually know what happened with Enron - and the people that do are pleading the Fifth Amendment.

'We are not sure if it was a failure of accounting standards or implementation or an auditing mistake - although I am sure there was plenty of deceit.'

But Tweedie insisted the US system was more prescriptive than the 'principles-based' IAS system - giving far more scope for those seeking loopholes such as merchant banks trying to find ways to hide bad news from balance sheets.

'The points that are coming through in the testimony in the US is ultimately you can spend three years producing a rule and Wall Street will spend three weeks trying to beat it.'

His comments follow criticism by Financial Services Commissioner Frits Bolkestein of the US Generally Accepted Accounting Principles (GAAP) system, which he held responsible, in part, for Enron and other 'scandals'.

Tweedie said he wasn't taking the superior quality of IAS for granted, although he could 'see why Bolkestein said it'.

'We have to make sure that the smart merchant bankers can't find a way around our rules,' he added.

Bolkestein is trying to convince the US to match the EU's draft regulation that will allow any company using IAS to list on US stock exchanges.

He meets with the Securities and Exchange Commission in May in a bid to convince reluctant officials to make the switch expected to save European firms the cost of changing their accounts to meet US norms.

Tweedie said that the May showdown between Bolkestein and the SEC's Harvey Pitt was 'key' - although he played down differences between the pair.

'Basically they are on the same side. They both want to make sure their capital markets are protected from disasters as best they can. They are both singing from the same song-sheet.'

He said it was impossible to say when the US might allow EU firms using IAS to list on US stock exchanges. But he said this would happen as IAS began to prove their worth.

The European Parliament this week gave a fillip to the drive towards IAS.

The assembly's legal affairs committee approved a report by British Tory Lord Inglewood backing a Commission regulation calling for companies listed on EU stock markets to use IAS by 2005. The full Parliament is expected to rubber-stamp the draft law next month.

The man in charge of setting the International Accounting Standards has admitted there is no guarantee that adopting the norms would be a cure-all for global financial disasters such as the meltdown of US energy trading giant Enron.