Bolkestein and accounting boss in last-ditch talks

Date: 25/03/04

FRITS Bolkestein, the commissioner for the internal market, and Sir David Tweedie, the boss of the London-based International Accounting Standards Board (IASB), were expected to be deadlocked in last-ditch talks today (25 March) aimed at breaking an impasse on the accounting rules European companies should apply.

The Dutchman wants the IASB to tinker with a controversial standard, known as IAS 39, which would force banks and insurance companies to update the way they value assets and liabilities on their balance sheets, taking more account of their 'fair value'.

However, European Voice understands neither side was optimistic that they would reach a deal before the IASB's end of March deadline for signing-off on the standard.

The Commission had hoped to convince the IASB to make more changes reflecting concerns of some EU bank and insurance institutions that the standards were biased towards the needs of US-style investment banks.

They would cast too negative a light on their financial statements, upsetting investors and adding to volatility in financial markets, the critics add.

EU firms are already committed to using most of the international standards by next year. Under EU rules, the Commission has to formally endorse the standards.

But Bolkestein had hoped to give his provisional backing for the remaining two - IAS 39 and a less troublesome standard known as IAS 32 - this week.

This would give companies a chance to adapt their systems in time for next year, though the two would only be formally endorsed for use in their 2006 accounts.

But an IASB board member said his organization was struggling to make further changes without undermining the quality of the standard.

“No one knows where the line is where it loses credibility,” he told this newspaper, adding the IASB planned to keep its 31 March deadline - even if an agreement could not be reached with Bolkestein, who has been openly critical in recent weeks about the IASB's decision-making process.

But the expert said the IASB would be happy to keep communication lines open. “I am not saying the deadline will stretch. But it is important for us to get an agreement as well, so there is obviously room with good will on both sides to tinker with issues afterwards. There may be other ideas we don't know about.”

A senior aide to Bolkestein said the chances of a deal on IAS39 were “50-50”, though he said the European Central Bank has now lifted its opposition to the draft standards.

Experts admit that failure to back IAS 39 could make US authorities think twice about recognizing EU firms' accounts based on international standards. That is because complex assets such as 'derivatives' would be ignored altogether.

“Without this, they would be a lot less valuable,” said the IASB executive. “All this is part of an attempt to get European standards to the same credibility [as US ones]. European accounting is not high quality accounting.”

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