Accounting clash risks financial ‘Tower of Babel’

By Anna McLauchlin

Date: 14/07/05

European regulators and businesses are failing to agree on the consistent application of international accounting standards (IAS) across the EU. At stake is the planned convergence with US standards by 2007 whereby major companies use the same financial language in their reports.

Member states and the European Commission decided that an extra body should be set up to deal with unforeseen difficulties with IAS in the aftermath of the 'IAS39 problem'.

But interested parties are failing to agree on how this body should work, with an informal deadline of the end of June already passed with no decision.

IAS39 was changed by the EU on fears that it would lead to unacceptable volatility in European stock markets. Following lengthy talks with the International Accounting Standards Board (IASB) - responsible for drafting the standards - the member states and the Commission adopted a modified standard on Friday (8 July).

At Friday's meeting the Commission suggested that a round table could be set up with the relevant stakeholders at the Committee of European Securities Regulators to ensure independence, but others argued that a regulatory body should not also be responsible for how the standards are applied.

Businesses and national standard setters involved in the accountancy profession, which set up the European Financial Reporting Advisory Group specifically to support the IASB, argue that they should have a larger role in deciding how standards are applied.

"It's a question of money and power," said one source. "The Commission wants to pay as little as possible and have the control over the body and so does the accounting profession and its partners."

A Commission official said that the executive would put forward more detailed suggestions in October.

Adding fuel to the flames of the dispute is the fact that the IASB already has a body that interprets all standards for use across Europe. Sources say there are fears that the work of any European body would seep into the area of interpretation.

Elizabeth Hickey, director of technical activities at the IASB, said that she would not comment "on the work of others" but said that the IASB's body was the only one that could interpret standards.

"The group would not clash with the work of the IASB, but help it concentrate on key issues," insisted a Commission official.

The biggest fear is that Europe will end up creating a separate group of modified standards, which would jeopardise any chance of reaching the EU and US deadline of converged standards by 2007.

"What we need to avoid is the creation of a European standard setter," warned Saskia Slomp of the European Federation of Accountants. "Nobody wants that."

Slomp said that she would back further research to see whether the workload required an extra European body.

But companies will begin reporting on their annual figures under IAS this year and any problems that arise will have to be dealt with.

"The US has already said that convergence will depend on consistent application of IAS across Europe," said Franz Folker at European business federation UNICE.

"Time is pressing to get this co-ordination right."

UNICE will meet officials from Internal Market Commissioner Charlie McCreevy's department tomorrow (15 July) to discuss how to take the issue forward.

Article reports that European regulators and businesses were failing to agree on the consistent application of international accounting standards (IAS) across the EU. At stake was the planned convergence with US standards by 2007 whereby major companies use the same financial language in their reports.