Bolkestein delivers deadline for accounting standards deal

By Peter Chapman

Date: 04/03/04

FRITS Bolkestein, the commissioner for the internal market, has issued finance industry bosses, including European Central Bank (ECB) chief Jean- Claude Trichet, a two-week ultimatum to thrash-out a deal on controversial international accounting standards.

The standards, known as IAS (International Accounting Standards) 32 and 39 concern the way the accounts of banks and insurance companies value some of their most complex assets.

The two norms are the only ones which the European Commission has refused to endorse as part of a plan to force all listed companies to use international standards from next year.

But Bolkestein said time is running out to thrash-out a deal on how the issue should be dealt with when international standards become mandatory in the Union.

"I hope we can get a compromise in March - in two-week's time. By then, we must come to an agreement about what the 7,000 stock market listed companies must use from 1 January. I cannot let them remain on tenterhooks for too long. They have to know what to apply we cannot keep companies guessing."

The London-based International Accounting Standards Board, headed by Sir David Tweedie - the group responsible for drawing up the draft standards - has opted for a "fair value" system designed to ensure the market valuation of assets is given more emphasis in balance sheets.

However, EU insurance and banking firms, backed by French President Jacques Chirac, claim the standards, similar to rules applied in the US, would downgrade the value of many of their assets. The ECB claims the proposed standards could lead to volatility in EU markets.

Bolkestein singled out the need for a deal with the Frankfurt-based bank: "If the ECB insists on the attitude it has taken hitherto then I will not even propose IAS 32 and 39 to my colleagues," he said.

The two standards are seen as a vital piece in the jigsaw in the march towards the global use of IAS particularly in the US. Failure to get a deal could derail the whole process.

Bolkestein said the main outstanding problems concerned with the mismatch between assets and liabilities for insurers and "hedging of core deposits" in IAS 39.

The Dutch commissioner was speaking to European Voice on the sidelines of an event hosted by Europe's biggest accounting body, the Institute of Chartered Accountants in England and Wales. Assembled industry bosses panned some of the key elements of a planned clampdown on the way the auditing industry is governed.

They contested Bolkestein's claim that the Commission's proposals were not a knee-jerk reaction to the Parmalat affair, Europe's version of America's recent corporate meltdown.

"In private, his officials admit that it is a slight overreaction," said Martyn Jones, a senior partner with Deloitte & Touche, fresh from a visit to Alex Schaub, director-general of Bolkestein's internal market department. "They say that is what the public expects."

The auditing blueprint, seen by this newspaper, calls for audit firms to be changed every seven years or else senior partners involved in audits must be rotated every five years.

Critics say this makes it harder for auditors to build-up vital in-depth knowledge of complex clients.

Firms handling audits of so-called public interest concerns, including listed companies, would face strict public oversight by panels of specially selected non-practitioners. Audit specialists claim non-experts might struggle to understand the issues.

The proposals would also force audit firms from non-EU countries to register with European authorities, in a provision similar to America's widely criticized Sarbanes Oxley act. However, auditors from other countries with similar systems of public oversight are let off the hook - provided regulators in their country accept EU requirements.

Bolkestein said he hopes to seal a deal on this "reciprocity" later this month with Bill McDonough, head of the US Public Company Accounting Oversight Board. "We are very close to it. But we must keep our powder dry," he said. McDonough is due in Brussels on 25 March.

http://ec.europa.eu/comm/internal_market/accounting/index_en.htm http://ec.europa.eu/comm/internal_market/accounting/index_en.htm

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