EU pushes for deal on global accounts

Date: 22/04/1999

By Peter Chapman

The EU is set to raise the stakes in a turf war with the US over the future of international financial accounting standards.

The move follows last month's rejection by US accounting body, the Financial Accounting Standards Board (FASB), of a 'one-stop shop' set of international accounting standards for large companies listed on foreign stock exchanges drawn up by the London-based International Accounting Standards Commission (IASC).

Such a move would make it cheaper and easier for international companies to merge and make it simpler for firms listing on a foreign bourse such as the New York Stock Exchange. Experts say it would also favour investors by standardising the information which firms must disclose to the markets where they are listed.

But the FASB has poured cold water on the plan which, if adopted, could lead to the acceptance of international standards for the first time by foreign firms listed on US stock markets and other bourses.

It argues that the IASC initiative, which could pave the way for the convergence of differing standards across the world, does not go far enough to guarantee compliance by firms with high levels of financial reporting. It also claims that the IASC is not independent enough to perform the task.

However, industry sources predict that a group of top EU member state finance officials, set up by the European Commission to examine ways to complete the single market for financial services, will nevertheless support the IASC's move.

They say that the group sees a single set of international standards as crucial to the integration of financial markets in Europe following the launch of the euro.

Peter Clark, senior research manager with the IASC, said he expected the Union group to give its seal of approval to the initiative, launched four years ago, at next month's meeting of EU finance ministers. "They have been very supportive so far. The indications are that this support will continue," he said.

It is not just the US stock markets which do not recognise international standards published by the IASC. Canadian and Japanese bourses also insist that domestic rules be applied, even though this often means a total re-hash of the same raw financial data.

Many other bourses accept some but not all of the international standards already published by the IASC. This has prompted the international financial community, including the Union and the Group of Seven (G7) industrialised countries, to call for an internationally acceptable system to be adopted urgently.

The International Organisation of Securities Commissions (IOSCO), the umbrella group for international stock exchange watchdogs, called on the IASC to draw up the common accounting code in a bid to break the deadlock.

John Hegarty, secretary-general of the European accountants lobby group the Fédération des Expert Comptables, said it was vital to remove these market barriers.

" This is a hugely serious issue. We need a single set of standards that recognise that financial markets are global," he said.

But despite the IASC's efforts, the US' Securities and Exchange Commission - a key member of IOSCO - has continued to hint that it would prefer a system backed by its compatriots at the FASB.

This, claim industry insiders, is proof that the US is trying to hijack the international accounting system, pushing for its own standards to be fed into the IASC code before it is adopted. "The Americans think they know better. They say 'let's go for a single set of standards, but let's do it our way'," said Hegarty, who warned the IASC not to bow too far to US pressure. Otherwise, he said, industry might withdraw its support, forcing the EU to develop its own Union-level body. "We as a federation have supported the IASC and international standards. Our message is that things are going well; we do not want to blow it," he said.

Even if the IASC did bow to US pressure, warned Hegarty, the Americans might nevertheless try to set up their own alternative body based on the FASB.

" The nightmare is that the IASC bends over backwards to the US and that they still do not go for them [IASC international standards]," he said, adding that the resulting fragmented system would cost firms a fortune and could undermine investor confidence.