McCreevy: Europe must not surrender to US on reporting

Date: 20/10/05

Charlie McCreevy, the European commissioner for the internal market, has admitted that new international accounting standards could be pushed too far towards US standards in the name of convergence.

Addressing the European Federation of Accountants on Tuesday (18 October) he said that the Commission would do all that it could do to prevent this outcome.

"I hear the message that there is a danger of where this process might inevitably lead."

The International Financial Reporting Standards (IFRS) which became mandatory for European companies listed on the stock market in January, are set by an independent board, the International Accounting Standards Board (IASB).

The IASB's ultimate goal is to produce a global set of standards so that any investor across the world can compare any companies' results.

McCreevy admitted that the Commission is limited in its influence but said that it would continue to push its message.

"The message has to be got across to another relevant body," said McCreevy, referring to the IASB. "It's not our intention [to move towards US standards] but we have to have some control of the horse, so to speak."

He added that the Commission would not enter into a tit-for-tat battle with the US by demanding that their companies file reports both in US and international standards, which is what European companies listed on the US stock exchange have to do.

"I do not think we will gain much by seeking short-term conflict," he said.

Companies fear that because the US will not be able to move away from their very prescriptive rules for fear of litigation, everyone else will be forced to join them. Companies are already finding the implementation of IFRS complicated, costly, and not always effective.

"The IASB needs to be accountable," said Peter Wyman, a partner at consultant firm PriceWaterhouseCoopers.

"When we had national standards the national bodies were accountable. If we had European standards the European institutions could be accountable. But with global standards?"

In recent weeks European companies have started to rail against IFRS. Some French and German firms have consistently opposed them but now even the British, who previously backed the standards, are voicing doubts.

"British companies woke up very late to these standards, they welcomed them without really knowing what they were," said one British accountant.

"Then they started using them and thought, we don't want this."

An alternative to the creation of one set of standards is to make all norms 'equivalent' to one another.

In April, the US Securities and Exchange Commission and the European Commission agreed a roadmap that would eliminate the need for European companies to file two reports if they list in the US by 2007 if possible or 2009 at the latest.

Alexander Schaub, head of the Commission's internal market department, said that before the end of the year the Commission would take the first steps towards this goal.

It is likely, he said, to "organise the path" towards equivalence by setting a two-year period where the IASB and its US counterpart the FASB would work "closely and intensively together" to see how they could recognise each others standards.

"It is not helpful to try to recognise equivalence straight away because IFRS are too new," he said. "We need time to compare texts and results."

"Our interest is to avoid EU companies reporting in EU and international standards so we are strongly pushing for convergence between the two. We will not push it to full harmonisation but to move the two systems so closely together that the experts can consider them, not identical, but producing equivalent results."

Article reports on comments by the European Commissioner for the Internal Market and Services, Charlie McCreevy, to the European Federation of Accountants on 18 October 2005. McCrevy admitted that new international accounting standards could be pushed too far towards US standards in the name of convergence and that the European Commission would do all that it could do to prevent this outcome.

European Commission: Speech: SPEECH/05/621, IFRS - No pain, no gain? 18.10.05 http://europa.eu/rapid/pressReleasesAction.do?reference=SPEECH/05/621&format=HTML&aged=0&language=EN&guiLanguage=en

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