Europe must stop its meddling, says FASB chief

European meddling in international standard setting might derail American adoption of global accounting rules, the head of the US standard setter has warned.

Robert Herz, chairman of the US Financial Accounting Standards Board (FASB), speaking exclusively to Accountancy Age, said that the International Accounting Standard Board’s (IASB) ability to resist undue European pressure will be a “critical” issue as the US decides whether to adopt global accounting rules.

“It’s a very important factor,” he said.

“The US wants to make sure that the standards it uses come out of a standard setter which has the appropriate public policy objectives and is not being geared or
harassed to do things in a way that is not consistent with that public policy objective.”

US investors and politicians watched with concern as Europe pressured the IASB to change its accounting rules in October 2008.

In an earlier speech at PricewaterhouseCoopers' Meet the Experts seminar on Monday, Herz pointed to “certain parts of Europe” undermining American confidence in the IASB.

“[Investors] do look at what comes out of certain parts of Europe ­ certainly not this glorious island, certain other parts of Europe ­ and there are concerns especially among the investor community that what we may end up with are standards which are not geared towards the public policy objectives that we hold fairly sacred in
the US.

“As one congressman once said to me: ‘It’ll be a cold day in hell when I let a Frenchman tell me what to do’.”

France and Germany have been the chief agitators within Europe, accusing the IASB of moving too slowly following the financial crisis.

Herz is working with the IASB to converge US and international accounting rules, in the hope that the world’s most powerful economy will eventually adopt the global rules now used in 113 countries.

The task of convergence was made more difficult when earlier this year the IASB released its fair value model which significantly differed with FASB’s model.

The fair value rule forces companies to value their assets at market prices, rather than their original purchase price. It was blamed for exaggerating the downturn in markets with little to no movement.

FASB’s proposal would see almost all assets measured at fair value, while the IASB has put forward a mixed measurement model which would see some assets valued at amortised cost.

In September, IASB chairman Sir David Tweedie told Reuters news agency
that FASB’s model was “not acceptable worldwide and in some segments of the United States either.”

He later backed away from these comments and said: “though we have different ideas about how we are going to deal with financial instruments at the moment, that isn’t to say we’re not trying to get together.”

Herz said the IASB’s fair value model was important and “has to be very strongly borne in mind” when deciding on a harmonised standard.

Tweedie is due to finish as IASB chairman in 2011, while Herz is finishing from FASB in 2012.

Asked whether he would be interested in Tweedie’s job, Herz replied: “I have
no idea…I got my head focused on trying to focus on other things.”

IN OUR VIEW

Threats – empty, veiled or otherwise – by parts of Europe to dump international standards hurt us all.Taking on international standards involves a leap of faith. Attempts to undermine or control standards politically is short sighted and narrow minded. And if the standards are compromised for the wrong reasons, we all suffer.