The first accounting standard to be written by the International Accounting Standards Board and the US Financial Accounting Standards Board has come under intense criticism from European industry accountants, analysts and regulators.

The proposed standard on M&A transactions known as IFRS3 has been roundly criticised for being a step towards full 'fair value' accounting, under which all assets and liabilities are shown at market or equivalent prices.

The European Financial Reporting Advisory Group (Efrag) has drafted a letter to the IASB expressing 'major concerns' over ammendments to IFRS3. It says the new standard would introduce unreliable fair value measurements, and claims that standard-setters are changing their approach without prior discussion.

Efrag's concern is that the IASB and FASB are seeking to reinvent financial reporting with new rules rather than harmonise the existing standards.

The new standard would have major effect on post-transaction earnings per share as a result of M&A activity. This is a key measure of a deal's success, and would lead to drastic changes in the balance sheet of acquirers.

The IASB and the FASB hailed the draft as evidence that the two boards are working as a team when it was launched in June, and a consultation period on the new standard closes this Friday.

The EU's internal market commissioner, Charlie McCreevy alluded to the new standard in a speech last week when he said: 'I will not take on board any revolutionary new standards'.

IFRS3 already appears more unpopular in Europe than the widely criticised IAS39 standard on financial instruments.