Leader: Convergence in trouble but the show goes on

The UK’s most senior financial regulator this week spelled out his scepticism
about international accounting standards, adding fuel to the growing antipathy
towards the body. Adair Turner believes that convergence with US standards is
not a necessity and says the process is adding complexity to IFRS.

Don’t expect International Accounting Standards Board chairman Sir David
Tweedie to suddenly pack his brief case and go home. He’s not about to cave in
over a bit of pressure from another regulator. He’s seen and heard much worse in
his time in charge of the board. The real issue is whether Lord Turner’s view
encourages someone, like the EU, to take action to disassociate itself from the
IASB and go its own way. But It’s unlikely that it will. Anti-IASB views are
already present in Europe and are well entrenched. So far no one has acted on

One possibility is that Turner’s view will gain some traction within
government. Brown has been supportive in the past, could he and his cabinet be
persuaded to back track? Certainly, if they wanted to, they would. But it’s more
likely they are preoccupied with other issues like the small matter of an
impending general election. There are no votes in IFRS. The convergence project
is safe for a little while longer.

Credit where credit is due

MPs have launched an effort to reduce the influence of banks and insolvency
professionals during a company collapse, insisting the role of unsecured
creditors has to be given more importance. There must be some sympathy with this
view. Unsecured creditors come some way behind the main creditors, ie. the
banks, and the IPs, who get their money first. Suppliers can find themselves
considerably out of pocket when a customer goes bust and the collapse of a
single large customer can spell the end for a supplier.

But what are the alternatives? Take away priority from the banks and ask
yourself, why should they bother lending if they can’t use the law to get their
money back? It simply doesn’t add up. Tell the IPs they’re at the end of a long
line before they get their fees and suddenly they’ll be asking why they should
bother.There are areas they could make money in that are lower risk. We need
banks to lend and feel secure about it. We need IPs to deal with fallen
companies knowing they will get their fees.

Of course, in a recession, attention naturally falls upon those that appear
to benefit while others suffer. But, even in hard times, both banks and IPs
provide essential services. Far better for suppliers to keep a more careful
watch on their clients and ensure their own risk is spread.

Related reading

Fiona Westwood of Smith and Williamson.