International rescue

There’s a new voice issuing warnings at the International Accounting
Standards Board. Tommaso Padoa-Schioppa, the recently appointed chairman of the
IASB trustees, has made his mark by telling the business and accounting world
that US adoption of global standards remains “highly uncertain”.

What’s happened?

As an opening gambit scare-mongering never impresses the people you need to
influence. However, as a tactic for airing the most appalling possible outcome
while you’re in charge it is invaluable. It starts preparing people for the
worst – anything better is therefore a bonus. When it comes from someone of
Padoa-Schioppa’s pedigree, it’s worth taking note.

With a background as an economist, a finance minister in Italy and an
architect of the euro, the IASB has a man with real political clout and
substantial intellect heading its trustees.

His warning went something like this. There is much opposition in the US to
IFRS and that presents a risk to the June 2011 deadline for bringing
international and US standards into line. He also noted that the EU funding to
the IASB was also troubling. If European players decided they didn’t like the
standards being produced they could refuse to pay their dues. IFRS 9 is on
everyone’s mind – the new standard borne out of the financial crisis which is
yet to receive EU approval.

What happens next?

That Padoa-Schioppa’s tenure looks like it will get off to a lively start
should not really be a surprise. He is considered a founding father of the
single currency, was chairman of the IMF’s policy committee, has been vice
director general of the Bank of Italy, led the Basel committee on banking
supervision and headed Italy’s financial regulator. He spent two years as
finance and economy minister under Romani Prodi before Berlusconi took over
government in 2008. A careful read through his comments indicates that something
might be on the way. He said he would review the IASB’s scope, governance and

These are worth addressing. The IASB’s money comes from many sources but
remains reliant on the EU and US. And on governance the EU commissioner in
charge of internal markets, Michel Barnier, has been complaining since he took
office. The issue here is that Barnier believes the IASB remains unaccountable
and that there needs to be more political control. He’s unlikely to get support
from Padoa-Schioppa, who has described those who believe accounting standards
should be made by governments as “nostalgics” – he won’t be handing over
standard setting to the EU anytime soon.

However, he seems firm in his belief that the IASB is facing real threats and
said that, in the “worst case” scenario, the challenges could threaten the very
survival of the IASB “as it was originally conceived”. That’s an ominous
sounding statement and those with an interest in seeing the IASB project succeed
will be taking it seriously.

Related reading

Fiona Westwood of Smith and Williamson.