‘Principles should not be sacrificed’

Link: Companies face global rules wake-up call

Mark Armour, chairman of the FTSE 100 group of finance directors and FD at publishing group Reed Elsevier, said: ‘UK had a sensible accounting regime’ and warned that this should not be sacrificed on ‘the altar of convergence’, according to reports in today’s FT.

Armour spoke out as the International Accounting Standards Board reached an agreement with the US Financial Accounting Standards Board, which is expected to result in convergence on a set of global accounting standards.

The two bodies, with the backing of the US Securities & Exchange Commission, are expected to combine the best standards from their respective books.

However, UK standards stress a principles-based approach, which allows for interpretation, while the US follows a more rigid rules-based approach. Some people have blamed the accounting disasters that hit WorldCom and Enron on this rules-based approach.

An issue of heated debate is likely to be the booking of stock options as expense, which the IASB is in favour of adopting, while the FASB gives companies the choice whether to deduct stock option costs from profits.

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