European companies at risk of interpretation ‘chaos’

Accounting chaos could strike EU companies if a proposed European forum creates and issues its own interpretations of international accounting standards, experts have warned.

The warning followed moves by internal market commissioner Charlie McCreevey, who suggested creating a forum as a way of smoothing out differences in the treatment of IFRS across Europe. He sees this as crucial to the drive for harmonisation of standards with the US.

But experts cautioned against the forum going into competition with IFRIC – the body already established to provide guidance on interpreting the new standards.

Peter Holgate, senior technical partner at PricewaterhouseCoopers, said that two bodies undertaking competitive interpretations would be ‘a recipe for chaos’.

Even issues that IFRIC decides to ignore should not be reviewed by a separate body, as conflicting interpretations may appear in the future, said Holgate. He added that the best solution was to ensure that IFRIC was ‘properly resourced’, so that it could fulfil its role without an EU forum.

‘We don’t want lots of disparate people out there issuing interpretations,’ added Ken Wild, technical partner at Deloitte. ‘If you’re going to have interpretations they need to be done centrally. We have a body to do that. It’s IFRIC.’

Wild said any forum would work best as ‘an opportunity for the key players to talk and identify the relatively small number of issues where we do need interpretations’. Such advice could then be passed on to IFRIC.

McCreevey has made his feelings plain. ‘I see the usefulness of a possible European forum in identifying and analysing issues, effectively acting as a filter thereby allowing the International Financial Reporting Interpretations Committee to concentrate on the issues requiring guidance,’ he said last month.

No representative of IFRIC was available for comment.

Meanwhile, ACCA chief executive Allen Blewitt has said that international standards need to be simplified if their implementation is to avoid going wrong.

Speaking at a London conference, Blewitt said: ‘People who initially qualified as accountants and are now principals and managing directors resent that they can no longer understand the accounts of the business that they helped to build.’

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