Financial Reporting - Europe fires standards shot at US

The European Commission this week put international accounting standards at the centre of its plan to tackle the dominance of US stock markets.

In an action plan agreed with finance ministers and published on Tuesday, commissioner Mario Monti set out proposals designed to consolidate Europe’s capital markets into a single force that could rival the US on the world stage.

The reform package marks the first time the EC has stated its position on corporate governance and accounting issues, as it promises to examine the legal and administrative barriers between member states. It also seeks to remove disparities in taxing private savings while providing a legal framework for the liquidation of insurers and common rules in the event of bank insolvency.

If the proposals are quickly agreed by member states, companies listed on European stock exchanges could soon prepare their accounts using IASs.

The commission intends to establish a body, or ‘screening mechanism’ with the legal right to choose which standards to adopt, probably IASs.

The EC has long been at odds with the US Securities and Exchange Commission about who sets international standards and how. Michael Hughes, chairman of KPMG’s accountancy committee, worried that the commission’s plans would fuel ‘accountancy protectionism’ in the US.

EC’S ACTION PLAN

– Now: consider international standards; establish ‘screening mechanism’

– Late 1999: recommend EU audit standards; modernise company law to integrate IAS

– 2000: corporate governance review of barriers between member states.