As globalisation becomes a reality rather than a slogan, the trading world and international capital markets need to have internationally accepted accounting standards if they are to function effectively. Such IAASs do not exist at present.
The long-term goal of a single set of high-quality accounting standards for world markets cannot be achieved without radical changes to the IASC. The IASC knows that and recently published proposals for the way ahead.
But as the deadline passed for comments, it is clear that national accounting standard setters and other financial reporting experts have given the IASC’s strategy working party’s proposals the thumbs down. The IASC’s proposals don’t go far enough.
The IASC has proposed a standards development committee (SDC) which would be responsible for working up future international standards. But its independence is curtailed by the fact that, under the IASC proposal, the IASC Board could vote it down.
Both the UK’s Accounting Standards Board (ASB) and the US Financial Accounting Standards Board (FASB) are arguing that the IASC board should be more of an advisory body with powers of delay but not rejection.
As FASB put it: ‘The proposal that the IASC board should have veto power over standards developed and approved by the SDC would undermine the autonomy and efficiency of the SDC and the resulting quality of the standards.’
The ASB has laid out four criteria for a single, international standard setting body: it is accepted internationally; its members are accepted internationally and are technically up to the job, independent and of different nationalities; the members relate back to national standard setters so they are not living in an ivory tower; and national creativity is not stifled.
This last point is not just special pleading by the ASB to ensure their jobs are safe. FRSs 4, 5 and 7 have all eliminated various creative accounting tricks in the UK.
Those abuses would be still going on today if the ASB had waited for the IASC to take the lead.
If the IASC doesn’t beef up its proposals, it’s hard to see a long-term future for it in the role to which it aspires. Despite its high profile and success over the past couple of years, it is tempting to think of the IASC as a rather remote talking shop.
More importantly, if the IASC doesn’t reform itself then its standards will be bypassed by multinationals and stock exchanges. In their stead, US standards will become the de facto global standards. And if that happens, the UK, even the European, voice on international accounting standard setting will be drowned out by American accents dictating the accounting terms.
Peter Williams is a chartered accountant and editor of Electronic Finance.
Andrew Tyrie airs views on the Finance Bill, 'Making Tax Policy Better' report, and Brexit
In our latest managing partner Q&A looking towards 2017, CVR Global's Richard Toone talks about recruitment, and the potential threat of competition from the legal sector, as key issues for the firm in the coming year
Deloitte to avoid tendering for government contracts over the next six months, to appease Theresa May following consultant's report that painted a less-than-flattering picture of Brexit plans
In our first Q&A looking towards 2017, Menzies senior partner Julie Adams flags up increasing digitisation, aligned with more hands-on consultative services, as the key mix for her practice