The road towards consistent global accounting standards was always destined to be rocky. Political movers and shakers will not give ground easily and the quest for harmonisation, whilst honourable, requires compromise.
IOSCO, the group of world stock market regulators, started the ball rolling when it endorsed the set of standards drawn up by the International Accounting Standards Committee over a period of 30 years.
The purpose is to lower the cost of capital to multinational companies by enabling them to list anywhere in the world using one set of accounts under one set of accounting standards.
However, storm clouds began to gather. The IASC went through a restructuring process, and the ‘New IASC’ is going to be a very different animal to the original.
The key players jostling for position were the US and Europe, with the UK’s Accounting Standards Board a heavyweight in the European arena.
The result was that the new body is following a model more favoured by the US than Europe. Retaliation has now come in the form of Europe’s stance on acceptance of the IASs issued by the new body.
The latest announcement from the European Commission will strike fear into the heart of anyone who has a wish to see global harmonisation of accounting standards.
For all listed companies in Europe, compliance with international accounting standards will become compulsory in 2005. The sting comes with the proviso that there will be a ‘screening mechanism’ put into place, designed to ensure that an IAS could be rejected if it proves to be ‘unacceptable’.
The Commission statement suggests it will only be used if they really object to a standard on the grounds that it does not take account of European circumstances. I cannot believe that in the hands of bureaucrats such a power will be used as infrequently as they claim.
This will become the death knell for global accounting standards harmonisation.
It will leave countries in Europe with a situation of Euro-IASs and the rest of the world adopting what will effectively be US approved IASs.
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