PracticeAuditPolitics must play no part in international standards

Politics must play no part in international standards

Ever since the European Commission first mooted its plan to set up an endorsement mechanism for international accounting standards back in 2000, UK accountants have warned against the potential pitfalls of a 'get-out' clause. This clause would allow Europe's domestic regulators the power to demand additional disclosure on IAS, if they believed it necessary.

Many experts view this extra oversight power as something that not only undermines the harmonisation process, but also the International Accounting Standards Board. Crucially, it would also give US standard-setters justification for tailoring IAS for the needs of US companies, if and when they adopts IAS.

A worst case scenario would be that, instead of a single set of standards, we end up with 15 different sets of accounting rules – something that no one wants.

The EU endorsement mechanism has the potential to undermine the whole aim of the IAS programme – to create a single set of globally accepted accounting rules.

There is a counter view. European commissioners vehemently defend the mechanism and dismiss fears of dilution of the rules. Commissioners say that the endorsement mechanism must exist to ensure that IASs do not clash with member states’ legal frameworks, a not unreasonable motive.

But the real fear resides in the potential for politicians to use the mechanism to manipulate rules in a bid to gain brownie points with their electorates, if a certain rule doesn’t suit their country’s business leaders.

Politicians have already shown that they might be tempted to do so. Last week, French president Jacques Chirac intervened in the debate on the proposed fair valuing of financial derivatives. Eighteen months before all of Europe’s 7,000 listed companies begin reporting under international accounting standards, politics has already raised its head.

If these rules are to work effectively in lowering the cost of capital, ensuring transparency and the quality of financial reporting for investors, analysts, shareholders and stakeholders, politics must play no part.

Last week, Chirac said the proposals for financial derivatives could have ‘nefarious consequences for financial stability’. But with the 2005 deadline looming, now is not the time to start cherry picking.

What investors and companies need more than anything now is a single set of accepted standards, not political posturing.

Email: comment@accountancyage.com.

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