This puts pressure on margins, requiring businesses to cut costs while investing more in people and in innovation.
To be competitive in today’s cut throat markets, both local and global, European businesses need access to financial capital at the finest possible rates.
The capital markets are spread around the globe and major institutions who provide that capital operate on a global basis. If the financial statements used by business are to be clear to those capital providers, they must be prepared using international standards applied throughout the world.
The International Accounting Standards Committee (IASC), recognising this need, has been working in co-operation with the International Organisation of Securities Commissions to produce just such a set of standards. These deserve the support of all in the EU.
Equally importantly, the IASC has embarked on a programme of radical and fundamental change to provide robust accounting standards, of the highest quality, for the future.
The new IASC board will comprise fourteen members, mostly full-time, chosen on the basis of technical expertise rather than nationality. It will issue accounting standards after comprehensive exposure and extensive, public due process. The members will be chosen, their performance monitored and the legitimacy of the due process guaranteed by a board of nineteen trustees, each a senior and outstanding individual. This introduces a federal element into the structure, with six trustees from each of Europe and North America.
A key element of EU companies having access to capital at the finest rates, is that they use the same, IASC-published standards as companies in the rest of the world.
Yet some have suggested that the EU should introduce a screening mechanism to decide ex-post which, or even which parts of, IASC standards should be applied in Europe, i.e. one set of standards for the EU and one for the rest of the world.
This suggestion is misguided and, if supported, would lead to loss of competitiveness, prosperity and jobs in Member States. The time to exert influence to get the best standards from a European view-point is to take a full part in the standard setting process ex-ante. The new IASC proposals go a long way towards encouraging this and some straight-forward actions by Member States and the Commission could achieve an excellent outcome.
First, the IASC board will have members responsible for liasing with national standard setters. Those with a responsibility for standard setters within Members States should be fully briefed by those standard setters as soon as topics enter the agenda.
Secondly, IASC proposes a Standards Advisory Council, comprising standard setters and other organisations not represented on the board of IASC. Good quality research and debate amongst EU standard setters and the Commission will ensure that European expertise has the right influence in the Council.
Thirdly, the IASC liaison members are not limited to maintaining contact with any one country.
A working group of standard setters from all Member States could be set up to utilise not only their experience and expertise but also that of the F‚d‚ration des Experts Comptables Europeen and its member bodies.
This group could offer advice to the IASC at the earliest stages of considering an issue and offer input throughout the period of exposure and due process. It would be natural for the IASC to wish to liase with such a group.
Further, the Commission would have a strong and natural role in any such arrangements.
But first class standards without first class enforcement will not achieve the required result. The accounting directives should include a requirement to follow IASC standards. It is right that the consequential national law should be enforced by Member States, who should be asked by the Commission to make public the measures they propose to ensure compliance with IASC standards by any company claiming to use them. Should such measures be found to be ineffective, steps should be taken to ensure that appropriate procedures, in the context of the regulatory regime of the Member State, are put in place.
To assist with monitoring compliance, the working group of standard setters and others referred to above could review the financial statements of EU companies and refer any instances of non-compliance to the enforcement body in the relevant Member States. It could also collate any emerging problems or inconsistencies of practice and refer them to the IASC board for action.
A key element of competitiveness for European companies is that they should be able to account on a fully international IASC basis. The European Parliament has a historic opportunity to promote prosperity in Europe by pressing for the accounting directives to incorporate undiluted the standards published by the IASC.
This article first appeared in The Parliament Magazine.
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