The proposal provides critical support for steps to harmonise European Capital Markets in which comparable and reliable financial data and is the lifeblood.
In a European context, accounting standards are highly fragmented and it is a positive step that some of this fragmentation will be removed. The adoption of IAS on a European scale will add credibility to the standards themselves and make a significant contribution to the ongoing struggle for global acceptance of IAS, including the United States.
It can be argued that some UK standards are more intellectually sound than IAS. However, the wider benefits of harmonisation outweigh intellectual parochialism and a degree of compromise must be accepted. In any event, UK and IAS have considerable similarity and UK companies are most likely to be primarily concerned about the need to reconcile from one GAAP to another.
This may be seen as an optimistic view. The Commission?s proposal indicate that ‘in order to provide legal certainty’ the EU will adopt a two tier endorsement mechanism, one technical, one political to confirm the standards to be applied. As an optimist, I might say that this is a safety net, but there may be a more sinister intent. This mechanism could well be used to develop IAS into a separate body of European accounting standards which would be applied perhaps solely within the EU.
This would have two most unfortunate consequences. First, we could then see three bodies of accounting battling it out for global domination, US GAAP, IAS and EU GAAP preserving the need in different jurisdictions for unnecessary reconciliation from one to the other. Second, it could deal a fatal blow to the credibility of IAS internationally.
This way forward might do wonderful things for the ego of Europhiles but little to benefit global companies and their investors.
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