Global standards still not a done deal

We now have a roadmap of sorts for the US to adopt international accounting
standards (IFRS), and so we now know there won’t be a final decision until next
year, we don’t yet know if it will be mandatory and, even if it is, it won’t be
before 2015. The good news is that the US financial watchdog, in some of its
strongest support yet for IFRS, says it does believe in a set of quality
international standards. It just won’t commit to them yet.

The big question is what implications the roadmap, published last week, has
for the IFRS project and the body driving it, the International Accounting
Standards Board (IASB).

It has become clear that the IASB needs the support of the US financial
watchdog. In Europe there are vociferous opponents to the IASB. They claim its
independence means it is not sufficiently accountable to politicians and its
convergence project to bring IFRS and US standards closer together is a
distraction which is handing too much power to the US. There has been some
energetic lobbying behind the scenes in a bid to undermine the IASB and bring
the power to set standards under the supervision of elected leaders.

The risk to the IASB is that these dissenters and their views might gain real
traction unless US regulators and companies can be brought on board as
enthusiastic users of international standards. The roadmap was therefore seen as
the moment when the US placed the Europeans on the back foot. It didn’t happen.

The roadmap certainly progressed the cause but left room for manoeuvre as
still more checking on the quality of IFRS, and the convergence project, will be
undertaken before the big decision next year. What the IASB needed was a simple
thing – a date for when IFRS becomes mandatory in the US, however distant in the
future that might be.

Look through the responses to the SEC’s consultation and it’s not difficult
to see why that didn’t happen. Some of the biggest companies around responded
but there was little outright support. Marriott Hotels even insisted that IFRS
was a solution to a problem that did not exist.

Given the weight of these views the regulator probably felt there was little
support in the market place for a more emphatic decision right now. Global
accounting standards, despite real enthusiasm elsewhere in the world, are
therefore not a done deal.

That leaves the IASB vulnerable and its opponents will feel that, given a
2011 deadline for a US decision, they will have to increase their efforts.

There is bound to be intensified behind-the-scenes lobbying and expect to see
more and increasingly aggressive public condemnation of convergence and the IASB
from certain quarters. We could be in the last stages of IFRS going global,
which means the stakes will seem higher than ever.

Related reading

Fiona Westwood of Smith and Williamson.