IT is a case of poacher turned gamekeeper for Wolf Klinz, the former German Liberal MEP who, as the next president of EFRAG, is set to shake-up Europe’s relationship with the IASB, the body responsible for setting global accounting rules.
Klinz has already signalled that EFRAG, the European accounting standards advisory group, will take a more political approach to its work and be more willing to challenge the international accounting rules suggested by the IASB during its endorsement process.
More challenge between the IASB and EFRAG would be no bad thing. In the past, Europe has largely adopted IFRS without question, in part to encourage the US to converge with international standards, but also because EU member states’ policies have often been disjointed and disparate while politicians have failed to engage on a consistent, regular or intense basis.
Under reforms put forward last year by Phillippe Maystadt, a former president of the European Investment Bank, EFRAG’s remit has been expanded so that its endorsement advice is accountable of supplementary assessments, for instance whether the standards are consistent with the true and fair view principle. At the same time, the US appears increasingly unlikely to adopt IFRS after one of the SEC’s commissioners rejected the idea of abandoning US GAAP in favour of IFRS.
The US-centric approach to revising certain IFRS has often proved a contentious point for EU policymakers who see the IASB striving to accommodate the US over lease accounting, revenue recognition and financial instrument standards at the expense of European influence. The feeling that Europe’s voice isn’t being heard among the IASB’s top brass has been a long been a thorn among some members of the European parliament.
Klinz recalls the “high levels of dissatisfaction” with IFRS and how Sir David Tweedie, the former chairman of the IASB and one of the chief architects of IFRS, failed to take Europe seriously enough. “He did not feel the need to present himself in a democratically accountable manner. That we did not particularly like,” Klinz told the European Parliament’s economic affairs committee last month, according to a transcript seen by Accountancy Age.
Last year, members of the EU’s influential economic affairs committee – of which Klinz is a former member – voted to approve EU funding for the IASB, which accounts for around a third of its total contributions, with the proviso that the funding could be pulled if the standard-setter fails to meet certain conditions.
Indeed, Klinz was one of three MEPs to table a question asking the European Commission to explain what reforms it will introduce to ensure the work of the IASB is democratically accountable, and that the global accounting standard setter takes appropriate steps to avoid conflicts of interest.
So, the IASB could be forgiven for fearing that Klinz has become the fox in the henhouse. In his address to parliament, Klinz suggested that EFRAG had been seen as the IASB’s ambassador in Europe and that the EU should “use more” the fact that it provides more funds for the IASB than anyone else. And, as a member of European Parliament’s negotiating team last mandate, he played a key role in highlighting concerns over the loss of important concepts such as true and fair and prudence in international accounting standards.
One of his former committee colleagues suggests it his appointment could present a “united front” taking on and being “constructively critical” of the IFRS Foundation. Indeed, his appointment comes as members of economic affairs committee urged the EC to undertake a full review of the compatibility of global accounting rules with EU law after raising concerns about the legality of IFRS.
In a letter seen by Accountancy Age, MEPs Syed Kamall and Sven Giegold called on Lord Hill, the new EU commissioner responsible for capital markets, to “ensure IFRS is fit for purpose” by investigating “widespread concerns” about conflicts between IFRS and EU law.
But it may be that Klinz will be more of a confidant than opponent to the IASB. Already Klinz has “started using some of the counter-arguments of the IASB” says one member of the committee, while Klinz appears to have an open mind about whether IFRS are in conflict with EU law and cites research on the subject by the UK’s accounting watchdog.
Importantly, he has also states that the EU’s decision to adopt IFRS Was “the right decision, despite maybe all its shortcomings”. That bodes well for the future of IFRS in the EU and it may be, that with a politician steering Efrag, international standard setting will continue to become more collegiate with better, more consistent standards as a result.
Richard Crump is deputy editor of Accountancy Age
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