All speaking the same language

The prospect of one global accounting language is more likely now that China and Japan seem interested, argues Peter Williams

Two significant events are taking place this summer, both of which firmly underline the objective of the International Accounting Standards Board (IASB).

At the end of June, the IASB joined forces with the US Financial Accounting Standards Board (FASB) and the US Securities and Exchange Commission (SEC) to set out their plans for convergence of financial reporting standards. The other event, the IASB European roadshow, is due to visit 17 European countries over the next five months. Organised in conjunction with national standard setters, the number one objective is to focus on “convergence of IFRSs with national accounting standards, with a particular emphasis on US generally accepted accounting principles (GAAP)”.

This convergence of accounting standards was blessed by SEC chairman William Donaldson and EU internal market commissioner Charlie McCreevy in late April when they set out a roadmap of steps needed for the elimination of the US GAAP reconciliation for non-US companies listed in the US. The roadmap establishes a goal of eliminating the requirement by 2009 at the latest.

Some believe that convergence – the concept of one global accounting language – is within the grasp of the financial community, a prize which would be magnificent, partly because until recently it had seemed improbable. On the other hand, many financial directors on this side of the Atlantic applaud the concept but have concerns for the standards themselves. If it turns out to be the FASB standard, great; if it’s IASB’s, great.

Simple? Well, at the top level yes, but then the voices of doubt speak up. The doubts run like this: when we talk about global standards we are really talking about US standards. And US standards are not shiny principle-based standards, they are detailed, rule-based ones that run to hundreds of pages, reflecting the character of the litigious society that holds sway in that country. There is no way that the US accounting standard setters could shift the accounting standards they produced even if they wanted to.

So the standard setters are chasing convergence, the politicians are making encouraging noises but financial directors are dragging their feet. Such legitimate fears of not wanting to comply with US standards wrapped in an IASB cover may be legitimate, but they may also be overstated.

The introduction of international accounting standards in Europe is still a work in progress, and a rather flawed one at that. But with Japan and China also expressing interest, the IASB’s standards have legitimacy.

While FASB and the IASB appear to be moving together on accounting principles, the fundamental question is the attitude of the SEC and especially its new chairman Christopher Cox. While the US may presently be the biggest capital market, it sees competition not only from Europe but from Japan and China. In that case, the US may be prepared to accept standards which at first glance appear to give less investor protection.

There may never be a single volume of global accounting standards, and it may always be necessary to maintain national or regional differences, but that does not prevent the SEC accepting unreconciled the standards of the IASB. The decision over whether that happens lies with regulators and politicians on both sides of the Atlantic. Such an achievement will be extremely hard, but not impossible.