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Lifting the Lid: Global Accounting Plan Far from Easy Sell
more EU unilateralismThe global accounting industry is edging toward abiding by a single set of standards but opposition from European banks and insurers may force a delay in its introduction or even derail the plan. The International Accounting Standards Board (IASB), which has been working for more than two years to create a global system that would be close to U.S. rules, is now having to counter political as well as business pressure to ditch parts of it before planned adoption in 2005. The new system would change the rules governing how some companies recognize revenue, account for pension fund gains and losses and record the gains and losses on various derivatives, such as foreign currency options. The problem is that for many European companies the rules will mean a big cultural change, forcing them to disclose much more information to investors, and in some cases they may have to report losses. canât do that, especially if theyâre real While that has its plus side as greater transparency is more likely to attract U.S.-based funds, it is still too much for some to stomach. "For some it may well impose real losses," says Roger Adams, executive director of the London-based Association of Chartered Certified Accountants. "I donât think people canât calculate the numbers. They are unhappy because they wouldnât like the resulting numbers," he said. The current schedule would see the rules adopted when companies publish their results next year. That now seems like a very optimistic target. Around 7,000 companies in Europe, 3,000 of them in the U.K., are due to embrace the guidelines. For many the transition may be far from smooth. "People are nervous about it; 2005 is an ambitious date," said Edward Nusbaum, chief executive of accountants Grant Thornton, an international accounting firm based in Chicago. "Probably one will get better information if it was delayed slightly." like, until we all are retired and dead and donât care about the stock price anymore What has particularly frustrated proponents of the new standards is the growing divide within the financial services sector in Europe. European banks and increasingly insurers are lobbying with the top European Union regulator Frits Bolkestein to resist the adoption of some key international accounting standards, which would force them to reveal their holdings of derivatives and account for assets at fair value. For banks, the main battle is over the issue of "macro hedging," a technique they use to balance their assets (mainly loans) against their liabilities, such as deposits. For insurers, the battle is being waged on a much broader front. The industry argues that the completed international standards on financial instruments, which would force them to value their investments at fair value, would make their accounts much more volatile and, in any case, could not be adopted in time for next year. The banks and insurers want the new standards to be adopted without changing rules on derivatives and asset valuation accounting. The protest gathered steam last year when French President Jacques Chirac picked up cudgels on behalf of the insurers and banks, saying the planned rules could potentially threaten Europeâs entire economic system. IASB officials, however, disagree with Chirac, saying the draft rules are still lenient compared with those already faced by U.S. companies. While U.S. companies have to calculate fair value of both assets and liabilities, they are asking European firms to just revalue their assets, said an IASB official, who declined to be named. Supporters of the rules say those who oppose them are scared to reveal the true nature of their earnings and the risks in their businesses. However, they fear opponents will use stalling tactics -- such as saying they are not prepared for the switch -- to derail the plan. "If not being prepared prevents the standards from being adopted, you are not going to be prepared ever, whether it is this year, next year or 10 years from now," said the IASB official. (Additional reporting by Mark Bendeich in London) Posted by: anon 2004-02-06 |
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