Convergence backed - but under threat
24 Feb 10
The adoption, implementation, and enforcement of international financial standards is crucial, according to the latest IFAC Global Leadership Survey. This, however, may be easier said than done despite the huge progress already made in establishing international financial reporting standards
IFAC, the organisation which represents the accountancy profession internationally, polled its membership of 157 accountancy organizations in 123 countries for the Global Leadership Survey. Their verdict was that the key priorities for the profession in the wake of the global financial crisis are:
• Increase confidence in international standards for accounting and auditing, in both the private sector and the public sector
• Adopt but also implement international standards, including principles of good corporate governance
• Urge the G20 [the group representing the 20 most developed nations] to not place unreasonable burdens on small and medium-sized enterprises through new regulations or re-regulation
The G20 last year asked the International Accounting Standards Board to work with the US authorities to achieve global convergence in accounting standards by 2011. That is a tight timescale, as there is still much to do, but with that kind of high-level backing, one might think that convergence is a done deal.
That might be over-optimistic, however. The financial crisis, as well as highlighting the need for globally accepted standards, has also raised the temperature of the debate over issues such as reporting fair value for financial instruments, and whether banks should be allowed to smooth out their profits and losses in order to build up provisions against future crises.
All the signs are that Europe – that is, the European Union - and the US are still pulling in different directions, with the IASB working desperately hard to reconcile both.
If the IASB fails to do so, the outcome could be the development of regional accounting blocs rather than a universally accepted set of standards. Some would argue that getting standards right is more important than convergence for its own sake, but giving up on the convergence project at this stage would be seen as a huge disappointment given the backing of the G20 and, now, the IFAC members, for the project.
Let’s hope that the IASB finds some way to bring the two sides together.