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May 23, 2007
Harmonizing regulations -- case of accounting standards
Speaking of harmonization of economic regulations (see yesterday's posting), here is a good summary of the problems of accounting standards, from the Economist -- Speaking in tongues:
International Financial Reporting Standards (IFRS), which aim to harmonise financial reporting in a world of cross-border trade and investment, have made great strides since they were adopted by 7,000 or so listed companies in the European Union in 2005. To date, over 100 countries, from Canada to China, have adopted the rules, or said that they plan to adopt them. The London-based International Accounting Standards Board (IASB) expects that to swell to 150 in the next four years.
Even America, no ardent internationalist, is working with the IASB to narrow the gap between its own accounting standards and IFRS, which foreign companies listed in America could choose by 2009, or possibly sooner. Today such companies must “reconcile” their accounts with American rules—a costly exercise that some believe is driving foreign listings away from the United States.
In late April America's Securities and Exchange Commission (SEC) unexpectedly floated the idea of giving American, and not just foreign, companies the choice of using IFRS.
But, it is not that simple. A number of countries, including the UK, want to include their own specific version. That is leading some to worry that companies will continue to use different standards in different countries. Not to worry, say others -- there is room for countries to do their own thing, as long as they tell everyone what that is:
this, claims David Schmid of PricewaterhouseCoopers, another accountancy firm, is not a problem: “Transparency is the greater goal in accounting, not comparability.” In his view, as long as accounting standards flush out information that faithfully reflects the reality of the underlying business, an investor can do his own sums and either accept or reject management's judgments.
Such a rule of transparency and flexibility might be a good basis other sets of harmonized regulations. Within the US, we already have such a system - where uniform state regulatory codes are modified to suit local preferences. As the National Conference of Commissioners on Uniform State Laws points out, "Model Acts are designed to serve as guideline legislation, which states can borrow from or adapt to suit their individual needs and conditions."
I see no reason why this same system couldn't work on an international level.
Posted by Ken Jarboe at May 23, 2007 11:13 AM
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» Changing accounting rules from The Intangible Economy
In an earlier posting, I mentioned that the US may soon be willing to accept financial statements done in accordance with the rules of the International Accounting Standards Board (IASB). Yesterday, the SEC voted to allow foreign companies listed in... [Read More]
Tracked on June 21, 2007 8:11 AM