The ambitious road map to give the world a single accountancy standard - by converging U.S. generally accepted accounting principles with International Financial Reporting Standards by 2008 - may be fraught with bumps, potholes and even worse along the way, it was revealed at a recent conference of the European Accountants Federation, here.Delegates at the conference heard that the convergence plan would involve much more than a simple "clean up" of the U.S rules-based accountancy system dating back to the 1930s and the EU's brand-new principles-based system.

European Commissioner for Internal Markets and Services Charlie McCreevy took aim at the London-based International Accounting Standards Board and stressed that, "Convergence is not an invitation to standard-setters to try and advance the theoretical frontiers of accounting. I will not take on board any revolutionary new standards. [Convergence] should be a practical exercise, firmly anchored in business reality, to be undertaken in the interests of users and investors. The main objective is to try and narrow the differences between the existing standards, not to make accounts even more indigestible with a whole set of new standards. We will not be adding new carriages to the IFRS train, just as it has left the station."

In defense of the IFRS movement, IASB Chairman Sir David Tweedie pointed out that IFRS is now the financial reporting language for listed companies in 92 countries. It is mandatory in the 25 EU member states, with versions announced for Australia and New Zealand, and with convergence under discussion with Japan, China, the U.S. and Canada. "In Asia, IFRS is starting to become the norm," claimed Tweedie.

Ethiopis Tafara, director of international affairs at the U.S. Securities and Exchange Commission, explained that U.S. GAAP "has been successful since the 1930s," and "is used by more than half of the world's companies."

Having been around for more than 70 years means that it has been tested and refined. By contrast, IFRS, while now commonly used, has a limited history of interpretation and virtually no back record.

However, Tafara agreed that a single set of global accounting rules should increase market efficiency by allowing investors to avoid using different sets of accounting standards. Convergence of IFRS and U.S. GAAP could mean that the best from each could be picked. The result could be an improvement to both standards, and difficulties "will come out in the wash."

What was important to investors in the U.S. would be their ability to understand financial statements made under IFRS, Tafara said.

Tafara also insisted that the IASB be an independent standards-setter. "You can't have principles with no meat on them," he said.

IFRS finds fans

Ironically, at another top-level financial meeting held just days before the Brussels FEE confab, financial executives were pleasantly surprised at the warm reception of the economic impact of IFRS. The IFRS code was mandated on the EU's 8,000 listed companies on Jan. 1, 2005.

"In fact, we like it for the new information being discovered," Sue Harding, a member of the American Institute of CPAs and European chief accountant at the rating agency Standard & Poor's, told attendees.

The universal opinion was that IFRS enhanced transparency, thereby making it easier to compare information.

Eric Anstee, of the Institute of Chartered Accountants in England & Wales, said what many consider a majority opinion: "Now, management must explain to the market what is happening to the financials."

However, Anstee also raised the demon of fair value accounting, which has been given the unflattering sobriquet of "yo-yo" accounting, because of the volatility factor. "Many fair value numbers are not based on active markets, but on measurement models based on subjective judgments," he said. "Will increased volatility in reported results increase share price volatility?"

Pervenche Berès, chairwoman of the European Parliament's Economics and Monetary Affairs Committee, remains supportive of the principles, but said that today's architecture of public bodies at the worldwide level (the International Monetary Fund and the World Trade Organization) had, up to the present, not been designed to cope with global challenges arising from the process of the setting of the IFRS standards, nor with the issues brought by convergence.

As an example, she pointed to "the precedent caused by the Basel II project [on capital adequacy for banks], where rules created by an international standard-setter, have, up to now, failed to deliver the desired goal. We need a balanced decision-making mechanism for setting IFRS."

Said the IASB's Tweedie on convergence: "Its benefits are clear. We are not talking about an arcane bookkeeping system. We are talking about macroeconomics ... a language of accounting ... allowing international capital to flow more freely."

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