The effort to achieve convergence by ushering in a single accountancy system for the global economy is getting hammered in nearly every aspect by one of Europe's key figures in that sector.Pervenche Berès, the chairwoman of the European Parliament's Economic and Monetary Affairs Committee, is warning that the world's present governance system for accountancy institutions could lead to problems, including "the financialization of the [world] economy."
In her role as chairwoman, Berès enjoys international status in the development of accountancy. She explained that financialization from a company's viewpoint means that "decisions are no longer taken on economic or employment considerations, but mainly on how financial markets will react. It led to management boards being more concerned about financial markets than about the true economic well-being of the company," she said, and explained that it would ignore all considerations except for short-term profit.
Sociologists often lament that financialization ignores worker protection entirely. Some have cited as a classic case the depopulation of the Highlands of Scotland roughly 200 years ago, the "Highland Clearances." Then landowners displaced small farmers because rearing sheep on the hills was more profitable. The landowners largely escaped the burden of moving embittered crofters overseas - to North America, for instance.
Against a background of the current debate on a separate set of standards for small and midsized businesses - for which the International Accounting Standards Board is currently under pressure for sticking too close to the full International Financial Reporting Standards - Berès despaired about the future of small businesses.
What is on the way would not, she said, take us to "a dream of world standards helping every little SMB. It's not a dream! It's a nightmare! It is only a 'dream' [being] created to answer the [needs] of listed companies, to solve their problems! It will put on the small business an accounting burden. And, in the end, there is a risk situation where you have solved only the needs of the financial market."
Berès' committee is crucial in the European Parliament, the elected body that exercises democratic control over EU institutions, in particular the European Commission, the executive arm. It shares power with the European Council, whose Ecofin Committee comprises national finance ministers.
Berès holds her post in a largely conservative parliament despite being a socialist. Born in Paris in 1957, her theme on the wrongs of governance were expressed less volubly late last year at a conference, in Brussels, organized by the Federation of European Accountants. The conference covered the issue of convergence of U.S. generally accepted accounting principles with IFRS, which has an outside target date of 2009.
Berès' detractors would no doubt point to her native France's own economy, where the unemployment rate hovers around 10 percent and economic growth is a sluggish 2 percent. However, there is a strong group of members of parliament in her committee that is concerned about the accountability of the IASB.
Though the rules may seem to be logical, Berès pointed out that, in fact, one had what amounts to a few academics making theoretical decisions without taking into account the needs of the world's economy.
"The IASB is a body which is about self-regulation," she charged, adding, "At some stage you need to have a delegation of power [down to the IASB], which involved self-regulation by the IASB."
She complained about lack of "clear transparency and clear representation" of the position of the body that has been comprised largely of private appointments.
So what should be done?
"We need to have two things," she explained. "First, we need to have a clear debate in the Council and in the European Parliament on where we want the IASB to go."
She subsequently named the United Nations as a possible organization to oversee world governance of financial regulation: "We are not discussing the accounting standards for Europe, we are discussing settling world accounting standards."
Other institutions in her mind for preliminary consideration were the International Monetary Fund and the World Trade Organization. However, she expressed doubts, noting that there could be recruitment problems with the IMF, and that the WTO was for trade issues, not accountancy.
Seeking to stiffen European representation against what she sees as excessive U.S. influence on international accountancy matters, she supported the reinforcement of the European Financial Reporting Advisory Group, which advises the European Commission.
"In some ways, we are in an empty situation where the [European Commission] does not have the qualified people to influence accounting standards," she said, but explained that it was "not their job."
In fact, EFRAG's staff of six permanent technical employees, bolstered by 11 European experts, has plans to take on 10 more permanent employees.
The European Commission's internal market division has a total staff of 514, of whom 124 work on financial services and capital markets. However, the commission declined to answer how many of the 124 were qualified accountants, and at what level of status.
Berès' complaints about the infiltration of American accountancy standards into Europe are supported in a different forum - the Institute of Chartered
Accountants in England and Wales. Its vice president, Richard Dawson, said, "Just think what might happen if rules-based standards come to prevail, creating a box-checking mentality and little need for professional judgment, and if a litigious blame-culture becomes normal in Europe without liability reform."
