Brussels - Following the start of 2005, when the EU's International Financial Reporting Standards ventured out of port, so to speak, users might have hoped that only the odd technical hitch or two remained to be solved, and that the arrival of IFRS accountancy standardization to the economic zone's 7,000 listed companies would be smooth sailing.Subsequently, European investors, who previously faced a tangle of variegated regulations - which led to confusion over how companies were performing - would then be able to balance performance with performance.

However, there remained one serious technical issue.

Frits Bolkestein, the former EU commissioner for internal markets, "carved out" 17 paragraphs from the IAS 39 standard on financial instruments.

The results of the "hollow-out" affect mainly banking and insurance companies, by allowing fair value hedge accounting on a less onerous basis. To offset this relaxation, it would selectively ban reducing liabilities. Bolkestein's intention was for this technicality to be sorted out over the next year or so.

But there are other storm clouds gathering. They concern fundamental problems basic to regulation of the whole European accountancy profession.

Anxious debates have been taking place in Brussels, London and Paris that have boiled down to contention between the "Anglos" - those regulators with a background mainly in the U.S. and U.K. - and the "Antis," led by French socialist Pervenche Berès.

One "anti-Anglo" issue is that there are said to be too many Americans and British among the regulators - most notably on the board of the London-based International Accounting Standards Board. Continental Europeans and the rest of the world don't get their share of representation as a result.

Accusations of a similar lack of international balance go for the IASB's trustees, the IAS Committee Foundation, which is currently involved in revamping the board's constitution. There are 19 members, and at present six are from North America, six from Europe, four from Asia Pacific and three from other areas.

Critics go further than the question of, "Is the 14-member board of the IASB in the real world?" After that, it comes down to the technical details, like fair value accounting.

Fair value accounting, of course, maintains that values are what the market dictates. That is fair, eminently comprehensible and evidently cheat-proof, say the purists. Because there can be no argument, the shareholder knows that he can read the balance sheet with confidence.

The "Antis," however, are in something less than full agreement. Attempts to simplify complex accountancy situations are naïve and will lead to disasters, they say.

Berés sits as chairwoman of the European Parliament's Economic and Monetary Affairs Committee, which recently met in Brussels. She had earlier explained that "fair market value" deforms the economic reality of European companies.

She argued her case in a speech to one of Europe's more important watchdogs, the Committee of European Securities Regulators. Also, she insisted that for something as important as financial services legislation, there was a need for political accountability. She wanted to see an improvement in the democratic accountability of the standard-setters.

Berès stated, however, that she did not contest the integrity of the IASB board members. However, she pointed out that of the 14 members, two were professors, and six are, or used to be, auditors. She added that three have been directly or indirectly linked to the U.S. Financial Accounting Standards Board. Only three members worked for corporations.

She explained that the original decision to delegate power to define European accountancy standards to the IASB at first appeared to be logical. Such standards were supposed to be only technical measures. The European Commission was not, and did not want to become, an accounting standard-setter.

However, in settling the fair market value issue, matters went beyond technical measures. Thus, they should have been considered as a fundamental principle potentially involving a political choice. Decisions should not have been left to an "external organization without any control."

A source recently told Accounting Today that sticking to fixed values often makes management lazy. It discouraged shopping around to adjust portfolios of assets in the best interests of the shareholders. This is the vital factor, stressed the insider, who sits close to the chart table where politicians and regulators try to sort out present and future IFRS tussles.

Rumors are that the new internal markets commissioner, former Irish finance minister and accountant Charlie McCreevy, has been taking a much stronger political line than his predecessor did. In other words, he has a growing sympathy with the views of the "Antis."

However, he kept any view like this close to his chest when he spoke recently to the European Parliamentary Economic and Monetary Committee in Brussels. He may be thinking that too much political interference in regulatory reform could lead to industry lobby groups unduly pressuring the parliamentary delegates.

What McCreevy did stress was that he was currently leaning hard on IASB Chairman Sir David Tweedie to come up with a rapid solution to the impasse of the present carve-out of IAS 39 from Europe's new IFRS.

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