EUROPE- The European Commission is seeking to become more involved in the setting of the convergence agenda between the US Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB).
The EC states its intentions in its commentary regarding proposed amendments to the IASB’s constitution. The amendment process is directed by the IASB’s oversight body, the International Accounting Standards Committee Foundation (IASCF).
Critics worry that the participation of the EU in the convergence agenda, which seeks to harmonise FASB and IASB accounting standards to create a global set of accounting rules, will politicise the process.
“There’s a difficult balance to be struck between accountability and political interference,” said Phil Turner, a European partner at Mercer Human Resource Consulting.
“The danger is that the EU is looking to influence more directly the standards that come out. The IASB has put a lot of work into the constitution, and I think it would be a step backwards to change the constitution.”
However, involving the EU in this process is necessary because of the impact on European business.
“The convergence agenda is a top priority for the EU,” said a spokeswoman for the EC’s Internal Market directorate, which is responsible for accounting standards. “It has an enormous impact on European companies listed in US stock markets as they have to support a huge cost for reconciling their financial statements with US accounting rules.”
The EC also stated that it wants the board of trustees to take geography into account when selecting new trustees, expressed concern over the current regime for selecting new IASB trustees and called for a “sounder, more coherent” funding mechanism for the board.
“The current system where sponsors pay voluntary contributions to the IASCF is not stable and also offers a potential for conflicts of interest – sponsors sponsoring standards to be applied by them thereafter,” Bunyannoted.
Some of the EC's recommendations may be over the top, said Iain Richards, head of governance and public policy at Morley Fund Management.
Let's keep things in perspective, Richards said.
The IASB is not a basket case. I'm concerned that the EU approach to this risks going over the top. There is scope for introducing more balance in the representation and for making sure there is efficient and effective consultation on the issues. Those general themes are important.
But creating a system and a framework that could be expected to tie itself up in knots is not the thing to do.
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