Financial Regulatory Forum

Global accounting body told to improve governance

February 8, 2010

By Huw Jones

LONDON, Feb 8 (Reuters) – The world’s most influential accounting rule setter is not answerable enough to users or the public and must improve its governance further, top financial regulators said on Monday.

International Accounting Standards Board (IASB) rules are used in over 100 countries, including the European Union, with Canada, Japan and Brazil adopting them as well. The United States, however, is still mulling its position.

The IASB will become more powerful next year when its rules form the basis for a single set of global standards as called for by the G20 group of countries, sparking calls for the London-based body to be more accountable and transparent.

David Wright, deputy head at the EU’s European Commission internal market unit, welcomed the creation of a separate board of public authorities, including the EU executive, to monitor the IASB but more improvements were needed.

“We feel there is much work to be done. The debate about …governance will continue because it’s unfinished,” Wright told a Commission hearing on accounting and auditing.

Getting the governance right was necessary to “depoliticise” accounting standard setters, Wright said.

The financial crisis has thrown a spotlight on accounting which policymakers blame for amplifying fallout from the credit crunch by forcing banks to price assets at depressed prices, triggering firesales to replenish capital.

The G20 agreed last September that such pricing rules, known as mark-to-market or fair value should be reformed, putting pressure on the IASB to make speedy changes that alarmed some.

“Full respect to due process is a must,” said Fernando Restoy, chairman of the Committee of European Securities Regulators. “The monitoring board is a very big step forward but there is room to think a bit more about the right governance structure.”

NO UNDUE PRESSURE

Masamichi Kono, a vice commissioner of Japan’s Financial Services Agency, also wants the monitoring board improved.

“We should be very mindful the standard setting process is not put under undue outside pressure. I will stop at that to be diplomatic,” Kono said.

The IASB agreed to accelerate fair value changes after pressure from EU finance ministers though the 27 nation bloc is stalling on endorsing the reform as France wants greater curbs on marking to market.

“Clearly some degree of flexibility is necessary on where and how to apply fair value,” Wright said, adding that work so far on fair value “is a step forward”.

The IASB said governance has been strengthened by introducing the monitoring board and expanding board membership to 16 from 14, with more changes under consideration once work on global convergence is completed next year.

“The results of the second part of the constitutional review are expected to be published shortly,” the IASB spokesman said.

The United States has its own accounting rules and will shortly give an update on its convergence efforts.

Julie Erhardt, deputy chief accountant at the U.S. Securities and Exchange Commission, said most responses to a public consultation welcomed the goal of convergence.

“The notion of nurturing it along, putting a little sweat behind the goal, has been there and continues to be there,” Erhardt said.

She added that stakeholders need convincing that international rules would bring economic benefits and are suited to everyone but the European Commission stressed the need for all G20 members to comply with pledges made last year.

“We feel 2010 is a real test of the G20… whether those granular principles agreed will truly be put into practice,” Wright said.

(Reporting by Huw Jones, editing by Ron Askew)

((Reuters messaging: huw.jones.reuters.com@reuters.net; + 44 207 542 3326; huw.jones@thomsonreuters.com))

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