The European Commission has responded to the invitation of the International Accounting Standards Committee (IASC ) to comment on its consultation document "Shaping IASC for the future". The Commission has observer status on the IASC Board. The consultation document proposes a strategy for the IASC following on from its completion in 1998 of a core set of International Accounting Standards ( IAS ) which it hopes will be accepted by the International Organisation of Securities Commissions ( IOSCO ), thereby making it easier for companies to raise capital on international markets based on one internationally recognised set of consolidated accounts.
With its 1995 Communication on a New Accounting Strategy, the Commission publicly expressed support for and associated itself with the work of the IASC . The Commission continues to support the goal of arriving at one set of internationally acceptable accounting standards. It was therefore important for the Commission to examine with Member States the new structure which has now been proposed by a Strategy Working Party on behalf of the IASC . Indeed an appropriate representation of the EU in the new structure is crucial if International Accounting Standards ( IAS ) are to become more widely used and officially recognised within the EU .
In its response, which is based upon discussions with Member States within the Contact Committee on the Accounting Directives, the Commission expresses support for the IASC 's initiative to reassess its future role and development. The Commission welcomes the suggestion to associate national accounting standard setters more closely with the work of the IASC . However, the Commission argues that if the IASC wants to become accepted as the predominant global accounting standard setter, it must obtain international credibility and acceptance by becoming a publicly accountable and representative body. Such a body should be seen to be independent from any one national standard setter or any group of national standard setters, and its structure should reflect the international environment rather than being based on any particular national model.
The Commission expresses particular concern about the proposal to move much of the decision-making power away from the IASC Board to a new Standards Development Committee composed of technical accounting specialists from a small number of national standard setters.
The Commission believes that decisions should continue to be made by the Board. The Commission proposes a Board predominantly made up of standard setters who should be representative of global capital markets and trading blocs, in contrast to the existing Board which is predominantly made up of the accounting profession, selected on the basis of the historical pattern of development of the profession.
The change from an organisation which is dominated by the accounting profession in a small number of countries to one which is publicly accountable and representative implies the introduction of a greater role for other interested parties, including market supervisors, regulators and other users of financial information. Therefore the Commission proposes that representatives of these interested parties should participate with the profession in a very much strengthened group at the very top of the organisation - very much a model founded on creating legitimacy and acceptance of IAS amongst those who use financial information. It would take important decisions as opposed to being only an advisory body. The "tone from the top" would emphasise the ultimate public policy considerations of accounting, thus striking a balance between the interests of those who use accounts (such as investors and shareholders) and those who prepare and audit the accounts.
The Commission argues that wider representation would produce not only more political legitimacy but also better quality standards. The proposal to abolish steering committees would reduce the opportunities for involving knowledgeable people with the necessary practical experience of industry in the standard setting process, whilst increasing the involvement of full-time technical accounting specialists. This could put at risk the quality of future standards.
The Commission agrees that the IASC cannot get involved in enforcement of its own standards, but at the same time the Commission points out that the IASC cannot afford to ignore the issue because gaps in enforcement can undermine the credibility of the IASC . Moving away from the current profession-based model, as proposed by the Commission, would create the conditions for better enforcement.
Finally the Commission argues that if the IASC does not achieve greater external credibility and acceptance of its work there is the risk that it will not be equipped to meet the expectations of those international bodies such as the G7 group of Finance Ministers, the International Monetary Fund (IMF) and the World Bank who have publicly expressed their wish to see the emergence of a global accounting standard setter.
- IASC : the International Accounting Standards Committee is an independent private sector body comprising representatives of 143 professional accounting bodies from 103 countries. The European Commission has observer status on the IASC Board which approves International Accounting Standards (IAS).
- IOSCO : the International Organisation of Securities Commissions comprises securities market supervisors from throughout the world who co-operate together to promote high standards of regulation in order to maintain just, efficient and sound markets and to establish standards and effective surveillance of international securities transactions.