The International Accounting Standards Committee strategy working party last week secured the future of a single set of global accounting standards. This represents a major breakthrough in uniting the US and European interest groups in the development of a new structure. In what may prove the single most decisive move towards the introduction of a unified set of global accounting rules, it should finally lay to rest the damaging political manoeuvring that has left global companies frustrated in their hopes for a common accounting denominator. One set of rules will remove many of the constraints that determine where companies choose to list. The new structure offers considerable concessions to the powerful US Securities and Exchange Commission, which had previously been opposed to the proposals for an enlarged IASC with a single board structure and 25 members, only 15 of whom would have been full-time. This week, IASC secretary general Sir Bryan Carsberg and chairman Stig Enevoldsen unveiled revised plans that marked a major U-turn on previous blueprints. What has been accepted is a structure based around the SEC idea for a board of trustees, comprising 19 individuals - six from North America, six from the EC, four from the Asia/Pacific region and three from the rest of the world. They will be empowered to select 14 members for the main board, 12 of which will be full time. They will be selected on the basis of technical competence and knowledge of world business and their role will be to spend time liaising with national standard-setters. There has been no stipulation of how the seats on the main board should be allocated, but it will be the trustees' job to make sure no country, region or body of interest should dominate. Accounting Standards Board technical director Allan Cook said: 'I am very encouraged. We need the IASC to really grasp the opportunities of reforming itself to become the focal point for world standards-setting and that would allow that.' Observers may, however, be surprised at the changes made to accommodate the US interests, because the European element were very much in favour of a fully representative IASC with a single board and more members to cover all groups. European Commission financial information and company-law unit head Karel van Hulle has been one outspoken advocate of more representation. 'This cannot be legitimised unless you have all interested parties on board,' he has said in the past. But the new structure will go some way to placating them as it includes measures to set up an advisory committee to enable people who are not represented on the board to get a report on the technical issues. It has also been mooted that the IASC, which will have the initial job of recruiting trustee members, will bring a European commissioner on board. Sources close to the discussions were doubtful the IASC could secure the backing of the US as recently as the summer, when SEC international senior associate chief accountant Mary Tokar said the US' own experience with a standard-setter, including part-time members had failed. 'The Accounting Principles Board (a pre-FASB body) was composed of part-time volunteers but ultimately there was a recognition that it was not serving the capital markets. There was an independent commission (the Wheat Commission) recommendation for an independent private-sector body with a smaller number of full-time members,' she said. Her response must have dismayed other members, given that the original proposals for a two-tier structure had been ditched in favour of keeping the US at the negotiating table. But others such as World Bank vice-president Jules Muis were always more optimistic. He believed that convergence between the different interest groups was only a few years away, because everybody would be aiming to strengthening accounting standards. 'Long term, all the players have an incredible interest for this to work, but short term it hurts because first of all you need to put teeth into the system, but whose teeth and where?' he said. After the breakthrough last week IASC commercial director Kurt Ramin said momentum will be maintained: 'Everyone is very pleased. There is still a lot of detail to be agreed but we have the full support of the board to go ahead for the future of the organisation.' A final paper will be drafted for consideration at the next meeting in December. STANDARDS COST ROVER MILLIONS International companies have waited for more than four years for the IASC and the international securities body, IOSCO, to produce a set of standards that can be accepted for financial statements, but the plans have been persistently scuppered by the lack of common ground between the US and Europe. This became particularly obvious when BMW disclosed losses in its Rover operation of £91m in 1997. The bottom line would have £20m under UK rules. The difference was due to the rate at which investments were written off. BMW invested heavily in a new Rover model and the sums were written off against profits using depreciation rules which were considered overly conservative. Under UK rules, investments are written off over a longer time period, therefore showing less of an impact on profits. But although Rover's conservative accounting has only been one factor in the company's dwindling profit figures, it was key to the threat to close the Longbridge plant announcing that 2,4000 people were to be lose their jobs. BMW had expressed a strong interest in changing to IASs earlier this year, but had to call off its plans because of German regulatory restrictions and the delays in the conclusion of talks between IASC and IOSCO.
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