up next; the globalization of accounting standards
The International Herald Tribune | www.iht.com Accounting for Enron: Global Ripple Effects Eric Pfanner International Herald Tribune Thursday, January 17, 2002 Failure Brings Call for Tougher Standards LONDON The collapse of Enron, the giant energy trading company, has challenged the notion that U.S. companies' accounting is the most reliable and transparent in the world, some experts say, potentially taking a bit of the shine off the U.S. financial markets' appeal to international investors. While analysts question whether any rules could have prevented the failure of Enron, they say the spectacular downfall of what was once the world's seventh-most valuable company could also heighten the push for international accounting and auditing standards to replace the patchwork of country-by-country guide lines that exist today. Because of the collapse of Enron - and the seeming inability of its auditor, Arthur Andersen, to head off trouble - many international investors are taking a more critical look at other U.S. shareholdings, analysts say. One of the fundamental strengths of the U.S. stock market, even in the wake of the Sept. 11 terrorist attacks, has been the idea that American companies offer the most reliable earnings streams. But a series of accounting scandals, culminating with Enron, and the increased use of questionable ways companies report their financial results, appear to have shaken that notion somewhat. There is no sign yet that people have lost confidence in corporate America, said David Bowers, chief investment strategist at Merrill Lynch. But this will be something to watch. If you can't figure out what a company is earning, how can you value it? Some analysts say international accounting and auditing standards, being put forth by several industry groups, could make that task easier, at least for cross-border investors. The new standards could also force accounting firms to more rigorously separate their auditing operations from the lucrative consulting work that they often do for the same clients. European regulators have been in the vanguard in adopting rules proposed by the London-based International Accounting Standards Board, aimed at creating uniform standards around the world. By 2005, any company whose stock is traded on a European exchange will have to adhere to this code. American regulators have been seen as more reluctant to adopt these rules, in part because of lobbying from U.S. companies that object to how stock options would have to be accounted for under those guidelines. One expert, who insisted he not be named, said the attention generated by the Enron case was likely to lead to some sort of compromise under which U.S. and international regulations would move more closely together, leading to their adoption in the United States, too. There has been a perception for years that U.S. standards were the best in the world, said John Collier, secretary-general of the Institute of Chartered Accountants of England and Wales. Now that notion has been at least challenged. American accounting standards have long been seen as the strictest. In part because U.S. companies face a greater threat of shareholder lawsuits, U.S. rules are more detailed than those in Europe, which are based more on broad principles than on specific guidelines. That kind of flexibility has benefits, Mr. Collier said. He said that an Enron-style disaster would have been less likely to occur in Britain, where accounting standards more closely mirror the international guidelines, because the company would have been unable to keep the special partnerships, which are the focus of the company's demise, off its balance sheet. Another expert on international accounting rules disagreed, saying that the problem with Enron was not the rules but whether they were followed properly by the company and its auditor, Andersen. Some experts predict that new international restrictions are likely to deal with what they see as inherent conflicts between auditing and consulting work. Critics contend that these arrangements - highlighted by the Enron case - lead auditors to give less careful scrutiny to company's books for fear of losing the consulting contracts. The European Commission, for example, is currently drafting new guidelines on the auditing industry, and the Enron collapse could prompt regulators to call for greater separation of consulting and auditing work, said Michael Bromwich, a professor at the London School of Economics. There's a very strong view in Continental Europe that consulting and auditing should be separated, he said. This will give impetus to that. Bush Advisers Reviewed Enron President George W. Bush's economic team, led by Lawrence Lindsey, a former Enron adviser, conducted an internal review of whether the company's collapse would hurt the overall economy and concluded there was little risk, Reuters reported from Washington. Mr. Lindsey and other aides were doing their jobs by
The globalization of accounting
http://www.nytimes.com/2001/01/26/business/26ACCO.html?pagewanted=all January 26, 2001 Fewer Borders for Global Accounting By FLOYD NORRIS A new International Accounting Standards Board was appointed yesterday, with a mission of producing coordinated accounting standards within a few years. "If we are going to have integrated international financial markets, information must be reliable," said Paul A. Volcker, the former Federal Reserve chairman, who headed the committee that appointed the 14 members of the new board. "I hope this will lead to international accounting standards that are very widely accepted." The board will be led by Sir David Tweedie, who formerly directed the Accounting Standards Board of Britain. At a joint news conference held in New York and London, Sir David expressed hope that several major standards would be agreed upon within three years and would be accepted by accounting regulators in leading countries. To the extent that identical accounting standards are accepted in major countries, this would reduce the costs for multinational companies in complying with varying rules, and make it easier for investors to compare companies in different countries. Sir David said he thought that the international board would choose to adopt less detailed standards than those of the Financial Accounting Standards Board in the United States. "You have gone too far with your detailed rules," he said. "You are far better to have a principle" that accountants can then apply. Such an approach would put more responsibility on the Big Five international accounting firms that audit most companies around the world, who would have to determine not just whether accounting met specific rules but whether it complied with a principle. Asked about that, Sir David replied, "If people start to play games, we'll have to add rules." Mr. Volcker said "the standards may be general but they will not be loose," adding, "I hope there will be more discipline among the accounting firms to enforce the rules." The world of international accounting has long been riven by conflicting rules in different countries, with some regulators in the United States thinking that American rules are the best and suspecting that international standards are a way of letting companies avoid rigorous accounting standards. The Securities and Exchange Commission turned away efforts to allow major foreign companies to sell securities in the United States without adapting their accounting to American standards. But as pressure grew for international standards, the American position began to change, with the hope growing that a strengthened international body could promulgate strong standards that would gain widespread acceptance. The national bodies will continue to adopt their own standards, but the new board will have members whose main duty is to serve as liaisons to rule makers in the United States, Britain, Canada, France, Australia, Germany and Japan. Lynn Turner, the chief accountant of the S.E.C., expressed hope in an interview that "we'll see a race" between the international board and the F.A.S.B. "to see who can get to the highest-quality standards." Sir David noted that in several contentious accounting issues, like merger accounting and the accounting for stock options, people looking for liberal accounting treatment had argued that strict standards would put a country's companies at a disadvantage to foreign companies. "The real test," Sir David said, "will be if the F.A.S.B. changes its standards to the international consensus. I think they will." Edmund L. Jenkins, the chairman of the F.A.S.B., said he anticipated "a close, constructive and active relationship" with the international group. Of the 14 members of the new board, 12 will be full-time members and 2 will be part-timers who retain other jobs. Some foreign organizations had pushed for part-timers, hoping that such people would be more in tune with the needs of companies filing financial reports, while the Americans pushed for a full-time board composed solely of accounting experts, not of people with constituencies to represent. The result is a compromise, but one that comes closer to the American view. The vice chairman of the group will be Thomas E. Jones, a British citizen who was formerly chief financial officer of Citicorp. The board will include two men with long experience on the F.A.S.B., Anthony T. Cope, who will resign from the American board, and James J. Leisenring, a former vice chairman of the F.A.S.B., who will serve as liaison to the American group. The other liaison posts will go to Hans-Georg Bruns of Germany, an official of DaimlerChrysler; Gilbert Glard, a French partner of KPMG; Warren McGregor, a former chief executive of the Australian Accounting Research Foundation; Patricia O'Malley, who will step down as head of the Accounting Standards Board of Canada; Geoffrey Whittington, an accounting professor at Cambridge University;
Re: The globalization of accounting
At 14:46 26/01/01 -0800, you wrote: The board will be led by Sir David Tweedie, who formerly directed the Accounting Standards Board of Britain. What a nice reassuring name to oversee the more efficient calculation of relative profit rates for finance capital. Perhaps he has Scottish ancestry. (Perhaps that is what is behind the code word "Britain") I note the other names have a fair sprinkling of celtic origins plus French, German and of course at least one Japanese name. Do you think they will also have an attractive logo? These points should not be overlooked when it comes to rationalising the global workings of finance capital. The expense is a small price for the added confidence. There is nothing that rational capital likes more than confidence. For such an abstract entity, finance capital is very sensitive. Chris Burford London
