And you thought it was hard enough to learn Generally Accepted Accounting Principles (GAAP.)
A newly formed group of self- described “technocrats” will soon begin working full time to bring the many accounting standards scattered throughout the world in line with each other.
The International Accounting Standards Board (IASB) will be chaired by Sir David Tweedie, a British citizen, and it will consist of 14 members, 12 of whom will work full time and are dedicated to reconciling U.S. GAAP with other countries’ practices.
Paul A. Volcker, chairman of the U.S. Federal Reserve Bank from 1979 through 1987, was initially named by Securities and Exchange Commission Chairman Arthur Levitt to oversee the International Accounting Standards Committee (IASC). In May of 2000, trustees instructed the committee to spearhead an effort to revise the IASC constitution and select members to the new IASB board.
However, none of the positions were full-time until now.
The IASC, itself, has been in existence since 1973 as a policy setting and oversight body.
But officials say the new effort will be much more focused on reconciling differences in national accounting practices and gaining the acceptance of the standards by national regulatory bodies such as the Financial Accounting Standards Board (FASB) and the SEC.
“What we are talking about is a clear corollary of all the talk about the internationalization of the economy,” Volcker said at a Thursday morning New York press conference, where he linked up with Tweedie by satellite.
The former Fed chairman praised SEC chairman Levitt and FASB officials for their cooperation in the effort, and responded to criticism coming from U.S. investment circles that the new international standard would water down the high degree of protection enjoyed by investors in U.S. markets.
“This is not a least-common-denominator exercise but a move toward more exacting standards,” he said.
Tweedie, who before joining the IASC in November had been a technical partner at KPMG Peat Marwick McLintock and UK and Irish representative to the International Auditing Practices Committee, also denied that the decisions of the new body would be reached by excessive compromise. This should be avoided, simply because the committee has the ability to approve rules by “simple majority, rather than the five out of seven needed for FASB to reach a decision,” he said.
Tweedie stressed the benefits of worldwide accounting standards and said (referring to FASB) that while the U.S. may be an acknowledged leader in capital markets and their regulation, “seven people in Connecticut would not be able to set the standards for the world.”
On the other hand, both Tweedie and Volcker said the new board members, seven of whom are either British or American citizens, with the remaining members hailing from developed economies, were chosen for their expertise rather than for any desire for broad international representation.
An “advisory panel” with broader representation will be chosen later on, they said.
“The European Commission would have rather had a larger part-time board of representatives,” Tweedie said. But, “an accounting standards board [has] to be a group of technocrats—the best that can be found.”
“We just didn’t have the quality of people from the emerging countries,” Volcker told a reporter afterwards.
Tweedie expected it would take no more than “three years to start moving these standards together” and predicted that implementation should take no more than five years.
He said that while IAS would be used as a base for the new rules, they would definitely require large-scale revision.
“Some of the standards are perfectly all right; others I voted against when they went through,” he noted.
On the other hand, both Tweedie and Volcker agreed that there was need for revision of U.S. GAAP as well, praising FASB’s recent move toward the elimination of pooling and calling for impairment to be, in Tweedie’s words, “tightened up.”
Volcker, for his part, noted that while “getting an international consensus isn’t the easiest thing in the world… this is not an American imperialistic exercise.”