Accounting & Tax

Accountants Seek To Unify International Standards

Once just an accountant's dream, the movement now has true believers.
CFO.com StaffSeptember 10, 2001

The accountant’s dream of uniform international accounting standards that started in the early 1990s is getting closer to realization, according to Dow Jones Newswires.

Working toward unified accounting principles is now a full-time job for Patricia O’Malley, who left her post as Canada’s top accounting rule maker in January to become an inaugural member of the International Accounting Standards Board (IASB).

On the eve of a major IASB meeting meant to move the world several paces closer to global accounting harmony, the task still is considered daunting. The movement, however, now has true believers – motivated by economic and market forces to stick with a process that is expected to be excruciatingly difficult, says Dow Jones.

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One of the first issues the IASB plans to tackle is trying to reach accounting convergence on employee stock options. When the U.S. accounting body, the Financial Accounting Standards Board, proposed several years back that companies expense the fair value of options, it provoked a firestorm of criticism. Eventually, FASB retreated and has shown little public interest in revisiting the matter anytime soon.

But multinational companies are struggling to measure financial performance under dozens of different international rules, O’Malley told the news service, while global investors are looking for consistency across financial statements. Beyond making it more difficult for investors to make sense of a company’s finances across borders, accounting discrepancies can “get in the way of efficient allocation of investment capital,” as investors demand a risk premium if they are unfamiliar with the accounting processes, she told Dow Jones.

O’Malley noted that accounting standards hammered out by a predecessor accounting body will provide a foundation for the sought- after international convergence. “It’s not just a bunch of accountants thinking this is a good idea,” she told Dow Jones. “This is the capital markets saying we need this.”

Half of next week’s four-day meeting in London will be devoted to discussions with national standard-setters around the world, including FASB Chairman Edmund Jenkins and board member Michael Crooch. It will be the first such meeting with the accounting regulators since the IASB announced its initial agenda of nine projects as well as a slate of 16 issues to be worked on in conjunction with the national rule makers.

Earlier this week, FASB came up with four projects that it would support working on with its international counterpart, including accounting projects related to business combinations, performance reporting, financial instruments and consolidations. Part of the goal of the meetings is to devise a framework for such joint projects.

As they move ahead, uncertainty lingers over how the stock option project will play out as well as how a myriad of other potentially difficult accounting issues will be resolved to the satisfaction of dozens of participants.

“People are going into this with the spirit of cooperation, with the understanding it’s going to be rough sometimes,” FASB project manager Carrie Bloomer, who specializes in international activities, told Dow Jones. “At the outset we have the best circumstance, in that everyone is committed.”