Global Business

Global Accounting Board Cheered, Jeered on Transparency

The international accounting standard-setter gets praise for clarity and accountability, but some observers heatedly contend the board's work is mu...
Alan RappeportDecember 11, 2007

The London-based International Accounting Standards Board is seen by some as the future financial reporting standard-setter for the entire world. Last week, One World Trust, a research consultancy, seemed to strengthen the case for that possibility by providing the IASB with stellar marks for organizational transparency and accountability. Others, however, have found the body to be painfully opaque in their dealings with it and have issued a formal complaint in response to the board’s lofty grades.

One World’s 2007 Global Accountability Report , ranked IASB second for both overall accountability and for transparency among 20 corporate and non-governmental organizations. It ranks fifth when organizations such as the United Nations Development Program and the Asian Development Bank are included.

The report noted that the “principles of consultation and transparency have been embedded in the IASB’s statutes right from the beginning.” One World Trust defines transparency accessibility and timeliness when providing information to stakeholders and the provision of a clear picture of its structure and activities.

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But critics contend that the IASB, which promotes transparent accounting standards around the world, has been less than transparent in its dealings with constituents and is undeserving of the award. Prem Sikka, an accounting professor at University of Essex, and Richard Murphy, of Britain’s Tax Justice Network, both sent letters to One World Trust chastising its praise of the IASB. Both lobbied forcefully against the IASB’s adoption of a controversial accounting standard last year.

Sikka called the report a “disappointing document” and said that it fails to capture the “domination” of the IASB. “The only citations that it might get in my field are likely to be negative ones,” Sikka wrote. Such criticism could be considered mild coming from Sikka, who has
harshly rebuked the IASB in the past. Writing in Britain’s Guardian newspaper last summer, the professor panned the IASB’s aspirations for principles-based accounting standards. “Even a Kremlinologist would be hard pushed to find any principles of honesty and social responsibility at play,” he wrote.

Murphy, the Tax Justice Network’s International Financial Reporting Standard project director, was especially cutting in his assessment of the IASB. In his letter to One World Trust he contended that the IASB refused to allow his organization to speak at meetings and blatantly manipulated statistics during meetings about IFRS 8.

Citing a review by the EU parliament, Murphy claimed that the IASB refused to engage meaningfully with a wide range of stakeholders, including elected parliaments. “In the circumstances your award can only harm civil society engagement with the international accounting process,” Murphy wrote. He went on to accuse the IASB of agreeing to meet with his organization only after facing pressure from the media, and then backing out on that agreement.

The frustration stems from the critics’ objections to the IASB’s approval of a segment-reporting standard known as IFRS 8. The standard, approved last year, is based on America’s FAS 131, and governs how the different components of a company must report their individual business activities. Previously, companies were divided into business and geographic segments and into segments with similar risk and reward characteristics.

Under the new standard, segments are defined at a company’s own discretion. Items such as segment revenue, segment expense, segment assets and segment liabilities are left undefined. Although companies must provide an explanation for how each operating segment is measured, the approach leaves managers more discretion to determine profits and losses.

Controversy about the acceptance of IFRS 8 has become a potential impediment to the current effort to produce a single set of international accounting standards. According to a research note by Deloitte, European officials were concerned that adopting IFRS 8 would mean importing an “alien” standard without considering its impact.

Lawmakers in the United Kingdom also expressed concern that the new measure lacked consistency and gave company directors “carte blanche” to decide what they disclose. To avoid being controlled by the IASB, the European Union even considered ignoring IFRS 8–a move which some have feared could unravel the move toward a globally accepted reporting standard.

When reached by CFO.com, an IASB spokesman said he had no public comment or response to recent criticism.

For its part, One World Trust stands by its findings. In a written response to the Tax Justice Network, obtained by CFO.com, Robert Lloyd, the project manager for the Global Accountability Report, acknowledged that there could be a discrepancy between the IASB’s policies and how it behaves.

Lloyd maintains, however, that the IASB appears to show a greater commitment to transparency than many of its peers. “There are many other global organizations that are far behind the IASB in terms of their mechanisms for accountability,” Lloyd wrote. “We think that there are elements of what the IASB is doing that should be highlighted to enable others to learn from them.”

Among the corporations included in One World’s report were Coca-Cola, GlaxoSmithKline, Google, HSBC, and PricewaterhouseCoopers. Non-profit organizations, in addition to Christian Aid and the IASB, included Greenpeace International, International Organization for Standardization, and International Save the Children Alliance, among others. Besides transnational corporations and international non-profits, the study examined 10 intergovernmental bodies such as the United Nations Development program, which was ranked first overall for accountability.