Global rules made in London? Brussels sniffs conspiracy
How gratifying. One set of rules for the whole world, and all of them springing from a fountainhead in Cannon Street, London EC4. There will have been no such display of global authority since the sun set on the British empire. Washington is warming to it. Brussels is restive.
These are the rules that set the standards for companies reporting on their financial affairs to their shareholders. They come from the International Accounting Standards Board, and they are accepted in more and more centres where shares are traded, from London to Beijing. The world’s biggest economy is the outstanding exception, but now the Americans are nerving themselves to fold their own ‘Generally Accepted Accounting Principles’ into the IASB’s.
All this is something of a posthumous triumph for Sir Henry Benson, the formidable City accountant (later ennobled) who called the IASB into existence a generation ago. By setting it going before the legislators and regulators could think of this as something else for them to do, he secured its independence. This is the quality singled out for praise the other day by Christopher Cox, who presides over its only competitor.
Mr Cox is chairman of the Securities and Exchange Commission, which is an agency of the United States government and has the American GAAP rules as a part of its remit. If the IASB’s members represented specific national interests or political constituencies, he said, this would undermine the confidence of investors and users in the way it sets its standards. Now, as they gain acceptance around the world, Mr Cox asks: will they give the world a single set of standards? He is sure that this would be welcome, and the only remaining question to his mind is how quickly it could happen. The answer is: not very.
The SEC and the IASB have just got as far as publishing two consultative documents which represent exposure drafts of two chapters of the conceptual process. That’s progress for you. Convergence could take five years, even if all goes according to plan — and that assumes that Congressman Redneck does not jump up and make trouble. Why, he might ask, would the SEC allow foreigners to tell American corporations what to do? Someone must tell him that globalisation and the rise of China are part of the answer. Enron’s deceptive accounts are another part.
After the congressman, the Eurocrat. He may have missed an opportunity to do some standardising of his own, but is it now too late? His parliament doesn’t think so. Its MEPs — not until now much concerned with investment analysis — have formally resolved that the European Union, since the day when it signed up for the IASB’s standards, has gained insight and experience, so it must now be involved in these further developments. What Kipling called ‘lesser breeds without the law’ may not know so much, they say. That must mean you, Mr Cox.
Indeed, from Brussels this must all look like an Anglo-Saxon conspiracy, put together by believers in the economics of the marketplace. The Eurocrats have always believed that markets are vulgar and that they themselves know better — witness the Common Agricultural Policy, their most expensive achievement. What would their life be like without the right to regulate, to trade horses and to suck more power into the centre of Europe?
Others might learn from the banks — which have found it out the hard way — that capital is a scarce resource and needs to be efficiently priced. That will require transparent and consistent reporting to the capital’s providers. The rules will be none the worse for an EC4 postmark.
Christopher Fildes
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