From Times Online, UK
September 05, 2004
Markets will gain by way of consistency
High-quality international regulations will aid world growth, says Sir David Tweedie
The 25 member states of the European Union, Australia, Russia, and a number of other countries are less than four months away from adopting International Financial Reporting Standards (IFRS). The decision to adopt IFRS from January 1, 2005, will transform the landscape of accounting not only in those jurisdictions, but throughout the world.
Adopting a common financial reporting language is a big step towards improving the efficiency of international capital markets. The adoption of IFRS will reduce barriers to both trade and the flow of capital. Investors will have access to more reliable financial data to compare and analyse corporate performance in multiple jurisdictions.
As issuers of securities, companies will be able to access investors more easily, potentially reduce their cost of capital, and save the costs of conforming to different requirements in different jurisdictions. Audit firms will be better able to assure quality of audits among national partner firms. Regulators will benefit from the greater consistency and quality of information.
The move towards a single set of high-quality global accounting standards is not simply an arcane question of changing accounting methods. It is a change that has important practical implications. It is about building confidence; it is about lowering the cost of capital; and thus about increasing the opportunity for investment, employment and world growth.
The momentum behind IFRS is evident. A survey by a Big Four accountancy firm indicates that more than 90 countries will either permit or require the use of IFRS before or during 2007 for publicly traded companies. In addition, a number of other countries, such as China and India, have a formal policy to pursue convergence of national standards with IFRS.
The development of a robust set of international accounting standards also raises the possibility that it will be easier for non-US companies to access America's capital markets. A lingering source of frustration for those wishing to issue securities in the United States has been the requirement to adopt US generally accepted accounting principles (US GAAP), or to reconcile non-US GAAP financial statements to US GAAP. The IASB and the US standard-setter, the Financial Accounting Standards Board (FASB), are now working together to eliminate differences between existing IFRS and US GAAP. The removal of these differences should eliminate the rationale behind reconciliation requirements imposed by the US Securities and Exchange Commission, and enable non-US companies to access the world's largest capital market more easily.
Market forces have underlined the logic behind the globalisation of accounting standards. However, continuing momentum towards that objective requires a relatively smooth transition in 2005 in Europe and elsewhere. The challenge for auditors, investors and management is clear. Audit firms will need to train their staff. Management, particularly finance directors, will need to explain the implications of accounting changes to investors, management itself and other interested parties. Investors will need to take time to understand the effect of adopting IFRS on company reports.
Time to prepare for 2005 is short. The potential benefits of an integrated global capital market, underpinned by a single worldwide financial reporting language, will be long-lasting.
Sir David Tweedie is chairman of the International Accounting Standards Board
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