An international accounting
survey by the world's seven largest accountancy firms, GAAP 2001, found mixed
progress toward convergence of national requirements with International
Accounting Standards. Approximately one-third of the 62 countries surveyed are
responding to the challenge of convergence with an active agenda and proposed
changes to national requirements. However, half of the countries surveyed
reported significant differences between national and international standards,
but have not implemented or proposed new standards to reduce the differences.
As a result of major changes to international standards that are being
considered, the differences between national and international standards will
increase unless national standard setters redouble their efforts to keep pace
with the changes.
In an age of significantly increasing
international investments and financial reporting on the internet, the need for
a common worldwide financial language and framework for reporting is quickly
making diverse national standards obsolete. Governments, regulators, investors
and the accounting profession all need to rededicate themselves to achieving
convergence of accounting standards at the earliest feasible date.
The seven firms jointly advocate a single
worldwide framework for financial accounting and reporting based on
high-quality International Accounting Standards (IAS). Achieving such a
framework would improve investor confidence by providing greater transparency
and comparability of the financial information used in investment decisions,
and thereby would contribute to financial market stability and economic growth
around the globe.
The complete GAAP 2001 report is available at
www.ifad.net. It includes summaries for each
of the 62 countries surveyed of instances in which a country's requirements
would not allow, or would not require, the IAS treatment. The survey also
includes analyses of changes in these summaries since last year and of national
requirements or proposals for national requirements, which will come into
effect in the future and may further reduce differences from IAS.
In addition, GAAP 2001 demonstrates the
necessity for users of any financial information to take great care to
understand which accounting principles - national or international - have been
applied in preparing the relevant financial statements.
"The rapid development of global financial
markets has greatly reinforced the desirability of - indeed now demands -
international consistency in accounting standards and auditing
approaches," said Paul Volcker, Chairman of the Trustees of the IASC
Foundation in June 2001. Strong support for high quality international
standards has come from a number of other sources, including the European
Commission's Commissioner on Internal Markets, Frits Bolkestein, who, in
commenting on the EC's proposal for a Regulation on the application of IAS
said, "The adoption of a common financial reporting language for listed
companies throughout Europe will greatly benefit both companies and investors
in bringing about more transparency and a higher degree of comparability."
Isaac Hunt, a Commissioner of the United States Securities and Exchange
Commission commented recently, "
I can think of no greater gift to
the investing public than establishing a set of world wide accounting
The potential for IAS to provide the basis for
comparable national and cross-border financial reporting is increasingly clear.
Evidence includes the May 2000 recommendation by the International Organization
of Securities Commissions that regulators should allow multi-national issuers
to use IAS for cross-border offerings and listings, subject to the provision of
supplemental data. In addition, in February 2001, the European Commission
proposed a Regulation that will require the Europe Union's listed companies to
prepare their consolidated financial statements in accordance with IAS from
Across the world from Asia to Latin America,
many national governments, regulators and accountancy professionals are
actively considering how their national accounting requirements differ from IAS
and how to reduce those differences. This process will, in many countries, lead
to a significant improvement in financial reporting transparency and
The quantity and significance of the
differences reported in GAAP 2001 make it clear that, for many countries,
convergence with IAS will be a major task and will require a joint effort in
each country by the government, stock market regulators, financial statements
preparers, users, standard setters. Although some efforts may be initiated
internationally, it is clear that the most significant actions must be
undertaken at the country level, where plans for convergence of high quality
accounting standards need to be developed and implemented.
One response to the convergence issue is the
European Commission's announcement of its proposed 2005 Regulation, which has
provided several years of advance warning before IAS becomes compulsory for
listed European Union companies. This approach will allow time for the
management and finance functions of affected companies to develop a
well-considered, orderly transition to IAS.
GAAP 2001 provides an overview of the movement
toward global accounting standards throughout the world. Creating written
standards that are comparable country-by-country is a critical first step, but
written requirements will not actually lead to better accounting if standards
are not properly applied and enforced. Overall improvements in financial
reporting will require a joint effort in each country by the government, stock
market regulators, the business community, users of financial statements,
standard setters and the accountancy profession to develop the educational,
professional and regulatory infrastructures.