Accounting rules not suited to fight corruption

A Big Four partner has poured cold water on proposals which could see accounting standards used to expose third world corruption.

The International Accounting Standards Board (IASB) is currently drafting a consultation paper, to be released next year, which will seek feedback on proposals to make listed companies in the extractive industries report on a country by country basis.

The issue, reported in Accountancy Age yesterday, could show how much companies pay to developing nations.

So far the proposals have won support from humanitarian groups which see the potential to show up the so called corruption gap – the difference between how much a company receives and how much it spends.

However Bevan Whitehead, partner in Deloitte's oil and gas group, said accounting rules were the wrong tool to expose corruption in the developing world.

Whitehead, who is working the IASB on the proposals, said the rules would be impractical and ineffectual.

“I don’t think the rules would add very much apart from some fuel for sensationalist reporting against big oil, which I don’t think is terribly helpful,” he said.

“It would be nice if you could [expose corruption], but I don’t think when one gets down to practicality, I don’t think the rules that are available here are very good for the purpose.”

He said the rules would only add to the reams of disclosures already included in financial statements.

“The world is a great place for adding more rules and requirements, but not for taking that away…There is a sense that financial statements have become too voluminous that you can’t find enough detail.”

The proposals are being backed by Revenue Watch, a group which believe the measures would help to provide more information to investors and analysts about potential risks.

Last week, Vanessa Herringshaw, London director of the New York based group said the measures would make third world nations transperant and accountable to their citizens.

“Here are industries producing vast amounts of revenue, but that revenue disappears into black boxes and citizens have no way of working out how much money comes out and where it goes,” she said.

“It is important for citizens to know how much money they are receiving and how much is spent on health and social services and to stop the money disappearing.”

Further reading:

Global rules proposed may fight Third World corruption

IASB's draft discussion paper on Extractive Industries