Corporate governance: Doesn't compare

History will show whether Remembrance Day 2008 was a day we will also record as a high point in the history of the International Accounting Standards Board, or whether it marked the beginning of the end.

I write this just before the G20 meeting of heads of state in Washington and with my usual trepidation about any good coming of politicians dabbling in the world of financial reporting. You can see this as ominous or heart-warming, depending on how long you have followed the fortunes of the financial reporting world, but just listen to what the US Under-Secretary of the Treasury David McCormick said to the press in the days before the G20 meeting.

“There are a number of topics that leaders might touch on, one under the area of transparency and accountability would be global accounting standards. This has been an area that’s gotten a lot of attention and by creating a more aligned and ultimately convergence of global accounting standards, that reduces a huge burden on businesses and ensures a level playing field in terms of how we measure the performance of different businesses,” he said.

Now that sounds fine. But the problem is that as soon as politicians find a new toy ­ and financial reporting rules is a new toy to them ­ they think they can turn it upside down and see if it can be made to work to their advantage. McCormick went on to issue a good clarion call, as politicians are wont to do.

“I suspect the leaders will touch on the importance of finding ways to collaborate across global regulations,” he said. “So regulations are historically national, but we certainly recognise the need to collaborate as much as possible and wherever possible to ensure our regulations are aligned, to make sure they don’t disadvantage one country over another. And there may be a number of areas where our regulatory approaches can converge. So, accounting is a great example of that, where it makes all the sense in the world and it is to the benefit of everyone to have a common accounting standard.”

Again, sounds okay. But in London a few days before, it had become obvious that some nations do not think regulations should be aligned and would very much like to get back to that idea of financial reporting standards being ‘historically national’.

This was a hearing of the House of Commons Treasury Select Committee over the banking crisis. The main witness in the second half of the day’s deliberations was Sir David Tweedie, the tenacious IASB chairman. Normally, the chairman of the Treasury Committee, the redoubtable John McFall MP, tends to take what some call a strong (others call a bullying) line with the hapless City souls he finds before him. With Sir David, perhaps recognising another determined Scot in his own mould, McFall takes a stern, but understanding, role ­ perhaps even a supportive one. If the IASB can show it is doing good things, he will brook no interference with its independence: which is where what was said on the 11 November may be seen as pivotal.

The discussion came to focus on the efforts by the European Commission to carve out some lines it found to be against the interests of some banks in continental Europe from the financial reporting rules. This was related by Sir David to McFall as “A blunt threat to blow the IASB away”.

Instead of banks’ accounting and financial positions being transparent and clear to all, a great smokescreen would billow up. Under the proposed carve out, Sir David said the consequence would be that “You would never have known what had happened.” The result? “Companies’ accounting would be totally out of control.”

That could apply the world over. The great revolution, which has seen country after country move its national financial reporting rules into line with inter national financial reporting standards, could come shuddering to a halt. If the world’s largest economy gets cold feet when on the verge of moving its corporate structure onto IFRS, the process could simply reverse.

So far, the global shift to IFRS has been based on momentum and the clear understanding that if this is the direction in which the business world is moving, nobody wants to be left out. Which is why America made it plain that it wanted to join in.

But the goal was a common global system. If the European Commission allowed a French bank here, or a German bank there, to follow different rules, the commonality goal ebbs away. Without it, IFRSs are useful, but not essential. At an IFRS conference a couple of days after the select committee hearings, one of Europe’s top analysts, Citigroup’s Ken Lee, said IFRS had enabled him to go to, say, Johannesburg, and know that the basis of the figures he looks at there is broadly the same as most other countries he visits. That was the prize at stake in that crowded room in Whitehall on Remembrance Day.