The work of the International Accounting Standards Committee (IASC) has always been something of an optical illusion. It’s by smoke and mirrors – and perhaps self-enlightened goodwill by the leading national accounting standard setters – that this private sector body has climbed high enough to do the almost finalised deal with the International Organization of Securities Commissions (IOSCO), which represents the world’s stockmarkets. According to the IASC, only 10 countries forbid companies filing accounts using International Accounting Standards (IASs). In contrast, almost 40 allow IASs. But as the IASC privately acknowledges, if it wants a role after the IOSCO arrangement is finalised then it needs more than a website, a London office, a small full-time staff and volunteers clocking up air miles three or four times a year. The IASC is about to publish a strategy paper setting out its future – a future that should be decided in the next couple of years. The urgent need to re-engineer a stronger role in global financial reporting was cruelly illustrated in autumn 1998 by the vice-president and financial controller of the World Bank. Jules Muis attacked the Big Five for signing off accounts of companies that only had a passing acquaintance with internationally acceptable accounting standards. Research by the United Nations has shown that, for certain accounting policies, compliance with international accounting standards in some parts of the world alternates between the terrible and the non-existent. And all the IASC can do is wring its hands. Those who have been around the UK standard-setting scene for a decade or so can be forgiven for a sense of deja vu. The IASC’s uncomfortable position today is similar to that of the Accounting Standards Committee back in the late 1980s. While we may all agree that accounting standards are good in theory, if they harm our company, or our client’s company, they can go hang. Any standards need to be supported by sticks and carrots. US and UK accounting standards are backed by committees to deal with emerging or urgent issues and, most importantly, a legally enforceable system that can make companies restate their accounts. The IASC has no such stick and it’s hard to see where it can find such statutory backing. So the IASC intends to bolster its authority by piggybacking the power of the national standard setters. The strategy paper from the IASC is likely to suggest the abolition of the present system of a sub-committee for each standard. Instead, there would be a standing sub-committee, the Standards Development Committee (SDC), which would consist primarily of individuals from the major national standard setting bodies, such as the UK’s Accounting Standards Board. They would work out the standards and pass them to a main IASC board for approval. This board would contain delegates from a wider selection of countries than is presently the case. Once approved, the national system would ensure compliance. The idea behind having an SDC member still firmly in the national camps is to stop the accusation that they are locked away in some international accounting ivory tower, knowing little about what FDs in Birmingham or Boston think about financial reporting. It is not certain this plan will fly: for a start, it is well known that standard setters like FASB, the US Financial Accounting Standards Board, are less than keen on putting so much effort into the current international set up, while having so little say. The FASB and others may say no to sending a member part-time to the IASC. And while national standard setters would still have the sovereign right to veto certain standards, few would see a revamped IASC as anything other than diminishing their powers. They would only have total control over purely national accounting issues. Even the IASC board may not vote for delegating their current powers to some permanent standard-setting outfit which would be bound to be dominated by the leading industrial nations. The alternative scenario is greater co-operation between national standard setters, by-passing IASC altogether. The G4 – Australia, Canada, New Zealand and the US – have been working together on projects since 1993. Add to the G4 France (which set up an accounting standards board in the last two years), Germany (which has just started its own system) and Japan, and, complaints by the World Bank not withstanding, the vast majority of the world economy by value is covered. If the IASC fails to gear up soon, a new ‘G7’ could well take over the baton of international standard setting. Crunch time is coming.