Whilst UK politicians argue about the euro, we are moving towards a European Union regime that will shape the future of accounting and auditing. Those not following European developments will be left behind.
In February 2001 the European Commission proposed a regulation that will require listed companies to use International Accounting Standards in consolidated financial statements by 2005. So, unless accountants want to retire soon, they will need detailed knowledge of new accounting standards, and an understanding of the attendant commercial consequences.
For auditors, a recommendation on auditor independence is nearing finalisation. This should not be regarded as more relaxed than the revised Securities and Exchange Commission rules on auditor independence issued earlier this year. Although based on a framework approach, the recommendation will be tough, reflecting the desire of various member states to respond to concerns over various threats to auditors’ independence. Notably, what has been achieved in Europe is a debate free of acrimony and with a unity of the profession. In the UK, the DTI can expect to insist on full implementation, and it follows that the new ethics standards board must already have it near the top of its agenda.
If they are not doing so already, finance directors of listed companies should be responding to another major development – a consultation document on the transparency obligation of issuers whose securities are admitted to trading on a regulated market. The ideas floated could have huge implications, particularly for smaller quoted companies. They include quarterly reporting and a 60-day period or less for the publication of annual and interim reports.
More timely communications are clearly needed when there is a need to correct misapprehensions about a company’s performance. But there is a growing concern that mandatory quarterly reporting will lead to short-termism and excessive market volatility. Also, the need for timely communication must be balanced against what is practicable for the corporate sector and what is necessary for shareholders.
All in all, whether you are a Europhile or a Europhobe, make sure that you take more interest in what happens in Brussels – it will affect you.