Europe is moving toward a single set of accounting standards, which they hope to implement as worldwide policy, according to European finance expert Nicolas Veron, who spoke last night at the Massachusetts Institute of Technology.
Veron, a commentator on accounting in Europe and the former chief financial officer from Lycos France, outlined the European stance in the ongoing debate over regulations on accounting standards, a debate which has grown since the Enron and similar scandals occurred in the United States.
According to Veron, the “people who work in the financial market see an enormous advantage in having one set” of accounting standards. This would not only make the work of corporate accountants easier, but would provide a better comparison between every company, he said.
To Veron, the formal “setting of accounting standards is a power struggle” between those setting the standards and the companies the regulations will affect. In France, the standards are set by the state. In Germany, professionals set them in the accounting industry. The United States indirectly controls its accounting standards.
Congress controls the Securities and Exchange Commission, which controls the Federal Accounting Standards Board. However, “the SEC [has] tried to put some pressure on FASB for introducing necessary reforms” in light of the Enron and other scandals, according to Veron.
In Europe, the hope is to create one set of international standards. The European accounting industry supports the International Accounting Standards system, which was created by a privately owned and privately funded organization in London, the International Accounting Standards Board.
“Europe has relinquished its power to set accounting standards,” Veron said. Veron said this decision is “the only way to be on a level playing field with the United States.”
One of the main tools that aids in the creation of better accounting standards in the United States is “the legislative process itself,” Veron said.
“To a European like me,” he said, “it is amazing to see how quickly Congress has reacted” to the Enron scandal and a need for reform.
However, Veron asserted that the United States “has much to do before it can play an active role in setting the rules.”
Peter Wysocki, an assistant professor of accounting at the Sloan School of Management at MIT, stressed the need for competition between accounting standards systems, in order to prevent a single system from becoming archaic or corrupt.
“Poor governance, capital market pressures, greed” and “creative” executives able to manipulate the standards are contributing factors to financial scandals, according to Wysocki, who said he doubted the Enron scandal could have been prevented under the IASB.