When the International Accounting Standards Committee was reinvented three years ago as the International Accounting Standards Board (IASB) its objective seemed unequivocal: to write a single set of high quality global accounting standards. At the time it was hoped that this unambiguous goal would be something that honest business and finance communities all over the world would have no problem uniting behind.

However, there has been a clash of ideologies between continental Europe and English-speaking standard-setters and regulators since the IASB came into being. At the time the founders of the IASB, who included the European Union, securities regulators, international business and finance organisations, as well as governments, hoped that this clash would be resolved over time. Three years later, some observers feel that the differences are far from resolved and that contradictory expectations held by the EU and the IASB continue to mar the progress made by the international standard-setter.

Not good enough

Things came to a head between the IASB and the European Commission earlier in the summer at a meeting between the IASB and its Standards Advisory Council (SAC) in Oslo. Karel van Hulle, an EC representative on the SAC, told the IASB in public that its performance was not good enough.

EC head of company law and financial information, Van Hulle lost his temper and implied that IASB chairman Sir David Tweedie was not running the IASB as an international organisation and that the IASB was insensitive to the EU's legislative process. 'What you're doing works for a national board, but not for an international one - at six months before deadline to still be at the exposure draft stage is totally unacceptable.'

Van Hulle told Accountancy that there was a principle at stake as the IASB had pledged to offer a 'stable platform' from the end of March 2004 and it had gone against that. 'We are the main customer of the organisation - why can't they have a little more consideration for the 2005 deadline?' asked Van Hulle. He explained that if the EU endorses the core set of international standards by 2005 and implements them successfully, 'we can put IAS on the map'. However, he said he was not confident that the IASB appreciated that.

Van Hulle's outburst came as the IASB reported to the SAC on six exposure drafts on minor changes that the IASB is making at the behest of preparers.

Board member Jim Leisenring told Van Hulle that the EC had given out mixed signals. He said the IASB had been criticised for not being responsive to European preparers'needs; however now that the board was attempting to be flexible by making alterations to the standards the EC was still not happy.

'It seems you want us to hurry on the things you want, stop on the things you don't want, and go slow on the things you don't care about,' said Leisenring. Board member Geoffrey Whittington said that it was not the IASB that was at the root of the problem, but EU bureaucracy, which was notorious for holding up change.

Under pressure

Some SAC members were willing to put Van Hulle's frayed nerves down to the pressure he is under at the moment to make IAS adoption in Europe a success. However, his comments to Accountancy were representative of a broader view held by the continental business community and European securities regulators, as well as the EC.

At the end of June, European witnesses gave evidence at a public hearing on the constitutional review of the International Accounting Standards Committee Foundation (IASCF) (the umbrella organisation that includes the IASB and the board of trustees). They were unanimous in calling for fewer so-called 'Anglo-Saxons' on the trustees board and the IASB, more experts and trustees to be drawn from IAS countries, and for the IASB to be made more accountable to the public.

The constitution committee, the panel of IASC trustees that is responsible for the review and chaired by Sir Sydney Lipworth, heard evidence from numerous European witnesses. They represented the European business community, European professional associations such as FEE (Federation des Experts Comptables Europeens), CESR (Committee of European Securities Regulators), as well as the EC.

Source of tension

Paul Cherry, chairman of the Canadian ASB, told Accountancy that much of the tension between the IASB and the EU stems from a situation where Europeans and so-called 'Anglo-Saxon' standard-setters have been talking past one another since the IASB was set up in 2001.

Cherry, who also gave evidence at the hearing, explained that many observers have interpreted the EU's complaints and demands as attempts to gain undue influence over the standard setting process. Australasian, North American and British accountants and finance experts prize technical expertise over geographical and cultural representation.

However, 'the Europeans genuinely don't see it that way', said Cherry, adding that they see nothing wrong in demanding representation on the basis that they are relying on IFRS as their accounting system. They would also emphasise the financial support they are lending to the process and the psychological impact that will be achieved by a whole region adopting IFRS at once.

Nevertheless, there can be no doubt that Europeans, as well as experts from other parts of the world, are uneasy with what they see as domination of the IASB and the board of trustees by the US. Concerns were raised at the SAC meeting about the IASB's ongoing convergence project with the US Financial Accounting Standards Board. Tweedie had announced that going forward the IASB and the FASB would have the same agenda.

Stig Enevoldsen, chairman of the accounting advisory body to the EC, the European Financial Reporting Advisory Group, warned: 'If you converge with the US you may diverge with other parts of the world. Even though the strongest standard-setter is in the US, that's not the only place where you need acceptance. It's hard enough at the moment to get acceptance in my part of the world (the EU), if you look to the US it might get harder.'

Lipworth told Accountancy that he had seen nothing of a clash of ideologies between the IASCF and the EU. 'They came and adopted our standards,' he said, adding that he does not agree that there is any incongruity between the legalistic approach the EU applies to accounting directives and the IASB acting as an independent private sector organisation. 'Our strength is that we don't have to go through lots of legislation.'

IAS 39 bone of contention

Lipworth believes that there would never have been friction between the IASB and the EU if it were not for the controversial financial instruments standard,

IAS 39. The standard has been a bone of contention between the IASB and European banks for over a year. According to Lipworth, the clash has been between some elements of the EU business community and the standard-setter. Unfortunately the EC has become inextricably embroiled.

David Devlin, president of FEE, told the hearing on the IASCF constitutional review that the IASB is 'radical' by EU standards. 'It's important that you understand that this is a tumultuous change for the EU.' He said that it would help if the IASB and the trustees were seen publicly to acknowledge this. Lipworth conceded that much of the tension between the EU and the IASB may be 'a perception problem'.