How can the acceptance of International Accounting Standards be increased?
Ladies and gentlemen,
The Federal Government and the Bundestag are in the process of advancing our country’s corporate culture.
This includes the assimilation of international developments. With the world economy becoming increasingly interwoven, markets need to function in accordance with uniform criteria.
However, it is not merely a question of adopting rules that have been established elsewhere. It is an integrative process which presupposes a give-and-take approach on all sides. All legal systems contribute something, and they get something in return.
The first prerequisite for any successful business activity is trust. To ensure mutual trust we require transparency, which is the currency of trust. The German Government has a ten-point programme to establish in our corporate culture the transparency which the international – and of course our own – capital market requires. It is supported by new legislation to ensure auditor`s independence and create a basis for independent checks where financial reporting is suspect. We also have a Corporate Governance Code, - which, as a rule, the general public only see as a means of showing how much company directors earn. Personally, I hope the Code will be generally accepted and that voluntary arrangements will prove sufficient.
But the most significant aspect of adopting international standards is to make sure they are used for group accounting. Last year we adopted an Accounting Reform Act and amended sections 315 (a) and (b) of the German Commercial Code in order to make those standards part of German law.
That’s tangible economic policy. Since it is a question of how companies can recapitalize on international and national markets, it is right that their financial statements should be presented in such a way as to be credible on those markets.
Internationally accepted accounting standards are those applied in the United States, as well as an international variant which will now be binding for the European Union and thus for us too. If our market were better funded, -if our companies would be more able to refinance on the stock exchanges than at the present time, - if that were so German accounting law might have carried more weight. But that isn’t the case and we have to accept the facts.
Listed corporations in the European Union and Germany too are increasingly and inevitably influenced by the International Accounting and International Financial Reporting Standards (IAS/IFRS). I will therefore concentrate on how to facilitate acceptance of those standards.
The development of such standards by an international body composed of widely recognized experts would enhance their acceptance among those who prepare and make use of balance sheets, as well as other interested parties, all over the world. The IAS Board is an international standard setter which, in cooperation with the Financial Accounting Standards Board in the United States, could bring about a convergence of international and US standards and thus make them truly acceptable worldwide.
But worldwide acceptance also means that IAS- or IFRS-based financial statements would be recognized for listings in the United States. Business and government in Europe must therefore pull together to make sure this is possible beyond doubt. After all, acceptance of IAS standards is also connected with the pursuit of this objective, - so considering the importance of the European Economic Area, a degree of self-assurance is quite appropriate in this respect.
However, in view of the economic significance of accounting standards, there is a growing problem as regards the procedure. The standards are drawn up by the IASB, a private body based in London. It is financed with contributions from standard setters in several countries, industrial companies, banks and insurance companies, as well as accountants and others involved or interested in the preparation of financial statements.
The binding incorporation of IASB standards in European law is the result of a separate committology procedure. Thus the EU Committee established the Accounting Regulatory Committee. Consisting of representatives of member states chaired by the Commission, it decides whether the standards in question should be adopted - but does not determine their form.
It is chiefly the protracted debates on IAS 39 (Financial Instruments: Recognition and Measurement) and IAS 32 (Financial Instruments: Disclosure and Presentation) that have revealed the negative aspects of the present situation. Long-standing national traditions have simply been ignored, with serious consequences for Germany’s cooperative banks and the profit-sharing arrangements favoured by medium-sized companies.
The IASB’s aim must be to involve all concerned in the standard-setting process and to lead an open, worldwide debate. If standards adopted by a private body – even one composed of recognized experts – are to become legally binding, those standards and the standard-setting process must find general acceptance.
In view of the European procedure I described earlier, this is urgently necessary. Since it is often the case that legitimate interests have to await the European Union’s endorsement phase for consideration, there is a great risk that endorsement may only be partial. But this runs contrary to the aim of establishing the global standards which capital markets need. The EU’s committology procedure is not the best way to assert legitimate practical interests, but it’s the only one we have.
With every singly decision the European nations have to reconcile their support for the IASB in principle with their factual misgivings.
We therefore welcome the debate on amendments to the statute of the International Accounting Standards Committee Foundation. It is essential to ensure that auditors, recipients, legislators and others concerned are adequately involved. Being an important economic area, Europe must play a larger role in the standard-setting process.
I am convinced that the International Accounting Standards can in this way be made more readily and widely acceptable. This is the aim of Germany policy.