Accounting - The next wave of convergence.

(From Financial Director)

Byline: Peter Williams, a chartered accountant and freelance journalist.

At the start of 2005, what should have been a moment of triumph - the introduction of international financial reporting standards into dozens of countries around the globe - has instead provoked a spasm of self-doubt and disagreement. There is always a certain degree of grumbling directed at standards setters, but it seems the criticism aimed at the International Accounting Standards Board has reached fever pitch.

The charge sheet against the IASB can be summarised as simply failing to take proper account of stakeholders - particularly in the way that it appears to be charging towards an aggressive fair-value model of accounting, moving rapidly and decisively away from the modified historical cost model that operated for many years.

These accusations are vehemently denied by those close to the IASB. The preparers claim the IASB is not listening to what users of accounts say they want. It is now a common perception that the IASB is introducing a fair-value model of financial reporting against the will of users, preparers and even regulators. Investors are saying they want to know more about cashflow, debt and how the earnings of the company are generated - the split between acquired, continuing and discounted operations. But instead of this analysis of the components of performance, the IASB seems to be concentrating on producing information on fair values which users don't want. Indeed, there is a growing belief that the IASB is somehow trespassing on the territory of the analysts.

If the IASB is requiring companies to give information which is different from that requested by analysts and investors, the result will be an increase in pro-forma use of financial information, though it won't be called that. Such a trend would suit no one. It would be ridiculous to have a worldwide system of financial reporting and then decrease the reliance on audited statutory accounts. But such a move is an implicit challenge to the authority of the IASB.

Mind you, if preparers are exasperated by the IASB, the feeling is mutual. As far as it is concerned, fair value is just one of a number of models up for grabs. It claims much of the fair value in use or being contemplated was either inherited from its predecessor body or invented and by national standards setters. And as for listening to their stakeholders, the IASB claims it listens aplenty and debates internally all of the issues. Part of the problem might be that the IASB has limited resources. It sees its overriding objective as producing high-quality standards that don't allow the myriad options found in old international standards and which made stock exchange regulators recoil in horror. It has been so busy doing this that it has had little time to actually go out and speak to users, regulator and preparers.