IASB held up on technical issues.

(From Financial Director)

Byline: Peter Williams.

A year from now, the International Accounting Standards Board needs to have in place an accounting standard on financial instruments it can live with. That means it has to stay broadly aligned to US GAAP. Equally importantly, the IASB's constituents will also need to be able to live with the standard. At the moment, it appears the UK banks think the current standard, IAS39, can be beaten into shape. But not all of Europe agrees.

As one insider put it: "The French (bankers) are even more upset than the Germans, and are lobbying hard." They do not like the idea of falling into line with IASB thinking on every last jot simply because the IASB has bigger fish to fry in attempting to converge its GAAP with the US.

And IAS39 is disliked in Europe for two main reasons. First, it requires the use of fair values for many issues that bankers like, and, secondly, it significantly restricts the use of hedge accounting.

In the middle of September 2002, the French Bank Federation published a statement entitled Loss of confidence in the financial markets and International Accounting Standards. It says IAS39 "presents serious deficiencies that run counter to the goals which have led the EU to impose the use of the standards". The federation's argument is that the IAS in its present state is inspired by the same theory as US GAAP, "a theory that lies at the heart of the current accounting crisis and loss of confidence in financial reporting and markets".

Financial instruments are just one issue in this argument, although perhaps the most difficult. Abolition of the distinction between operating and finance leases, which will put everything on balance sheet, will cause difficulties in the leasing industry. And many FDs will be riled by changes to share-based payments.