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Monday, Nov. 17, 2003

JAPANESE PERSPECTIVES

A proper accounting due for IASB's ways


Established in 2001, the International Accounting Standards Board is a body that is trying to develop a single set of high-quality global accounting standards, the ultimate goal being to have the world's other existing standards converge with it.

The European Union has already decided to apply the standards of the IASB to the consolidated financial statements of listed companies within the region, beginning in 2005.

Also, the Financial Accounting Standards Board -- the body that sets accounting standards in the United States -- has already agreed with the IASB to start integrating standards wherever possible.

However, as the IASB has continued to gain influence, criticism has grown about its activities.

One problem is the way it operates. French President Jacques Chirac and European Commission member Frits Bolkestein have warned that the IASB fails to fully consider the opinions of all financial market players when setting its standards. There has also been widespread frustration expressed along these lines by Keidanren counterparts in several countries who claim that, although the IASB gives them a chance to state their opinions, they are not reflected in IASB decisions at all and no explanations are given as to why.

If the IASB is to be recognized as a full-fledged international body whose standards are accepted worldwide, its governance must be improved, and the process used to set its standards must be reviewed.

The contents of the IASB's work have also been criticized.

The board is leaning toward introducing a comprehensive fair-value appraisal that will lead to a review of the current methods of financial reporting, financial instrument evaluation, and accounting of postretirement benefits.

But such rules have not been adopted by any country, and could lead to the evaluation of all assets and debts at market value. It is nothing but dogma and cannot be considered to be any better than other accounting methods. It doesn't even enjoy majority support from investors and issuers of financial products.

The IASB's bid to create a new set of accounting standards totally different from today's standards, which have been established through the use of real business practices, appears to be nothing but an attempt by a group of experts to ignore reality and have their way. If the body intends to forge ahead with the project in this direction, it is likely these new accounting standards will be rejected throughout the world.

Given the rise in cross-border capital movements, it has become increasingly important to have globally accepted corporate accounting standards that allow for international comparison of financial statements. While the IASB's mission is no doubt aimed at responding to these needs, it would be regrettable if the outcome of its work -- the product of huge investments of time and resources -- fails to gain worldwide acceptance.

Yoshio Nakamura is a senior managing director of Nippon Keidanren.


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