CASE STUDY 3.
Activities IASB is becoming increasingly important, especially starting in 2002 with a decision
of the European Commission (EC) to adopt IASB standards in 2005. The EC announced to all
public companies in the member countries of the European Union to prepare consolidated
accounts based on the IASB standards. This fundamental change is an important step in
promoting the making financial information more transparent and comparable from all European
listed companies. This adoption is a demand from a goal of creating an integrated capital market
in Europe. A number of activities undertaken by the IASB and the countries of the European
Union related to the decision to adopt these standards.
Possible explanations for each of the five events:
1. The EU consists of 26 countries, some with very different accounting systems and
requirements (see Nobes and Parker). Therefore, the lack of comparability of accounting
and transparency make inhibits the growth of investment and to make capital
improvements more expensive. The European Commission has taken various initiatives
to promote the development of a single capital market in Europe. If successful, a single
EU capital market will rival the US market in size and provide European companies with
large amounts of capital at attractive prices. Adoption of IAS is an integral part of
promoting the development of an integrated European capital market.
2. The European Commission is committed to the use of a set of accounting standards
across the EU (at least for listed companies) to help raise capital and promote economic
development. However, the commitment of EC does not always extend to their respective
companies. Individual company or group of companies can support general
harmonization, but objected to certain accounting standards if they deemed it was not in
their best interest. This is the case with the European banks (see C12 International View).
So banks are effectively lobbied and cause ARC to withhold support from some sections
of IAS 39.
3. Sarbanes Oxley Act (see C12) significantly improved reporting obligations and potential
legal liability EU companies are cross-listed in the United States. Some US listed EU
companies objected to the requirement to comply with the Sarbanes Oxley Act and has
been considered de-listing in the United States. They have asked for help in expediting
this process through discussions with the SEC by EC representatives. One might argue
that the EC commissioners to encourage companies to seek capital at home in Europe and
thus promote the EU capital markets, but that's just speculation. I have no proof of this.
4. It seems reasonable that EU companies want to be able to register in the US without
reconciliation to US GAAP following their adoption of IAS. As a result, EU companies
lobbied hard (through representatives of their EC) for US GAAP reconciliation
requirements for removal. The pressure on the SEC comes from several areas. First, the
US stock market does not want the company to be discouraged from the list or to de-list,
which may occur when the requirements of US GAAP reconciliation is in place. Second,
the US standard setter FASB standards converge with IAS, suggesting that the IAS has
an acceptable quality. To converge US GAAP and IAS on the one hand, but do not accept
the use of 'gathered' IAS standards in the US market, it seems inconsistent. Responding to
market pressure 2007 SEC made an announcement.
5. IASB amended IAS 39 and IFRS 7 to allow the reclassification of some financial
instruments. As a result of the financial crisis, the Council is under pressure to change the
standard to allow the practice of reclassification is permitted under US GAAP. Council
did not follow due process because they are considered an immediate response is
required. Some are very critical of the Council to make a change and do so without
consultation. Board makes an assessment of the political and economic situation and
decided that their actions are justified in the circumstances. It must be remembered that
the view in October 2008 was that the world's financial system is in crisis (liquidity of the
market is frozen) so it does not take action may be full.
