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How should the EU respond to the financial crisis?

11 Feb 2009

The current financial crisis risks a break-up of accountancy's international language and rules, ACCA has warned European policy makers in its new briefing paper, How should the EU respond to the financial crisis?

'In response to political criticisms that fair value accounting rules caused some of the market volatility, the International Accounting Standards Board (IASB) revised its rules on fair value accounting; some countries now want the EU to seek exemptions from the international standards,' said Clive Booth, ACCA director of public affairs and media relations. 'This would be a serious step backwards.

'The EU's decision to use international financial reporting standards (IFRS) was a major landmark in the move towards global accounting and similar standards. It is vital that we do not move to a disparate set of regional rules.'

The paper asserts that the focus should be on ensuring that IFRS continues to be a high-quality principles-based accounting language. The EU authorities need to engage with the standard-setting process, as more countries adopt IFRS. The paper also calls for those with IFRS experience to share their views and knowledge.

'In areas such as accounting, being too prescriptive with global measures could backfire,' said Booth. 'Issuing guidance that results in mechanical rule-following could be a recipe for disaster. Principles-based standard-setting and professional judgment have a vital role to play and should not stifle recovery.

'If this can be achieved through the consultative process, it should be possible for EU public and private sector parties to contribute to the evolution of individual standards, from the initial standard-setting phase. In most cases, the EU authorities should then be in a position to give their support to new standards, as they are issued by the IASB.'

The paper concludes that while the crisis has revealed flaws in Europe's own regulatory system, the EU is still well placed to play an active role in designing new global structures and ensuring their transparency and accountability. Developing countries as well as others should be represented, guaranteeing the legitimacy of the decision-making process.

It is essential that Europe plays an active part in shaping the new global governance around progressive values.