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APEC report discusses 'diversity in accounting standards'

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16 Nov 2010

The Asia-Pacific Economic Cooperation forum (APEC) has released its 2010 Economic Policy Report (prepared by its Economic Committee) after it was endorsed by Foreign and Trade Ministers at APEC's annual meeting in Yokohama, Japan.

APEC is an inter-governmental organisation with 21 member economies in the Asia-Pacific region, including Australia, Canada, The People's Republic of China, Japan and the United States.

The Economic Policy Report discusses various corporate governance matters, including the international harmonisation of accounting standards. In this regard, whilst acknowledging the benefits of IFRS, the report consider the possibility of maintaining 'diversity' in accounting standards, or permitting choice. This stance is quite different to the direction of the G20, which more strongly favours convergence of accounting standards (see our earlier story).

An extract from the report follows:

International Accounting Standards Harmonization

Harmonization with international accounting standards is an issue that gains and loses momentum with some regularity but is relevant to corporate governance. IFRS are not universally accepted in APEC, and debate continues about their merits versus other accounting standards. In particular, there is a corporate governance concern that some accounting standards may be better at encouraging long-term, stable growth than at focusing on one accounting period's earnings.

However, there are also significant benefits to harmonizing accounting standards... Universal accounting standards backed by universal professional performance standards would allow easy comparison among companies, enabling more efficient capital allocation and global corporate performance, as long as the standard chosen incentivizes long-term performance over earnings manipulation or smoothing.

Such standardization increases pressure on companies by forcing them to compete for capital with all other competitors for capital in the world. However, if the standard chosen allows fraud to go undetected for some period, the world might suffer a global simultaneous accounting scandal crisis. Given the events of the past decade such a scenario should be considered. Thus, it may be important to maintain diversity in accounting standards, or even to allow companies to choose which standards to use along with choosing which economy and stock exchange in which to compete for capital.

Click for APEC press release (link to the APEC website).

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