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April 14, 2008

Global accounting strategies key for new IOSCO head

By Nicholas Moody

Greg Tanzer’s long history in securities regulation makes him an ideal candidate to lead the International Organisation of Securities Commissions (IOSCO) during a challenging period for the world’s financial markets. IOSCO is recognised as the international umbrella body for securities regulators. Its membership regulates more than 90 percent of the world’s securities markets.

Tanzer took over as IOSCO secretary general at the start of this year following a 15 year career at the Australian Securities & Investments Commission (ASIC), where most recently he was executive director for consumer protection.

The Australian is not new to international securities regulation. From 1996 to 2007 he was involved with ASIC’s international work and for the past six years he has been chairman of IOSCO’s standing committee on investment management.

Under the spotlight Accounting and auditing issues such as fair value, IFRS and International Standards on Auditing are having an increasing impact on IOSCO and the work of securities regulators around the world.

Tanzer says accounting continues to be one area that throws up a range of technical and strategic challenges to securities regulators right across international markets. He emphasised the need to see accounting issues in their long term strategic context and to balance that with the impact they could have on investor confidence.

“While [accounting standard-setting] is a very technical field and there are a lot of very proficient technicians, you could make what you think is a small change to an interpretation, guidance, or a standard and it could have ripple effects,” Tanzer pointed out.

“I would appeal to the accounting community, particularly when you are dealing with regulators or raising expectations of bodies like IOSCO, to bear in mind the longer term strategic implication. Everyone agrees with the need for accurate, complete and transparent financial statements, that is going to be aided by coming up with converged accounting standards, but also we need to see that in the strategic context which all gets back to investor confidence.

“If you have confidence in the financial statements, you can understand them, they are transparent and they are predictable then that will do 80 percent of the work of restoring investor confidence.”

IOSCO sees itself as a key stakeholder in the move towards IFRS. It has a dedicated standing committee of officials from its technical committee who issue comment letters on IFRS proposals and work on other technical projects in the accounting arena. The standing committee is chaired by US Securities and Exchange Commission representatives.

In February, Michel Prada, chairman of the IOSCO technical committee, released a statement urging publicly-traded companies to provide investors with clear and accurate information on the accounting standards used in the preparation of their accounts.

“The recent subprime turmoil suggests that we need to continue to improve accounting standards but I think the direction of convergence is pretty clear,” Tanzer said.

“I think what you are seeing is you have IFRS developing and accepted in Europe, in Australasia and starting to be accepted in parts of the developing world, so there is momentum around IFRS.”

Challenges ahead Tanzer says the organisation faces several challenges over the next year besides its general support for IFRS. One of the most immediate tasks arises out of the subprime turmoil. 

“I think you’ll see IOSCO doing some work on valuation of financial assets, especially valuation of structured products, particularly in illiquid market situations because I think that is an area that has been exposed,” he said.

“That is a strategic and important piece of work but also quite a technical piece of work to properly understand what the standards actually require. It may be as much an exercise in communication and industry awareness as it is in a technical assessment as to the standards adequacy.”

The other area that requires ongoing attention is the push to develop International Standards on Auditing.

“Auditors play a critical role in the markets, especially in the equity markets,” Tanzer added. “The challenge is to come up with something that is worthwhile from an international level but has enough precision about it to qualify as a standard.”

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