The six largest accounting networks have released a report that
endorses a single set of high-quality principles-based
international accounting standards. Carolyn Canham
speaks to Deloitte Global chief James Quigley and International
Accounting Standards Board chair David Tweedie.

In a significant show of professional unity, the leaders of the
world’s largest accountancy networks unanimously supported a move
towards a single set of principles-based international accounting
standards at the fourth Global Public Policy Symposium in New York
this month.

The global chief executives of Deloitte, PricewaterhouseCoopers,
Ernst & Young, KPMG, Grant Thornton and BDO International
issued the report ‘Global Dialogue with Capital Market
Stakeholders’ based on the outcomes from a series of recent
stakeholder roundtables in financial centres across the

The influential Big Six, which audit the majority of listed
companies worldwide, hope the white paper will stimulate further
discussion between accountancy networks, investor groups, standard
setters and regulators. It summarises the round-table discussion
into four categories: global convergence – the need for consistency
in financial reporting; audit quality – the need for continuous
improvement and greater consistency; prevention and detection – a
two-pronged approach to fraud; and the future of business

Strong consensus

Deloitte Global chief executive James Quigley tells TA the
ultimate goal is to strengthen global capital markets and improve
the effectiveness of all market players in the process. He says the
highlight of the report for him was the strong consensus for a
high-quality, globally accepted set of accounting standards. Key
themes that emerged were the preference for principles, the need
for education and training, the unique needs of SMEs and

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In order to advance the dialogue on principles-based standards, the
chief executives released, in conjunction with the global dialogue
paper, another report that proposes a framework to use when
developing principles-based standards.

Quigley says there is momentum towards more principles-based
standards globally, even in the traditionally rules-heavy US.
“[There is] the feeling that the current rules-based system that
exists in the US has created some complexity that is beyond the
ability to effectively manage and so the need for change and the
voices for change in the US are starting to become consistent,”
Quigley says.

Quigley suggests the framework is something that could be used by
standard setters such as the International Accounting Standards
Board (IASB) and the Financial Accounting Standards Board (FASB) as
they develop and improve new and existing standards. He concedes
that standard setters would say the white paper articulates what
they have already stated as their target. However, he questions
whether any individual standard issued recently meets all six

IASB chair David Tweedie agrees the new paper is very similar to
ones already produced by the IASB and FASB, however he welcomes it
as a tool to bind the firms to a commitment to principles-based
standards and a green light to press ahead.

“The beauty of this paper is there are the senior executives of the
firms signing up for it – it’s not a minor thing because it means a
whole new mind set,” Tweedie says.

Tweedie echoes the white paper in saying there are still some
things that can “wreck” the move towards principles-based
standards. “One is if people play fast and loose – if the integrity
isn’t there we will have to say ‘you can not do this, you can not
do that’, so that will lead to more rules,” he says.

Other potential hurdles include people within the industry asking
for interpretations and guidance, and failing to defend each other
in court.

Tweedie adds that it is an interesting time for the profession. “If
[the move to principles-based standards] comes off, it will give
the profession back to the professionals,” he says. “At the moment,
there are some standards that are so complicated because people…
don’t like volatility and they’ve asked for exceptions. This means
the standard becomes the ownership of the expert and the average
partner shies away from it because he doesn’t fully understand.
That’s hopeless and that’s why we [moved towards principles-based
standards] and we’re thrilled that the firms have come along and
backed it.”

Quigley warns that due to the litigious nature of the US legal and
regulatory system, it will take time for the country to adopt more
principles-based standards. “If the US were to commit to a
timetable or a blueprint to adopt IFRS, the amount of time that
would be required to make all the changes needed in the regulatory
environments, make changes that would be needed in the capabilities
and competencies inside of the preparer community and the auditor
community, those things would take multiple years. That’s why a
change isn’t like turning on the light switch,” he says. “I believe
that principles-based standards, in order for them to be
effectively implemented, will require the creation of a judgement
framework that would need to be sanctioned by the regulator and
then respected by the regulator.”

He explains that if the judgement of preparers and auditors is not
respected and is second-guessed, then they will ask for rules.
Standard setters will then provide rules, “and you have that
process repeat itself many times over, and over many years you end
up with the complex environment that we have in the US”, Quigley

Efforts to develop such a framework are under way by a committee
sponsored by the US Securities and Exchange Commission.

Setting guidelines

The Big Six accountancy networks believe principles-based standards
should be:

  • a faithful presentation of economic reality; 
  • responsive to users’ needs for clarity and
  • consistent with a clear conceptual framework;
  • based on an appropriately defined scope that addresses a broad
    area of accounting; 
  • written in clear, concise and plain language; and 
  • structured in a way to allow the use of reasonable

    Source: Global Public Policy Symposium