The next 18 months will likely determine whether efforts to unify accounting standards worldwide will succeed or fail, according to Bruegel senior fellow Nicolas Véron.
Commenting in French paper La Tribune, Veron said accounting is currently at a critical juncture as the financial crisis has threatened the prospects of a smooth harmonisation between IFRS and US GAAP.
Véron said the possibility of convergence between IFRS and US standards was dealt a big setback in July 2009, when the International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board published diverging blueprints on the key issue of financial instruments accounting.
“Meanwhile, for the first time, senior European policymakers started to suggest that the EU should take back its accounting sovereignty, and set its own standards rather than entrust them to the IASB,” Véron said.
Véron said there are some suggestions for a continuing to push for completion of the current IFRS/US GAAP convergence programme by mid-2011, following advice from the Big Four global audit networks and G20 leaders last year.
But Véron said it is more likely the political tensions around IFRS will reach a breaking point, leaving the IFRS Foundation (formerly known as the IASC Foundation) unable to prevent wide deviations from IFRS in different economic regions.
“The backlash could even be such that the foundation could not survive as an independent organisation. The IFRS experiment could end in failure, even though the idea of a single global accounting language may later be revived in a different form,” Véron said.
Véron said the IFRS Foundation can enhance its chances of success by a leadership renewal at its top, by more clarity of purpose and accountability to IFRS users.
“At stake is more than accounting: IFRS is arguably the most advanced effort to build a seamlessly integrated market through a unified global code,” Véron said.
“If this effort fails, the consequences should be of concern not only of dour accountants, but as well to all those who care about the future of globalisation.”