Accounting Rules and Joint Ventures in Europe

Accounting Rules and Joint Ventures in Europe Bridging the GAAP The International Accounting Standards (IAS) was supposed to be a unifying conceptual framework which would bring accounting practices of various firms and industries under a single umbrella of standards. No matter if it is a Greek shipping magnate or an Italian fish processing plant, the EU envisioned that they would work within a single standard to better facilitate trade amongst various nations. Indeed, the EU attempted to achieve this through the means of directives, which were soon abandoned. Directives, aimed at forcing compliance with EU accounting standards and practices were discarded because of complaints such as those voiced by the 2003 Report on the Observance of Standards and Codes with regards to the Czech Republic that â€Å"The wording of primary and secondary legislation suggests that the Czech Republic’s real priority is compliance with EU directives, rather than adoption of IAS.† Indeed, these two seemed to be not only different goa ls, but mutually exclusive ones- companies could either sate the directives issued or the requirements of the IAS, but rarely both, especially in Eastern Block nations where both concepts were fairly new. Now, however, a new complication is on the horizon in the form of bilateral trade with the U.S. and U.S.-E.U. joint ventures. Obviously the directives, which have been scrapped in any case, would have no force of law in U.S. courts. But nevertheless, there has been considerable movement on this issue as of late. In 2006, the IASB issued a paper called â€Å"A Roadmap for Convergence between IFRSs and US GAAP- 2006-2008 Memorandum of Understanding between the FASB and the IASB†. The memorandum, based upon work done during a 2002 meeting between the FASB (U.S.) and the IASB, as well as subsequent meetings in 2005, stated that â€Å"the FASB and the IASB reaffirmed their commitment to the convergence of US generally accepted accounting principles (US GAAP) and International Fi nancial Reporting Standards (IFRSs).† Nevertheless, this is bound to be a complicated venture because it can not be resolved by boards or government agencies. As the memorandum itself recognized, â€Å"the ability to meet the objective set out by the roadmap depends upon the efforts and actions of many parties—including companies, auditors, investors, standard-setters and regulators.† In other words, bridging the gaap is not merely a matter of ironing out a combined framework of accounting practices. It is a matter of a company in Los Angeles following the same accounting standards and practices that a company in London would. It is also a question of training assessors and auditors in this new standard so that they can ensure compliance with it. For these reasons, the U.S. Securities and Exchange Commission recently put forth a proposal which would allow U.S. listed companies to choose between IFRS and the U.S. GAAP. While some in Europe and the U.S. fear that a llowing companies to make this choice would hinder the process of converging the two systems (Johnson, 2007) it is nevertheless a practical solution which should be given serious thought and consideration. The European Union, an offspring of NATO, was fifty years in the making. The idea that uniform standards can be achieved on both sides of the pond between thousands of individual companies is fanciful. As a pragmatic matter as well, people are often leery of change- especially change that is being forced upon them, which was another reason the Directives approach previously discussed failed. While the ultimate goal of uniformly adopting the IFRS may well be desirable, it is certainly not something that can or will happen overnight. Allowing a choice between GAAP and IFRS for U.S. companies should not be viewed as an effort to â€Å"halt or slow the convergence process† (Johnson, 2007) but rather as an acknowledgement of the real world difficulties inherent to any large-scal e transitions.