The European Union is seeking to increase its influence over global accounting standards by beefing up the agency that scrutinises new rules and in certain cases tweaking how they are applied in the bloc.
The book-keeping standards, the bedrock of markets, are written by the International Accounting Standards Board (IASB). They apply in over 100 countries, including the EU, but not the United States.
Accounting rules have become highly politicised after policymakers around the world blamed them for exacerbating the 2007-09 financial crisis.
The standards must first be endorsed by the European Commission for use in the bloc but member states and the European Financial Reporting Advisory Group, or EFRAG, often give different views on their suitability.
The EU is the biggest contributor to the IASB's budget – it provided about a third of the £20 million (€23.6m) the board received in 2012 – but feels its voice is not adequately heard.
Michel Barnier, commissioner for financial services, asked former European Investment Bank chief Philippe Maystadt to recommend how the bloc can streamline advice and endorsement.
In a report published on Tuesday (12 November), Maystadt recommended beefing up EFRAG financially through compulsory levies on listed companies, and elevating its board to look at the political and economic as well as technical aspects of rules.
In a challenge to IASB authority, Maystadt also recommended changing how the commission endorses a standard, broadening it out from a simple yes or no to include the ability for "carve ins" – or local tweaks to the rules – but only to improve the "public good".
"I am particularly keen that Mr Maystadt's recommendations should be implemented swiftly," Barnier said in a statement. He will present them to EU finance ministers on Friday.
France, Britain, Italy and Germany will become permanent members of the expanded EFRAG board. The European Central Bank and EU banking, markets and insurance watchdogs will also be members, a signal of how policymakers are keen for lessons from the financial crisis to be applied.
"What is proposed gives us a means to build something that is going to be efficient," said Jerome Haas, president of the French accounting standards board ANC.
The IASB had no comment.
Maystadt's recommendations put heavy emphasis on making sure IASB rules do not destabilise banks, insurers and markets.
The current requirement to value some bank assets at the going rate was seen as accentuating the crisis by forcing lenders into fire sales to shore up depleted capital.
Another accounting rule is seen as leaving it too late for banks to make provisions on souring loans, forcing taxpayers to bail them out in the crisis.
Barnier criticised the "excessive" focus in recent years on the IASB trying to align its rules with those of the United States, as called for by world leaders so that investors can compare companies more easily.
Maystadt said he does not see the United States adopting IASB rules in the foreseeable future and in the meantime other parts of the world want to increase their influence.
Barnier said the recommendations will allow the European Union to better organise itself to ensure the "needs of its markets" are taken fully into account in IASB rulemaking.
The carve-in provision, along with tougher conditions for endorsing a rule in the first place, such as not harming financial stability, are intended to give the European Union more leverage over shaping new IASB rules in future.
Haas said the "carve in" formalises what is already happening across the world, such as selective implementation by supervisors and companies.
"This is a message to the IASB," Haas said.
Separately on Tuesday Michel Prada, chairman of the IASB's board of trustees, fired a warning shot at the European Union on the danger of "nostalgia" or nation-based accounting.
"If some jurisdictions, particularly the larger ones, go back to the a la carte model then we should not be surprised that others will follow," Prada said in a speech in Tokyo.
From January 2005, the EU has been subject to the International Financial Reporting Standards set down by the International Accounting Standards Board (IASB).
The process of incorporating them into EU law has been going on since 2002.
- Press release: Recommendations for enhancing the EU's role in international accounting standard-setting (12 Nov. 2013)
- Maystadt report (12 Nov. 2013)
- Accounting - Financial reporting