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Former Federal Reserve Chairman Paul Volcker told a House panel June 7 that new international accounting rules could be ready for use by U.S. companies within five years. But members of the House Financial Services Committee’s capital markets subcommittee showed only lukewarm support for the effort, worrying it may mean ditching highly regarded and effective U.S. accounting rules. Volcker, appearing on behalf of the International Accounting Standards Committee, said that rules in the works will encourage cross-border investments and make it easier for companies to list their shares on foreign exchanges. These rules should be close enough to U.S. standards that American companies could start using some of them within three years and there should be equally effective U.S. rules within five, Volcker said. The European Union has said all companies listed in Europe must use IASC standards by 2005. About one-quarter of the subcommittee’s members attended the hearing, and their reaction to Volcker’s testimony was mixed. Only one, Rep. Edward Royce, R-Calif., openly opposed international accounting rules. But several lawmakers, including Financial Service Committee Chairman Michael Oxley, R-Ohio, asked Volcker how the new rules would affect U.S. accounting standards. “We have the best and most comprehensive standards, but they can be improved,” Volcker told Oxley in a declaration he would make several times during the hearing. Any international accounting rules, Volcker added, would be backed by national authorities such as the Financial Accounting Standards Board and the Securities and Exchange Commission. That would protect investors if international rules prove less effective than current ones. “We can set the standards, but the ball is in your court,” Volcker told the panel that oversees U.S. accounting. The lawmakers’ skepticism aside, Volcker’s appearance before Congress indicates just how far the IASC has come in its quest to become the world’s leading accounting standards-setter. The London-based group was founded in 1973, but for most of its existence it has taken a back seat to national standard-setters, including the FASB. The group only met a few times a year, and its standards were widely thought to be too open to abuse to be useful. The IASC determined that the best way to improve its reputation was to reorganize. Last year, it appointed a board of trustees, with Volcker as chairman. Earlier this year, the trustees appointed a full-time accounting board that, much like the FASB, is supposed to write new accounting rules without outside interference. Among its projects, the IASC is reviewing its merger accounting standards and is considering changes to the rules for writing financial statements. The committee has also completed within the last few years new rules on financial instruments, employee benefits, discontinued operations and intangible assets. Meanwhile, the IASC has been refining its rules before companies start using them in 2005. Many expect the IASC to produce rules similar to the generally accepted accounting principles, or GAAP, used in the U.S. That should make it more likely they will be embraced stateside. But it does little to appease people unhappy with GAAP — especially those who complain that the U.S. rules reflect only historical value and fail to recognize the importance of companies’ intangible assets, such as human capital and trademarks. “If we’re taking this on, it ought not be just a rehash of GAAP,” said Richard Baker, R-La., chairman of the capital markets subcommittee. International financial statements “should be a road map of the future rather than a statement of historical results.” Copyright (c)2001 TDD, LLC. All rights reserved.

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