A Big Step Toward Convergence?

As the debate over financial regulatory reform continues in the U.S. Congress, a broader global debate is slated to take place this weekend in Toronto at the G-20 meetings. One of the primary topics on the G-20 agenda will be the convergence of financial reporting standards across the globe. Financial leaders are acknowledging that the increasing complexity of reporting standards impedes the ability of regulators, investors and counter-parties to understand the true nature of a company's financial health. Here is what the Financial Times reported on the upcoming meetings this weekend.

Some accountants respond that the G-20 focus makes convergence harder to achieve. Politicians in the US or Europe will not give up sovereignty over accounting rules when the world is watching, they say. However, the spotlight on the profession by the G-20 could also offer an opportunity. It could provide a platform to tackle the broader failures of corporate reporting which are expected to need some form of political impetus to succeed.

Accountants and investors – and increasingly regulators – argue that the financial turmoil showed that greater clarity is needed not only in accounting rules but also in annual reports. Increased length and information in corporate reports has clouded the underlying picture of a company’s financial health, they say.

Getting enough support from politicians as well as regulators, investors and accountants to make significant changes is difficult as the debate over accounting standards has shown. However, the timing of the inquiry to coincide with the G-20 focus on accounting may give it a greater chance of success.

Financial reporting risk has become a top concern as the business community becomes more global. One of the primary ways to mitigate that risk is to adopt global standards for financial reporting. This weekend could represent a big step towards convergence of financial reporting standards.