8:03 AM Mar 8, 1994
HARMONISING TNC ACCOUNTING, DISCLOSURE STANDARDS
Geneva 7 Mar (TWN) -- Experts from the industrialized countries, developing countries and the countries in transition began a week-long meeting here on harmonisation of accounting standards to enable comparable and transparent information about enterprises are available to all users in an era of globalised trading on stock and financial markets around the world. The twelfth session of the Intergovernmental Working Group of Experts on Accounting and Reporting (ISAR) is the first since the former secretariat of the UN Centre for TNCs was moved to Geneva and all UN activities relating to the TNCs merged into the UNCTAD activities. Aziz Dieye of Senegal, who is chairing the meeting, said on election that the ISAR was a unique forum where experts from all continents were meeting on an equal footing. The group is to review important current developments at global and national levels both on accounting and disclosure practices of firms whose shares are now quoted in various national markets, and also the issues relating to the new financial derivative instruments. According to the UNCTAD report, the market for derivatives is estimated to aggregate approximately 8000 billion US dollars at end of 1993. The explosive increase in size of the derivatives market (previously confined to primary financial instruments) is because of hedging and options sold on commodity, stock price and foreign currency risk exposures. As foreign direct investment expands across the globe, so are markets for trading financial instruments. Coincidentally, the activities of hedge funds, and of banks using their own capital to trade on international financial markets, has become a matter of increasing concern to Central Bankers because of the potential risk to international financial markets as a whole. Small funds with large leverage (borrowings ranging from 80-95 percent of the capital used for the activities) and the speculations involved could easily trigger a crisis when any fund loses heavily. Central Bankers meeting at Basle Monday however decided for the moment not to take any immediate actions to curb the activities of hedge funds or of banks using their own capital to engage in speculation on foreign exchange or bond markets. The UNCTAD report underlines, in regard to these derivatives, that from an accounting point of view the most important issues were: on- versus off-balance sheet financing; recording transactions on both assets and liabilities side of the balance sheet or reporting them on a net basis; classification of financial assets as current operating or trading assets or as long-term assets or investments that are intended to be held to maturity; and current valuation and recording of assets versus continuing to report assets at their historical carrying value. Questions relating to responsibilities of members of Boards of Directors, the liability of professional accountants and auditors (and limiting their liability in torts) are some of the other issues to be discussed. The ISAR group has also before it an updated survey concerning disclosure of environment-related information in published financial accounts and annual reports of TNCs. The survey samples disclosures by 203 TNCs in seven major world industries with significant impacts on environment -- chemicals; forests and forestry products; industrial and farm equipment; metals and metal products; motors and vehicle parts; petroleum refining; and pharmaceuticals, soaps and cosmetics. The UNCTAD secretariat says that "while the proportion of corporations disclosing some information has increased, there is little or no evidence to suggest that the overall quality of information provided has increased". The vast majority of information provided, the survey says, are discursive, often self-congratulatory, statements and seldom give quantitative information on impacts such as through quantification of emission levels. The secretariat suggests that more specific guidelines and benchmarks are needed and accounting disclosures should be more closely tied to environmental legislation. The ISAR group is to consider in depth this issue at its 1995 session. Other topics on the group's agenda include practices about accounting of leases, and of government grants and concessions which have a significant financial impact on operations of enterprises. They are also to discuss the implications of the Uruguay Round agreement concluded in December and the proposals and provisions (in a Ministerial decision to be adopted at Marrakesh) relating to professional accountancy services. The decision for a work programme, through a Working Party under the GATS accord to examine and report with recommendations on disciplines necessary (under GATS) to ensure that measures relating to qualification requirements and procedures, technical standards and licensing requirements in the field of professional services do not constitute unnecessary barriers to trade. The Working Party is to consider and make recommendations as a matter of priority for elaboration of multilateral disciplines in the accountancy sector to give operational effect to specific commitments. These include issues relating to domestic regulatory requirements being based on objective and transparent criteria such as competence and ability to supply the service, not more burdensome than necessary to ensure quality of the service, use of international standards, and establishing guidelines for recognition of qualifications. The need for harmonisation of financial and accounting practices and disclosure of information, to enable investors to make intelligent decisions, arises from the varying ways the positions of companies could be presented in balance sheets and other statements. A secretariat report cites the executive of an investment management company for the view that while under UK accounting practices, SmithKline Beecham, a pharmaceutical company, had a negative net worth of 300 million pounds, under US accounting rules its shareholder funds were 3.5 billion pounds! Among recent major efforts to increase use of international standards, the UNCTAD secretariat report for the ISAR meeting cites the endorsement of the International Organization of Securities