Tough talk over how to add up

One of the Big Six firms thinks the Accounting Standards Board has got things seriously wrong, writes Roger Trapp
Accountants are used to having different views - that is, after all, why auditors give opinions - but they are not accustomed to falling out.

Nevertheless, the gloves seem to be well and truly off in the long-standing row between the Accounting Standards Board and Ernst & Young, one of the Big Six firms. The latest development came last week, when the firm published a document accusing the ASB of using "British industry as a test-bed for academic theories" when it should be basing standards on existing concepts.

The document, produced under the guidance of Ron Paterson (pictured above), technical services partner, particularly criticises the board for suggesting historical cost accounting be phased out in favour of a system based on current values. It argues that the case for such a "revolutionary step" has not been made. "There is no evidence this is what users want," says Mr Paterson, adding that previous attempts to introduce the idea in the UK have failed, while other countries are not proposing to go down this route.

The firm also claims that the ASB's proposal to withdraw various profits and losses from the profit and loss account and deal with them instead in the statement of total recognised gains and losses will "confuse the readers and present new opportunities for creative accounting".

With just a month left before the end of the period of consultation on the board's proposed Statement of Principles, Ernst & Young urges the business community to consider the ideas and make its views known "before it is too late".

Senior partner Nick Land has joined the firm's technical department, long-time critics of the ASB chairman Sir David Tweedie, in the fray by writing a foreword to the paper that has been circulated to the finance directors of many leading companies. In it he says the firm has always opposed the ASB's approach to financial reporting since it puts "undue stress on the balance sheet to the detriment of the profit and loss account".

Understandably, the ASB rejects the criticism. Pointing out that the board and its policy are specifically designed to counter the excesses of the 1970s and 1980s, it claims that E&Y is trying to hold the door open for principles that in the past did not hold up. "They are proposing methods that won't work," it says.

It adds that "at a time when commercial and financial transactions are changing more rapidly than was ever imagined possible in the past, the paper seems to be arguing against the very principles that can guide financial reporting to get to grips with these innovations."

But it is not just the ASB that is smarting from the E&Y attack. Senior partners of other leading firms seem to have been queuing up to chastise Mr Land and Mr Paterson. Even John Roques, who as head of Deloitte & Touche has sought to put some distance between his organisation and the others over the handling of the audit liability question, is reported to have said: "I find it extraordinary that they would knock the ASB," since the body represented the mainstream of accounting theory.

Others have suggested - much as they have of Touche's stance on liability - that it is all some marketing ploy. Mr Land denies this, saying that the views expressed were heartfelt and reflected the thinking of many finance directors.

But any hope that E&Y may have harboured of winning the publicity battle must have been dashed by a riposte from Sir David that can only strengthen the firm's view of him as a media darling. Quoted in Accountancy Age, he described E&Y's paper as having "all the vision of a mole and the eloquence of a whoopee cushion".