Accounting chief blasts 'smug' UK regulators

By Jason Niss
Tuesday 14 January 2014 05:29
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One of the world's leading accounting regulators has slammed the UK for lax standards that mean an Enron could be happening here and we wouldn't know it.

James Leisenring, the US representative on the International Accounting Standards Board, accused British regulators of "smugness" and "arrogance" in the stance they have taken over the scandals at US corporations such as Enron, WorldCom and AOL Time Warner.

And he told The Independent on Sunday that British accounting standards governing financial derivatives mean we could be sitting on a potential Enron and know nothing about it.

The Enron scandal has caused a crisis of confidence in the accountancy world, bringing about the demise of the giant firm Arthur Andersen and forcing regulators to rush to rewrite the rule book.

The reforms are being led by the International Accounting Standards Board, which is chaired by the British auditor Sir David Tweedie.

The group is working on a new set of standards which it hopes all countries will sign up to by 2005. In the UK, Peter Wyman, president of the Institute of Chartered Accountants in England & Wales, has argued that the UK reformed its accounting practices a decade ago, in the wake of the Maxwell scandal, so an Enron could not have happened here. This argument has been accepted by Patricia Hewitt, the Trade and Industry Secretary. However, Mr Leisenring, former deputy chairman of the Federal Accounting Standards Board in the US, disagrees. "The British regulators have been demonstrating incredible arrogance by their smugness over their accounting approach," he said.

"In Europe every jurisdiction should examine whether Enron would ever have been discovered or whether the company would still be around reporting healthy profits."

Mr Leisenring pointed to a particular issue with British standards: the failure to insist that holdings of derivatives, such as futures and options, are "marked to market". This would require companies to constantly restate the value of their holdings based on their market value at the end of each accounting period.

Mr Leisenring argued that derivatives losses were greatly to blame for the collapse of Enron, and the energy giant used some of its controversial off balance-sheet vehicles to hide those losses.

Mr Wyman admitted that Mr Leisenring could be right. "I think the way he states it is a slight exaggeration but the proposition is not necessarily false," he said. But he also pointed out that Mary Keegan, chair of the UK Accounting Standards Board, has highlighted the problem with accounting for derivatives and said she intends to deal with it.

Most UK-based multinational companies using deriv-atives, such as Barclays, BP or Royal & SunAlliance, have US listing so also produce accounts to US standards requiring derivatives to be marked to market. However, many smaller quoted companies could be forced to make substantial adjustments when the standard changes.

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