Head of accounting board attacks EU over rule changes

Britain and Europe are at loggerheads over the adoption of new international accounting standards, with the chairman of the UK's accountancy body calling for strict adherence to the rules which the European Commission has watered down.

Britain and Europe are at loggerheads over the adoption of new international accounting standards, with the chairman of the UK's accountancy body calling for strict adherence to the rules which the European Commission has watered down.

Ian Mackintosh, the chairman of the UK's Accounting Standards Board, said he was confident that the larger British banks will heed his advice and stick with the original rules, rather than go along with the Brussels amendments. He said yesterday: "The Hong Kong & Shanghai Bank has already announced that it will comply with the full international accounting standard and I think other banks here may follow suit."

His comments follow a warning last month from the head of the International Accounting Standards Board, which drew up the new rules that take effect from 1 January. The IASB chairman, Sir David Tweedie, told a parliamentary committee of the European Union that the EU risks undermining a global drive towards a single set of accounting rules if it amends the derivatives standard. Mr Tweedie said the EU's move would make the standards less coherent and could make it harder for the US to adopt them.

The banking sector, particularly in France, has fought for an exemption to rules requiring "fair value" accounting for derivatives used to hedge financial positions. The European Commission has caved in to the lobbying and axed those elements from the derivatives standard IAS 39, and will negotiate with the IASB over a compromise solution. Mr Mackintosh said: "There was a lobby from the banking community in Europe to say that the hedge accounting rules in the international standards didn't allow them to hedge some of the transactions they felt should be hedged. On the fair value side, the European Central Bank was concerned, particularly on the fair valuing of some liabilities."

The new accounting standards are being imposed across the European Union, affecting about 7,000 listed firms. By next year 92 countries will be using the new rules, including Hong Kong, New Zealand and Russia. Investors fear a big rise in the volatility of corporate profits as a result of the harmonisation of international standards, which include new rules on accounting for mergers and acquisitions. Supporters of the accounting changes hope they will introduce the greater transparency that will eventually reduce the gap between equity valuations in the US and Europe.