‘Regulatory Overkill’ Threatens Global Standards Warns ICAEW Chief

by Robert Lee, Tax-News.com, London

08 April 2005

The complex, high-cost regulatory regimes of mature economies threaten to undermine the adoption of globally accepted accounting and auditing standards by developing nations, president of the Institute of Chartered Accountants in England & Wales, Paul Druckman has warned.

Speaking at the ICAEW’s recent conference on global capital markets in Brussels, Druckman warned that such “regulatory overkill” threatens to stifle attempts to form a common global approach to accounting and auditing and will ultimately strangle investment and wealth creation.

“Financial regulation designed for listed companies operating in advanced economies is unsuitable for the vast majority of other businesses,” Druckman stated in his opening address to the conference.

He went on to observe:

“Standards of thousands of pages impose costs that inhibit growth. The problem is particularly acute for developing nations that want to join in the global economy. International standards cannot be the preserve of an exclusive club."

“Even businesses in advanced economies are questioning whether the benefits of Sarbanes-Oxley outweigh the compliance costs. And the emphasis on converging US GAAP with International Financial Reporting Standards is resulting in more detailed rules-based standards. The upshot of all this may be that the potential economic powerhouses of the future are simply unable to adopt global standards.”

The ICAEW is proposing that regulators from developed and developing countries start negotiations to agree a set of principles for universal application that could underpin the regulation of accounting and auditing.

The organisation has also recommended that the underlying principles from existing international accounting and auditing standards form the basis of international rules to be applied by smaller businesses and those in developing nations. Furthermore, it calls for the development of additional guidance as required by national or international regulators to cover specific industry and regulated sectors, including listed companies.

Druckman argued that such measures would establish “genuinely global standards that are simple, clear and relevant,” and help increase investor confidence and capital flows.

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