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The AAO Weblog covers accounting issues and current events as they relate the practice of investment analysis. All posts prior to September, 2007 are in the public domain, but after September 4, 2007, only subscribers to The Analyst's Accounting Observer will see all posts going forward. Only selected, occasional posts will be released to the public domain from September 4 forward.

No Theoretical Accounting, Please, We're The EU
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Posted by: Jack Ciesielski 10/31/2005 7:40 AM
Last week, I mentioned that I'd penned my response to the FASB's proposal for a second phase in cleaning up business combination accounting. The proposed standard is likely to be somewhat controversial: not because it's a single mammoth change in practice, but because it cleans up many long-standing sloppy acquisition practices - and I mean sloppy in terms of solid accounting theory.

You don't expect everyone to like change - most of all, you don't expect the companies preparing financial statements to appreciate changes. You do expect that organizations formed of accountants to be a bit more supportive of advancements in their craft - but it's not looking that way in the European Union.

Accountancy Age, a British trade paper about - what else? - accounting, reports that the Institute of Chartered Accountants in England and Wales (the ICAEW) has slammed the FASB proposal. (The ICAEW is to chartered accountants in Great Britain what the American Institute of Certified Public Accountants is to CPAs here in the United States.) According to Accountancy Age:

"Last week internal market commissioner Charlie McCreevy warned that IASB that 'convergence is not an invitation to standard setters to try and advance the theoretical frontiers of accounting'.

'I will not take on board any revolutionary new standards,' added McCreevy. 'This should be a practical exercise, firmly anchored in business reality, to be undertaken in the interests of users and investors.'"

I hope Mr. McCreevy understands that business reality is what needs to be reported better to users of financial statements and investors. If a standard that is on the "theoretical frontiers of accounting" reports business reality better than "practical exercises," it should be welcomed rather than shunned.
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