International Harmonization: Cautions from the Australian Experience.

SYNOPSIS: Global harmonization of accounting is a challenging and controversial issue currently confronting accounting standard setters and market regulators internationally. To date, Australia is further along in its international harmonization program than any other country with an established

standard-setting regime. While no country's national standard-setting arrangements are likely to be subject to political pressures identical to those recently exerted in Australia, there are lessons to be learned from the Australian events. Given the political nature of standard setting, it is not surprising that the Australian experience indicates that pushes for harmonization are not necessarily what they seem. This paper describes the Australian experience and identifies some of the political drivers of recent standard-setting reform initiatives. It demonstrates how the rhetoric of harmonization can divert attention from politically motivated changes to the fundamental basis of standard setting. Using the harmoniza tion banner to garner support in principle, parties with vested interests can push regulatory agendas that potentially subrogate user needs.

INTRODUCTION

Global harmonization of accounting is arguably the most challenging and controversial issue currently confronting accounting standard setters and market regulators. Recent discussions focus on experience from North America, the United Kingdom, and continental Europe (for example, Hegarty 1997; Sutton 1997; Zarzeski 1998; Bayless et al. 1996). However, a past chair of the International Accounting Standards Committee (IASC) and the immediate past chair of the Australian Accounting Standards Board (AASB) both argued that Australia has progressed further in its international harmonization program than any other country with an established standard-setting regime (Sharpe 1998, 18; Spencer 1998, 20). It is likely, therefore, that other national accounting regulators, particularly those in countries with rigorous accounting standards and strong regulatory enforcement, can benefit from an understanding of Australia's harmonization experience.

The extent to which embracing harmonization is allowed to impact on domestic standard-setting arrangements needs to be considered carefully by countries that have been at the forefront of standard setting. Australia is one of these countries, having played an active and influential role in international accounting development since the concept of an International Accounting Standards Committee was developed in Sydney, Australia, at the 1972 World Accounting Congress. Australia is represented on the IASC with full voting rights, and two Australian representatives served as chair of the Committee. International links are also maintained through the AASB's membership of the G4+1, a body comprised of the national standard setters from the U.S., Canada, U.K., Australia, and New Zealand plus the IASC. The immediate past chair of the AASB also chaired the G4+1. While the G4+1 never enjoyed legal status, it has been influential in the development of an integrated approach to standard setting across its member countr ies and the IASC. [1]

As in many countries, Australian regulators debate the merits of international harmonization of accounting standards. Not surprisingly, given the political nature of standard setting, Australian experience to date indicates that pushes for harmonization are not necessarily what they seem. This paper describes the Australian experience, and reveals some of the political drivers of recent standard-setting reform initiatives. This experience demonstrates how the rhetoric of harmonization is used to divert attention from other politically motivated changes to the fundamental basis of standard setting.

AUSTRALIAN ACCOUNTING STANDARD SETTING

Introduction of Mandatory Accounting Standards

Since the early 1980s, standard setting in Australia has been controversial in terms of the institutional standard-setting arrangements in place and the regulations introduced by the standard-setting bodies. Prior to 1984, standards were developed by the Australian Accounting Research Foundation (AARF) on behalf of Australia's two professional accounting bodies, the Australian Society of Accountants (later the Australian Society of CPAs or ASCPA, and now CPA Australia) and The Institute of Chartered Accountants In Australia (ICAA). These two bodies funded the AARF and were able to influence the standards with which their members were directed to comply. The AARF standards had no legal status, though, and noncompliance was common.

During the early 1980s, pressures mounted for accounting standards with legislated penalties for noncompliance. To some extent, this pressure was exerted by the professional bodies that sought enforceability of their standards, and the credibility that ensues from legislative backing. Pressure also arose from public concerns about the quality of financial reporting during the corporate excesses and collapses of the late 1970s and early 1980s. The apparent regulation of the profession, by the profession, and for the profession, was viewed as inadequate and ineffective. As Watts and Zimmerman (1986) describe it, the business environment provided a "crisis" that politicians could claim to resolve through accounting regulation.

In January 1984, the Australian government established the Accounting Standards Review Board (ASRB). The ASRB reviewed and endorsed accounting standards developed by AARF and gave them legislative status. The ASRB was funded by government, and took its directives from, and was accountable to, the federal Attorney General's Department. Comprising both members of the accounting profession and members who were not professional accountants, the ASRB was intended to be independent of the profession. But early on, the ASRB recognized that the accounting bodies retained primary responsibility for developing the accounting standards that they approved (ASRB Release 100 [ASRB 1985]), and only one approved standard ever emerged from a source other than the profession. [2]

In the meantime, the Accounting Standards Board (AcSB) of the two professional bodies issued accounting standards on behalf of the profession but without legislative backing and enforcement. The AcSB put these standards to the ASRB for approval. Although preferring self-regulation, the profession determined that this was not feasible in the environment at the time. For standards to be generally accepted and politically viable, they needed to be set by the democratic processes of a representative body (Hines 1983, 25).

Demise of the ASRB

The ASRB lasted only one full term before political pressures led to its replacement. These pressures emanated partly from the profession that became increasingly disenchanted with the structure of the ASRB, and regretted its loss of control over the standard-setting process and outcomes. Differences between decisions on key accounting issues made by the profession's own AcSB and Public Sector Accounting Standards Board (PSASB) on the one hand, and the ASRB on the other, created a rift between the profession and the ASRB. For example, in 1987 the ASRB reversed foreign currency accounting rules issued by the profession. [3] Ironically, pressures on the ASRB also arose at this time from a perceived capture of the ASRB's processes by the profession (Walker 1987).

Currently, standards in Australia are developed by the Australian Accounting Standards Board (AASB), established in 1989 under the Australian Securities Commission Act, replacing the ASRB. Decisions made by the AASB caused controversy on a number of occasions.

The ASRB: Controversy and Criticism

In March 1992, Statement of Accounting Concepts 4, Definition and Recognition of the Elements of Financial Statements (SAC4) (AASB 1992b), became the most controversial promulgation by a standard-setting body in Australia's history. After harsh criticism and intensive lobbying by corporate Australia, the mandatory status of SAC4 was withdrawn. SAC4 was subsequently revised and reissued in May 1995. It remains nonmandatory. The revised SAC4 is less specific and less controversial than its predecessor. The most influential lobbyist in the process was the G100, a group of chief financial officers of approximately 100 of the largest companies in Australia. [4]

A more recent decision of the AASB resulted in an unprecedented development. In February 2000 the Australian Senate disallowed two paragraphs of a standard passed on to it by the AASB for endorsement. The disallowed paragraphs formed part of Accounting Standard AASB 1015, Acquisition of Assets, issued by the AASB in November 1999. The effect of the disallowance is that for reconstructions within an economic entity, exchanges cannot be valued at their carrying amounts, an option permitted under the disallowed paragraphs. Instead, the purchase method of accounting for such exchanges is now obligatory.

Outcomes of the type described above, along with the associated political debates, erode both the standing of AARF as the research support to the AASB and, to some degree, the AASB itself. Other factors combined to render Australian standard-setting institutional arrangements vulnerable to reform proposals:

* Business perceptions that the Australian accounting standard-setting approach is too academic and insufficiently business oriented. For example, in a direct jibe at the AASB and AARF, the Chair of the Australian Stock Exchange (ASX) commented that there was no future in Australia being an island of accounting purity (Wood 1996).

* A review of AARF in 1995, commissioned by the profession, found that AARF was under-resourced and was not in a position to adequately support the current standard-setting arrangements. Since that review the AARF staff profile further declined due to resignations, most significantly at senior levels, and morale is low. This culminated in the April 1999 resignation of AARF's executive director.

Corporate Law Economic Reform Program

Coinciding with this climate of disquiet about standard setting in Australia, the Australian government undertook a major campaign to reform institutional arrangements affecting business. The first set of proposals produced by the Corporate Law Economic Reform Program (CLERP) in 1997 related to accounting standard setting. [5] Far-reaching changes to the institutional arrangements for standard setting in Australia were proposed and were subsequently enacted in legislation. [6]

Under this legislation, the Financial Reporting Council (FRC) was established to provide broad oversight of the standard-setting process in Australia. It appoints the members of a reconstituted AASB (apart from the Chairman who is appointed directly by the federal Treasurer), and it is required to give direction to the AASB on matters of general policy and procedures. While the FRC was not given the power to direct the

AASB in the development of particular standards or to veto a standard recommended by the AASB, it has the potential to exert a powerful influence over standard setting in Australia. For example, its functions include monitoring the AASB's priorities, the effectiveness of the AASB's consultative mechanisms, and the general relevance and effectiveness of accounting standards. [7]

The implications of these reforms for Australia and its approach to the international harmonization of accounting standards are likely to be profound. As explained in "Recent Reforms in Australia" below, the reform program provided a platform for lobbyists to strongly push an international harmonization agenda, and the legislation emanating from CLERP does promote the development of a single set of accounting standards for worldwide use. This represents a significant change to the approach to harmonization taken for some years by the AASB. The AASB approach is explained in the following section.

AASB APPROACH TO INTERNATIONAL HARMONIZATION

The AASB originally adopted an approach to harmonization based on a "philosophy of internationalisation" (AASB 1994,23). This involved examining the pronouncements of the IASC, New Zealand, the U.S., the U.K., Canada, and South Africa before issuing exposure drafts of proposed Australian accounting standards. The objective was to ensure that Australian standards reflected and required best international practice. There were very few instances where Australian requirements differed from the position taken by these other jurisdictions (AASB 1994, 23). Where an IAS existed, the Australian standard included a statement of "Compatibility with International Accounting Standards" that indicated whether the requirements of the Australian standard were consistent with those of the IAS In the few cases of inconsistencies, this statement explained the inconsistency and indicated what was required under the relevant IAS.

Since 1996, the AASB adopted a stronger policy of international harmonization whereby compliance with Australian accounting standards ensures compliance with IASs promulgated by the IASC unless there are sound reasons why compliance is inappropriate within the Australian institutional setting. Hence, it is envisioned that entities reporting under Australian accounting standards will also meet the requirements of those jurisdictions where reporting under IASs is permitted. This does not mean that Australian requirements are identical to those of IASs. Compliance with IASs does not necessarily ensure compliance with Australian standards. IASs often allow more accounting method choices than do the corresponding Australian standards.

The harmonization program involves the AASB in reviewing existing and draft standards to ensure consistency with IASs, and the AASB provides input, via submissions, to the development of IASs. Australia benefited from a re-examination of several of its older and less rigorous standards during the harmonization process. For example, a review of the depreciation accounting standard ensured more consistent treatments of tangible and intangible assets. Also, the accounting for borrowing costs is now subject to regulation.

Rationale for this Approach to Harmonization

The AASB embarked on its harmonization program because it expected a number of benefits to flow from reducing diversity in international accounting practice, most notably:

* increased comparability of financial statements internationally, encouraging the flow of international investment;

* decreased cost of capital due to removal or reductions in premiums associated with the risk of not fully understanding the financial report of an entity reporting under a different accounting regime; and

* lower reporting costs achieved by obviating the need for an entity to produce two or more sets of financial reports to satisfy differing sets of standards, listing rules or other regulations (AASB 1994, 11).

By reviewing international developments and incorporating international best practice, the AASB ensures that Australian standards are compatible with those of the IASC and informed by the global public interest. In those jurisdictions where the use of IASs is accepted, reports produced using Australian standards should be both comparable and understandable. This result is achieved without businesses incurring the cost of restating or reconciling items, or producing an additional set of reports to satisfy different accounting rules.

However, in pursuing harmonization, the AASB follows the philosophy that high-quality financial reporting is fundamental to the efficient operation of capital markets, both locally and globally. It has not sought international comparability when the quality of Australian accounting standards is compromised (AASB 1994, 1), and it rejected outright adoption of IASs as a replacement for domestic standards.

There are persuasive arguments to support the position taken by the AASB.

International Differences

Diversity in reporting regimes results from an evolutionary process that reflects each jurisdiction's cultural, political, legal, and economic differences (Hegarty 1997, 75; Zarzeski 1996, 35). The AASB recognizes that legitimate differences cause accounting standards to develop differently between countries:

* differences in concentrations of ownership create differing degrees of reliance on general-purpose financial reports. Standards tend to be more highly developed in jurisdictions where ownership is less concentrated;

* variation in the optimal debt-to-equity ratio across countries results in differing preferences for the mix of information provided; and

* alternative legal structures and legal systems impacts accounting standards (AASB 1994).

International accounting standards are not necessarily to be preferred over their national counterparts. In some cases they are unsuitable for the particular national environment. Fundamentally different institutional environments require that some differences in standards between countries remain, and any country that adopts nondomestic standards carte blanche must worry about whether the users of reports will be serviced less well than at present.

Universal International Adoption

A major benefit claimed for harmonization is that enhanced comparability between the reports of different jurisdictions will facilitate investment flows in international markets and enhance the operating efficiency of international markets. However, there presently are relatively few entities following these standards (Spencer 1998, 20). As of 1998, only eight countries had adopted IASs in their entirety; [8] none of those are significant in terms of world market capitalization.

The Commission of the European Communities intends to require all listed EU companies to prepare consolidated accounts using IASs, beginning no later than 2005. However, it acknowledges that IASs, could be inappropriate and possibly invalid for the preparation of individual accounts, given various national regulatory and taxation requirements. Furthermore, the EU sees the need for an endorsement mechanism to exercise oversight of the IASs, so that only endorsed standards could be used (Commission of the European Communities 2000).

In May 2000, IOSCO completed its assessment of IASs, and recommended that its members allow incoming multinational users to use 30 IASs for cross-border listings and offerings. It noted, however, that "supplemental treatments" may be necessary "to address outstanding issues at a national or regional level" (IOSCO 2000).

Importantly, national regulators in countries with major capital markets, including the U.S., the U.K., and Japan, [9] are not prepared to accept IASs as replacements for their own standards, nor are they prepared to base their national accounting standards on IASs (Sutton 1997). This undermines the argument that individual countries should adopt IASs because the IASC core set of standards will be acceptable to each major national constituency.

Some evidence suggests that it is unnecessary to have international conformity between standards anyway. For example, Lev and Sougianis (1996) report that U.S. investors react to reported research and development (R&D) expenditure as if it is capitalized as required by national jurisdictions such as Australia and allowed under IASs. Investors did not respond to reported earnings as if the R&D was expensed, despite the requirement in the U.S. to treat it that way.

Rigor of Standards

A major concern with IASs is that in the past they often emerged from a process of much greater compromise than that required for national standard setting (AASB 1994, 15). IASs are designed to provide guidance in jurisdictions with differing accounting frameworks; some jurisdictions are taxation-based and others have conceptual frameworks in place. With such diverse jurisdictions, the IASC approach traditionally was not tailored to nations with strong standard-setting arrangements already in place, such as the G4+1 countries. If IASs were adopted for domestic use in these nations, the quality of domestic financial reporting could decline. This concern was expressed by Jim Leisenring, the vice-chairman of the FASB and U.S. observer on the IASC in 1996, who commented that:

the compromise necessary to reach an agreement on an international standard often leads to some purposeful ambiguity. That ambiguity brings about very wide latitude in the application of the standards. (Bayless et al. 1996, 15)

This view is consistent with Hegarty's (1997, 88) suggestion that international standards at best provide "a safety net of common minimum standards," and with the following statement made by the chairman of the Australian Securities Commission, Alan Cameron:

IASC standards are generally more permissive and less comprehensive than are domestic standards in Australia and other major economies. Work being done by the IASC towards improving the quality of its standards should be encouraged. But, ultimately IASC standards will always be the result of a complex set of compromises between numerous jurisdictions, and may never be aimed specifically at Australia's needs and circumstances. (Spencer 1998, 21)

It is possible that these concerns about the quality of IASs may need to be modified in the future. The IASC was recently restructured and has a new mandate to develop a set of high-quality, understandable, and enforceable global accounting standards. It remains to be seen whether the constraints and difficulties that impeded the development of IASs to date can be overcome.

RECENT REFORMS IN AUSTRALIA

CLERP and the Move toward IAS Adoption

If one accepts the arguments presented above, it is not appropriate for a country with its own rigorous and comprehensive standards that already reflect a global perspective to replace those standards with IASs. Although this is the exact position taken to date by the AASB, and despite the compelling reasons for maintaining this approach, recent developments in Australia suggest this position is seriously threatened.

As explained in the "Australian Accounting Standard Setting" section, the Corporate Law Economic Reform Program (CLERP) produced legislation with far-reaching implications for standard setting in Australia. Sections of this legislation affect the approach taken to international harmonization in the future. While the legislation does fall short of requiring immediate and outright adoption of IASs by Australia, it represents a significant shift from the AASB's position at the time. For example, it requires the AASB to participate in and contribute to the development of a single set of accounting standards for worldwide use. [10]

It is worth noting that the original CLERP Paper No. 1, which was the basis for this legislation, conceded that IASs in 1997 were not "of a quality and level of international acceptance whereby Australia can simply adopt them" (Commonwealth of Australia 1997,24). Nevertheless, it anticipated that the "Australian standard setting body should adopt IASC standards from 1 January 1999..." (Commonwealth of Australia 1997, 26). The fact that this timetable was not met does not negate the intention of the original Paper or the resulting legislation: Australia is to work toward replacing its own accounting standards with a set of internationally recognized standards. The legislation also ensures that the harmonization policy that it embodies cannot be thwarted by the AASB, requiring that body to comply with any direction given to it by the Minister about the role of IASs. [11]

Opposition to the Adoption of IASs

It is illuminating to consider how the departure from the position taken to date by the AASB came into effect. The case for reform appears totally based on selected anecdotal evidence (Collett et al. 1998). For example, the CLERP Paper explains that the push for reform emanates from "criticisms made to the Government from time to time" (Commonwealth of Australia 1997, 11). While anecdotal evidence can be a useful instigator of change, researchers are familiar with its limitations

Not only is there no compelling argument for the reform proposals, but also a variety of interested parties are united in their opposition to adopting IASs. The G100, representing corporate Australia, did initially argue strongly for international harmonization of Australian accounting standards, providing much of the impetus for the reform program. However, its position changed due to dissatisfaction with some recent IASC standards thought to impose heavier burdens on preparers of accounts than the corresponding Australian accounting standards. [12]

Opposition also came from the Big 5 accounting firms, the professional accounting bodies, and the major banks; all presented submissions cautioning against premature adoption of IASs, and supporting the current harmonization policy of the AASB. If the benefits claimed to flow to business from outright adoption of IASs were real and achievable, then adoption would have presumably attracted and retained the overwhelming support of Australian businesses.

The Australian Securities and Investment Commission (ASIC), responsible for corporate regulation in Australia, highlighted in its submission the potential loss of quality in accounting standards flowing from a hasty adoption of IASs. Taking the same view was the Accounting Association of Australia and New Zealand, the premier body of Australian and New Zealand accounting academics. In the U.S., the FASB stated that it regarded the CLERP proposals as a backward step, and the U.K. Accounting Standards Board cautioned against early adoption.

The reasons these groups give for opposing the adoption of IASs in Australia are not necessarily consistent. Although some groups anticipate a reduction in the quality of standards, another group's concerns are that at least some IASs impose a greater burden on businesses than do their Australian counterparts. Nevertheless, widespread opposition to the proposal does exist. It is worth noting that one important group failed to make any contribution to the debate--accounting-report users. The user group is relatively ineffectual in Australia. Not one user-group representative lodged a written submission on the CLERP proposals. [13]

The Reforms Proceed: The Role of the ASX

Given the concerted opposition to the reform proposals, and the absence of a systematic case for reform, one wonders why they were legislated anyway, albeit in modified form. Horngren's (1973, 61) comment that "the setting of accounting standards is as much a product of political action as of flawless logic or empirical findings" is pertinent. It is important to understand where the real impetus for the radical changes suggested in the CLERP proposals originated. If corporate Australia, users, preparers, the accounting profession, and key regulators were not driving the CLERP reforms, then who, or what, was the force behind these radical proposals?

Collett et al. (1998) identify revealing comments by the then chair of the AASB:

(t)he Australian Stock Exchange would prefer that Australian companies could prepare financial statements in accordance with IASC standards rather than Australian standards. Unless this is permitted, the Exchange perceives that Australian companies may decide to list on other exchanges which permit IASC's standards to be the basis for financial reports rather than maintaining their Australian listing.

The ASX is actively involved in the harmonization debate. Eighty-seven percent of respondents to an ASX survey favored a form of international harmonization allowing companies complying with Australian accounting standards to also comply with IASs, a position consistent with AASB policy to date. Although the majority of respondents did not support outright adoption of IASs, the ASX used the survey support to advocate its own harmonization agenda.

In a related move, the ASX used a levy imposed on listed companies to fund the current international harmonization program. The arrangement ceased in 1999. It placed the ASX in a powerful position since the ASX paid the funding in discrete allocations to the AARF, contingent upon the AASB meeting targets in the harmonization process. The ASX was instrumental in setting these targets and deciding whether the funding was to be withheld. On one occasion, the funding was paid only after some debate about whether the six-monthly targets were achieved.

It appears that the main impetus for the changes comes from the ASX. Indeed, the ASX was the only organization other than the IASC to make a written submission supporting the immediate adoption of IASs. At the time, the ASX planned to float as a public company. Through standard-setting reforms that reduce reporting requirements, it is likely that the ASX sought to facilitate offshore listings. Increased listings and easier access to offshore capital would boost the value of the Exchange and the success of the initial public offering.

Implications of the Reform Proposals

The potential implications of the new legislation are profound in terms of investor protection and the international reputation and effectiveness of Australian standard setters. One key concern with the legislation is the apparent movement away from investor protection as a primary purpose of accounting regulation. The view that international harmonization may have this consequence was expressed in a recent AAA forum (Bayless et al. 1996). The original CLERP proposals, and to a lesser extent the later legislation, reveal a definite and deliberate movement away from an emphasis on the interests of financial information users to an emphasis on broader macro-economic objectives. In particular, there is an emphasis on ensuring that accounting standards make Australian firms more competitive, for example, by lowering their cost of capital. In Reform Proposal No. 2 the subordination of user needs in favor of benefits to corporate business was made explicit:

(t)he ultimate objective for the setting of accounting standards in Australia should be the production of high quality accounting standards that facilitate Australian business by leading to lower costs of capital and enabling Australian companies to compete on an equal footing overseas, while also maintaining investor confidence. (Commonwealth of Australia 1997, 1) (emphasis added).

In the legislation that followed, the substance of this objective is retained, but it is not given explicit primacy over user needs. User needs are still recognized as important in the development of accounting standards, but there is no clear statement that user needs dominate business needs. The original CLERP Paper reflects an entrenched business bias. It states that preparers of reports should interpret accounting standards from a "commercial perspective." Although the phraseology has changed, the door is open for commercial objectives to dominate the development of accounting standards relative to users' interests.

Another risk that any major standard-setting country faces by prematurely and mechanically adopting international accounting standards is the risk of diminishing its reputation and effectiveness in the international accounting arena. This is also likely to be associated with an erosion of technical support for, and expertise in, the standard-setting process, which must further diminish innovation and effectiveness. In Australia, after key personnel resigned from AARF, technical support is provided largely by short-term contract staff hired for specific projects. Uncertainty surrounding developments in the standard-setting process was cited as the reason (McGregor 1999).

Australian standard setters have been leaders in the development of international accounting initiatives. For example, the concept of "control" given precedence by Australian regulators in AASB 1024, Consolidated Accounts (1992a) now prevails over "ownership" in what is considered best practice accounting for consolidated statements internationally, including within the U.S. [14] Moreover, despite the fact that IASC Board members are to be appointed as individuals in their own right rather than as national delegates after the IASC re-structuring, the ability of a member from Australia to influence an IAS project might be reduced once it becomes apparent that Australia intends to automatically adopt IASs regardless of their content.

CONCLUSIONS: LESSONS AND WARNINGS

Running under the harmonization banner to garner support in principle, one particular party with a vested interest managed to push the Australian regulatory agenda, and subrogate the primacy of user needs in accounting standard setting. Legislation now contains what will be the first legislated recognition of business needs as a key objective of standard setting.

No country's national standard-setting arrangements are likely to be subject to pressures identical to those recently experienced in Australia. However, the globalization of accounting and the worldwide attention currently focused upon international harmonization mean that there are pertinent generalizations to be drawn from the Australian experience. Certain questions must be asked about reform initiatives in any country. For example, are the stated objectives legitimate or is there an alternative agenda? Will the reforms, if implemented, represent a backward step in relation to the nation's current standard-setting objectives and in relation to standard setting globally? Although the reform rhetoric may be couched in terms of objectives of global harmonization and benefits to domestic entities, the reality may be that this rhetoric diverts attention from the interests being advanced by politically influential parties.

Editor's Note: During 1995 to 1999, Professor Jayne Godfrey was a member of the Australian Accounting Standards Board (AASB). The views expressed in this paper are the personal views of the authors and do not necessarily reflect those of the AASB.

(1.) Despite the fact that the interactions of the members of the G4+1 facilitate it, the G4+1 does not have a stated objective to develop an integrated approach to standard setting across its member countries and the IASC. For a comprehensive description and explanation of the evolution of the G4+1 and an understanding of its current activities and of its future in international accounting see Beresford (2000).

(2.) The requirements of ASRB 1003, Foreign Currency Translation--Disclosure, which came into effect in 1985, were developed by the National Companies and Securities Commission (NCSC). The NCSC was the chief corporate regulatory body at that time. This standard was subsequently replaced by ASRB 1012 (ASRB 1987), Foreign Currency Translation, developed by AARF.

(3.) The AcSB and the PSASB preferred to defer and amortize unrealized foreign currency gains and losses; the ASRB required immediate recognition of those gains and losses. The outcome of discussions between the two standard-setting bodies in 1987 is that immediate recognition is now required. This contrasts with the requirements to defer and amortize introduced by the profession in 1985 when it controlled the standard-setting process. In 1988 the ASRB and the AcSB merged, and the ASRB issued both the legislatively backed standards and the professional standards that did not have the force of law. The two sets of standards became identical in their content.

(4.) The G100 continues to play a dominant role in the direction of standard setting in Australia. For example, it commissioned a report on measurement that promotes modified historical cost accounting, the measurement method preferred by some of the most influential G100 members.

(5.) Corporate Law Economic Reform Program Proposals for Reform Paper No. 1, Accounting Standards: Building International Opportunities for Australian Business (Commonwealth of Australia 1997).

(6.) Corporate Law Economic Reform Program Act 1999 which, among other initiatives, repealed Part 12--Accounting Standards, Australian Securities and Investment Commission Act 1989.

(7.) Section 225, Australian Securities and Investment Commission Act.

(8.) These countries are Croatia, Cyprus, Latvia, Malta, Oman, Pakistan, Trinidad, and Tobago.

(9.) These three countries currently account for approximately 74 percent of world market capitalization.

(10.) Section 227 (1) (d), Australian Securities and Investment Commission Act.

(11.) Section 233, Australian Securities and Investment Commission Act.

(12.) Most notable among the standards that Australian business argues will impose costs upon them are IAS No. 12, Income Taxes; IAS No. 17, Leases; IAS No. 38, Intangible Assets; and IAS No. 39, Financial Instruments: Recognition and Measurement.

(13.) This failure to lobby should be viewed in the context of a geographically dispersed group of users with varying needs for financial statement information. Coalition costs can be prohibitive to a representative body seeking to present a single view (Watts and Zimmerman 1986).

(14.) At the time of this writing, the FASB has an exposure draft favoring effective control over legal ownership in determining when to prepare consolidated statements. However, a final statement has not yet been issued.

REFERENCES

Accounting Standards Review Board (ASRB). 1985. Criteria for the Evaluation of Accounting Standards. Release 100. Caulfield, Victoria: ASRB.

_____. 1987. Foreign Currency Translation. ASRB 1012. Town, Province: Publisher/Publishing Body.

Australian Accounting Standards Board (AASB). 1992a. Consolidated Accounts. AASB 1024. Caulfield, Victoria: AASB.

_____. 1992b. Definition and Recognition of the Elements of Financial Statements. Statement of Accounting Concepts 4. Caulfield, Victoria: AASB.

_____. 1994. Towards International Comparability of Financial Reporting. Caulfield, Victoria: AASB.

Bayless, R., J. Cockrane, T. Harris, J. Leisenring, J. McLaughin, and J. P. Wirtz. 1996. International access to U.S. capital markets--An AAA forum on accounting policy. Accounting Horizons (10): 75-94.

Beresford, D. R. 2000. A newcomer on the international scene. The CPA Journal. Available at http://www.nysscpa.org/cpajournal/2000/0300/fl4300a.htm.

Collett, P., J. Godfrey, and S. Hrasky. 1998. Standard-setting in Australia: Implications of recent radical reform proposals. Australian Accounting Review (8): 9-17.

Commission of the European Communities. 2000. EU Financial Reporting Strategy: The Way Forward. Communication from the Commission to the Council and the European Parliament. June. Brussels, Belgium: Commission of European Communities.

Commonwealth of Australia. 1997. Accounting Standards: Building International Opportunities for Australian Business. Corporate Law Economic Reform Program Paper No. 1. Canberra, Australia: AGPS.

Hegarty, J. 1997. Accounting for the global economy: Is national regulation doomed to disappear? Accounting Horizons (11): 75-90.

Hines, R. 1983. Economic consequences of accounting standards: Reason for ASRB. Chartered Accountant in Australia (54): 25.

Horngren, C. T. 1973. The marketing of accounting standards. Journal of Accountancy (October): 61-66.

International Accounting Standards Committee (IASC). 1997. International Accounting Standards. London, U.K.: IASC.

International Organisation of Securities Commissions (IOSCO). 2000. IASC Standards. Press release. May. Sydney, Australia: IOSCO.

Lev., B., and T. Sougiannis. 1996. The capitalization, amortization, and value-relevance of R&D. Journal of Accounting and Economics 21: 107-138.

McGregor, W. 1999. The standards revolution: The view from the AARF. Australian CPA (April): 32-33.

Sharpe, M. 1998. Looking for harmony: Building a global framework. Australian Accountant: 16-18.

Spencer, K. 1998. The view from the AASB: Take it easy, get it right. Australian Accountant March: 20-22.

Sutton, M. H. 1997. Financial reporting in U.S. capital markets: International dimensions. Accounting Horizons 11: 96-102.

Walker, R. 1987. Australia's ASRB--A case study of political activity and regulatory "Capture." Accounting and Business Research 67 (17): 269-286.

Watts, R., and J. Zimmerman. 1986. Positive Accounting Theory. Englewood Cliffs, NJ: Prentice Hall.

Wood, C. 1996. Standards levy gets harmonious response. Business Review Weekly 26 (August): 92.

Zarzeski, M. T. 1996. Spontaneous harmonization effects of culture and market forces on accounting disclosure practices. Accounting Horizons 10: 18-37.