May 21, 2006

Might we not do better with some divergence in accounting?

Sir, Tomasso Padoa-Schiopa pleas on May 19 that the “Work on converging accounting standards must go on” on “the road towards high quality, understandable and enforceable global accounting standards”. Sounds great!, but, if we so much praise the market’s diversity in perception why should we be so set against the use of several accounting standards. If all accountants speak exactly the same language, is not the risk for a systemic disaster larger? Could not some of the accounting differences sometimes even serve as a shock absorber in an ever more interconnected world, or are we all supposed to react, immediately, with murderous preciseness, to any financial statement? Since the financial markets are getting increasingly shortsighted and look more and more into just the next quarter, might there not be a case for more flexibility instead, especially since plain vanilla Parmalat frauds will still live on, under any strict homogenous system.

Anyhow, it is interesting to see an Italian taking a Prussian stand on accounting issues… who can doubt globalization?

Sent to FT on May 21, 2006