Crisis of legitimacy for accounting standard setters, says Publish What You Pay

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Publish What You Pay, the global civil society coalition campaigning for greater openness in the oil, gas and mining sectors, today called on the International Accounting Standards Board (IASB) to respond to the legitimate demands of civil society by developing a financial disclosure standard which can fight tax dodging and corruption in resource rich countries around the world.

“Finite natural resources are being depleted every day”, said Publish What You Pay International Director Marinke van Riet. “Without adequate financial disclosure, citizens in resource rich countries lack the means to hold governments or companies to account for the exploitation of their own natural resources.”

Required or permitted in nearly 120 countries around the world, International Financial Reporting Standards (IFRSs) administered by the IASB have for many years been viewed by Publish What You Pay a key potential means to increase disclosure in the murky oil, gas and mining industries. With so many countries following standards set by the IASB, the hope has been that a truly global level playing field for disclosure in the extractive industries could be established.

That hope is now fading.

Speaking on the day the IASB held a public discussion forum on financial disclosure, Van Riet said: “While the IASB has committed to considering oil, gas and mining disclosures as part of a new set of financial reporting requirements for investigative, exploratory and developmental activities, it is hard not to be cynical about the prospects of anything positive resulting from the process.”

The IFRS Foundation, which oversees the work of the IASB, claims its objective is to develop financial reporting standards which are in the public interest and of use to investors, other participants in the world’s capital markets and other users of financial information. However, the IASB’s Discussion Paper on Extractive Activities in 2010 did not include the broader public interest advantages in its consideration, and failed to endorse country-specific reporting of payments or other financial information to governments by multinational companies. The process has been stalled since 2010.

Expressing her frustration, Van Riet said: “In essence, after eight years of good faith engagement with the IASB we have nothing more than a commitment to continue looking at a new financial reporting standard for oil, gas and mining. The delay in developing a new standard is unacceptable and our patience is running out.”

In the meantime governments around the world have woken up to this problem, with the US passing a law in 2010 – Section 1504 of the Dodd-Frank Act – requiring country and project specific payment reporting to governments which will put hitherto secret financial information in the hands of citizens and investors. The European Union is also in the final stages of adopting similar legislation through the Accounting and Transparency Directives.

“The IASB has essentially been side-stepped by governments and regulators which are more accountable and responsive to the needs of a wide range of users of financial information,” said Van Riet.

The European Commission, which sits on the IASB’s Monitoring Board and the European Parliament, have urged the IASB to develop country by country reporting standards on numerous occasions.

Michel Barnier, European Commissioner for Internal Market and Services, speaking in the light of the US and soon-to-be adopted European rules for disclosure in the extractive industries said in April 2011: “I also believe that we should have a common global disclosure standard in this area. I am committed to working with other countries to ensure the implementation of equivalent disclosure requirements in other financial markets. In my view, an international accounting standard would ensure a true level-playing field worldwide.”

Despite tax avoidance and tax evasion becoming a major concern in both rich and poor countries, with UK Prime Minister David Cameron pledging to tackle this problem as a priority during the UK’s chairmanship of the G8 this year, the IASB remains well behind the curve in responding to the problem. The IASB has missed a key opportunity to help solve the problem of tax dodging through the introduction of an international accounting standard requiring disclosure of key financial information from companies such as tax, revenues, profits and sales on a country by country basis.
In stark contrast to joining the fight against tax avoidance and evasion, the IASB in its most recent agenda consultation feedback statement said simply that with respect to country by country reporting: “we do not plan to undertake any specific work on this topic”.

This sort of response displays how out of touch the IASB has become. If the IASB wants to be taken seriously it must become more responsive to the legitimate needs of all users of financial information whether they are investors in the world’s capital centres or citizens in the Niger delta wondering if the financial benefits of oil being drilled in their backyard are worth it.

For media enquiries please contact:

Joseph Williams
jwilliams@publishwhatyoupay.org
+44 (0) 77 7575 1170