U.S. accounting rule maker urges worldwide reforms

By Emily Chasan

NEW YORK, Nov 12 (Reuters) - The top U.S. accounting rule maker on Monday called for changes to the International Accounting Standards Board (IASB) that would enable it to function as a truly global accounting standard setter.

Robert Herz, who chairs the U.S. Financial Accounting Standards Board (FASB), has been pushing U.S. regulators to create a national plan for U.S. companies to report results under the International Financial Reporting Standards (IFRS) rather than the U.S. Generally Accepted Accounting Principles (GAAP).

While such a change would take years to accomplish, Herz said on Monday that regulators must first shore up the IASB's funding and create a "global mechanism" that prevents individual countries from adopting their own versions of IFRS.

"Our belief is that this country should be moving toward IFRS," Herz said at a Financial Executives International conference in New York. "But if we're going to go ride the IFRS horse, we want to make sure that it is secure, sustainable and there for the long run."

While about 100 countries have adopted or announced intention to adopt IFRS, most individual country regulators have adopted their own versions of the rules, with unique exemptions or amendments.

In the EU, for example, an IFRS amendment allows banks to continue to hedge against interest rate changes and reduce the number of complex financial instruments such as rate swaps that firms must value at market rates. That would be blocked under full IFRS.

IFRS exemptions and amendments have been a source of contention as U.S. regulators have proposed allowing foreign companies to report results using the IASB's version of IFRS instead of reconciling their results to U.S. GAAP.

"There is this issue of as-adopted versions of IFRS -- the IASB produces standards, but by law, nobody has to use them," Herz said.

"We think there needs to be some kind of global mechanism to temper that and provide more legitimacy to what the IASB is doing."

He said the Transatlantic Economic Council, which brings together U.S. and EU authorities and held its first meeting last week, may have a role to play in that.

He said a single set of global accounting standards has the potential to reduce costs for companies with subsidiaries in different countries, be more transparent and understandable for investors, and make capital flow more efficient across the world.

But a global standard setter would also have to be seemingly free from bias, which is troublesome since the IASB is still largely funded by donations from the auditing industry and other big companies.

"I believe, personally, the IASB is grossly under-resourced," Herz added in comments to reporters.

He also outlined his view of how the IASB might function as a global standard setter. If the IASB were responsible for setting global accounting rules, Herz envisions the U.S. FASB focusing on issuing standards for private and non-profit companies. The London-based IASB would look to establish major offices in regions outside Europe, he said.

"The ultimate goal has been a single set of high-quality standards -- we can see that in sight," Herz said. "If and when we get to that day, I believe the IASB is going to have to have presences in major capital markets." (Reporting by Emily Chasan; editing by John Wallace)