Rising financial and economic interdependence across the globe has generated new opportunities and challenges that exceed the limits of individual nation states and traditional treaties. Six years ago the International Accounting Standards Board (IASB), a nongovernmental, private-sector initiative, established International Financial Reporting Standards (IFRS) that, as Bruegel fellow Nicolas Véron argues, have the ability to redefine the very principles of governance of the world economy.
Coined the “Global Accounting Experiment,” the IASB’s decisions impact the transaction of business throughout the world. Verón writes that better allocation of international capital under IASB will result in growth and a reduction in the cost of capital. His paper analyzes the reasons behind the successful adoption of IFRS by the EU and other jurisdictions around the world, while at the same time questioning its sustainability. IFRS can only succeed if the acceptance of IASB’s authority is ensured and the consistency of IFRS implementation in all its jurisdictions, particularly the EU, is enforced. To achieve this, Véron outlines specific steps that the IASB, EU, US, and other market stakeholders can take to guarantee the Experiment’s longevity.
The IASB does not have the power to make standards obligatory; no international treaty supports the IFRS and the IASB does not yet have the power to enforce implementation of the standards in individual jurisdictions. Nevertheless, this Global Accounting Experiment provides a valuable litmus test for new modes of global governance and the means by which private sector initiatives can find innovative and worthy solutions for the public sector.